Too Early to Throw in the Towel on U.S. Stocks, JPMorgan Says

(Bloomberg) -- Don’t give up on U.S. equities just yet, say JPMorgan Chase & Co. strategists.

For many investors the U.S. cycle appears long in the tooth, but the record high buybacks, the region’s earnings growth that exceeds the rest of the world, and the accelerating revenue all favor U.S. stocks, the strategists, led by Mislav Matejka, said in a note.

Too Early to Throw in the Towel on U.S. Stocks, JPMorgan Says

U.S. equities just had their worst year since the financial crisis in 2008 as investors turned cautious amid trade tensions with China and rising concerns that growth may be peaking. But JPMorgan analysts remain optimistic on U.S. stocks with an overweight recommendation within developed markets as they expect the robust economy to support equities.

The earnings growth for S&P 500 companies this year is seen at 7.7 percent, compared with 24 percent in 2018, according to a Bloomberg survey. Last year’s profit boom was fueled by the U.S. tax reform and promoted a rally in equities through the end of September before investors turned negative.

The sell-off in U.S. equities in the fourth quarter sank valuations to 2013 lows. The S&P 500 Index has attempted a recovery in the first trading sessions of 2019 -- with mixed results so far.

“One should not extrapolate U.S. growth slowdown all the way into recession, though, as jobless claims, and labor market more broadly, remain well behaved,” the JPMorgan strategists said. “China is progressively increasing stimulus.”

In addition, the fact that the U.S. is not decoupling anymore from the rest of the world has a “silver lining” as a compromise on trade is becoming much more likely, they said.

Globally, JPMorgan prefers developing-market stocks, to those in developed economies, on lower valuations and the possibility that the U.S. Federal Reserve might slow the pace of rate increases.

©2019 Bloomberg L.P.