- The rotation into value stocks should pick up pace again as the US economy roars, a JPMorgan strategist said.
- Hugh Gimber said Americans with built-up savings should benefit banks and consumer-focused companies.
- The so-called reflation trade has paused in recent days after the Fed appeared to shift its stance.
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The rotation into so-called value stocks in the US has further to run as rapid economic growth pushes up bond yields, a JPMorgan strategist has said, despite signs that the trade has cooled in recent days.
Hugh Gimber, JPMorgan Asset Management’s global market strategist, told Insider that companies in the financial and consumer-focused sectors stand to gain, thanks to Americans unleashing pent-up savings and wages rising as the economy bounces back.
“I do expect US value to outperform US growth,” Gimber said. “It’s about the laggards from last year having more scope to catch up to the rest of the pack because of the environment that we’re in.”
The first half of 2021 in financial markets has been marked by a “reflation trade“. It has seen investors pivot away from the fast-growing tech stocks that did so well in 2020, toward sectors such as energy and financials that are likely to perform better as growth and inflation pick up.
However, recent signs that the US Federal Reserve may be more concerned about inflation than previously thought have knocked the trade’s popularity. The tech-heavy Nasdaq index is up more than 5% over the last month, while the more industry-heavy Dow Jones is down around 1%.
Yet Gimber said he expects strong growth and higher inflation to push up bond yields in the second half of the year.
“You have consumers with pent-up demand, cash in their pockets, that can now get out and spend, driving a very strong outturn for growth.”
Higher market interest rates would likely make the earnings of so-called growth companies – whose full potential is often far in the future – look less attractive to investors.
The JPMorgan Asset Management strategist said rising wages would boost Americans’ spending power, benefitting companies in consumer-discretionary sectors such as luxury goods, vacations, and cars.
He said: “A healthy consumer tends to be helpful for financials, coupled with the latest news on buyback prospects for the financials and the rising yield environment, all of which bodes well for that sector.”