JPMorgan Chief Strategist Says Markets May Be at Long-Term Turning Point
(Bloomberg) -- Global markets may have reached an inflection point with value shares set to outperform growth ones for a significant period, according to JPMorgan Chase & Co. chief global markets strategist Marko Kolanovic.
The rebound in value driven by the recovery from the pandemic, falling volatility and fiscal and monetary policy support is set to last for some time as the various factors work their way through the system, Kolanovic said in an interview. These could trigger a long-term investment shift toward being more cyclical and reflationary, he said.
“We might be at a more significant turning point rather than just historically what were blips that reverted back to the growth investing style,” New York-based Kolanovic said April 9. “We think this recovery can last longer and be more profound and have more of an impact on investor styles and flows than people appreciate.”
The value-versus-growth debate is one of the most divisive topics in the global strategist community, especially since the reflation trade that drove a rebound in value shares has faltered recently. In previous market phases there had been an unusual cohesion of views around havens such as gold and the defensive stay-at-home trade, followed by bets on cyclicals and a steepening yield curve. That more predictable era now looks to be over.
In addition to favoring value, JPMorgan is among the most bullish banks on Wall Street. The firm has a year-end target for the S&P 500 of 4,400, compared with the median prediction of 4,100 in a Bloomberg survey, and Monday’s close of 4,127.99.
“Fundamentals are improving and you have stimulus and supportive monetary policy, and now declining VIX, little by little, will help flows,” Kolanovic said.
There are plenty of pessimists. Bank of America Corp. and Citigroup Inc. both predict the S&P 500 will drop back to 3,800 by the end of December. BofA strategists led by Savita Subramanian warned of “anemic returns ahead,” in a note this month, while a Citi team led by Tobias Levkovich cites negatives such as high valuations and the potential for the Federal Reserve to roll back stimulus later this year.
While rising Treasury yields have helped tilt the playing field in favor of value assets, they are unlikely to become a negative factor for equities until the 10-year reaches 2.50%, Kolanovic said. The benchmark yield climbed to 1.77% at the end of March, the highest since January 2020, but has since eased back to around 1.70%
Looking ahead, Kolanovic said the leadership in global equity markets may shift away from the U.S. toward relative laggards later this year.
“Because the U.S. is ahead with coronavirus recovery it’s probably stronger right now but in the second half of the year it could be more Europe, Japan and emerging markets,” he said.
Some Other Observations
- Kolanovic said his asset-allocation group is likely to add alternative assets such as private equity and private credit, hedge funds, systematic strategies and real estate to their mix, which is updated about once a month
- Inflows for stocks will rise to about $2 billion a day from around $1 billion a day now as systematic flows come in
- The oil market is fragile with crude around $60. Many Commodity Trading Advisors are moving in and out, and there are a lot of option strikes around $60. However, JPMorgan’s view is that oil will move significantly higher in the near-term as demand returns
- Quarterly rebalancing flows are becoming less relevant, and monthly figures more relevant
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