JPMorgan dismisses correction fears and says investors should buy any dips in stocks

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JPMorgan thinks stocks should keep climbing as economies reopen.

  • JPMorgan said fears about a correction in stock markets are overblown, despite the stellar rally.
  • The bank’s analysts said equities should keep climbing and investors should buy any dips.
  • They said vaccine rollouts, supportive central banks, and consumer savings were all positives.
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Investment bank JPMorgan has said it remains positive about global stocks and recommended that investors buy any price dips over the coming months, despite some fears about high valuations.

Although there are a few signs that equities could be due a fall, the rollout of coronavirus vaccines and recoveries in service sectors should keep boosting the market, JPMorgan said in a note Monday.

Global stocks have rallied sharply in 2021, despite some bouts of volatility, as investors have looked forward to the reopening of economies from strict coronavirus lockdowns.

The S&P 500 closed at a record high of 4,185 on Friday. Europe’s region-wide Stoxx 600 was also trading at around record highs, while the UK’s FTSE 100 has risen around 8% so far in 2021.

Some commentators have suggested that stocks could be due a correction, which is technically a fall of 10% from recent highs.

Yet JPMorgan’s analysts, led by Mislav Matejka, said they were still confident about equities due to the growing pace of vaccine rollouts, large amounts of consumer savings, and supportive central banks.

“We would not be cutting stocks exposure on a 6-9 months horizon, and continue to see any dips as buying opportunities,” they wrote, adding: “We would not expect to see a more sustained pullback before Q4.”

Despite their bullishness, the analysts said there were some signs that markets are becoming overstretched. In particular, they pointed to the gold-copper ratio being at the bottom of a 10-year range.

As investors traditionally buy gold when they’re feeling nervous and copper when they’re feeling confident, the higher copper price compared to the lower gold price suggests markets are “complacent”, JPMorgan said.

But the analysts said the outlook for economies looks bright and predicted that a renewed tightening of COVID-19 restrictions is unlikely. They said services sectors – which are dominant in most advanced economies – are only just starting to pick up.

Crucially, the analysts said the ultra-supportive monetary policy from central banks, which has driven up stocks over the last year, is unlikely to end any time soon.

“Our economists expect G5 central bank balance sheets to continue growing faster than nominal GDP until at least the end of 2022,” they said. “In other words, cumulative excess liquidity will not roll over for a while yet.”

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JPMorgan pinpoints the exact trigger for when investors should start buying tech again at the expense of value stocks

NYSE trader
  • A rise in interest rates has helped fuel an extreme rotation into reopening stocks at the expense of high-growth technology stocks.
  • According to JPMorgan, valuations in cyclical stocks have become stretched, suggesting that the bulk of the rally “might be behind us.”
  • These are the factors that will tell investors when to start buying tech stocks at the expense of value stocks, according to JPMorgan.
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A violent rotation out of technology stocks and into cyclical stocks poised to benefit from a full reopening of the US economy has some investors asking when to take profits in value and pile back into growth, according to a Monday note from JPMorgan.

The bank outlined factors investors should monitor to signal the optimal point of buying tech stocks at the expense of the value stocks that have worked so well recently.

Driving the reopening trade higher has been a surge in interest rates, with the 10-year US Treasury note hitting a 13-month high on Friday of 1.64%. JPMorgan thinks the move higher in yields is not yet exhausted, even as the Fed is likely to push back on rising rates. Until interest rates begin to turn lower, the reopening trade should continue to work.

From an economic standpoint, the outperformance of growth stocks relative to value stocks will likely resume once again when country Purchasers Managers Index, or PMI, peak. According to JPMorgan, China momentum is “potentially peaking,” while the US is approaching highs.

“The general growth backdrop is likely to be firm into summer,” JPMorgan said.

Also helping cyclical stocks maintain its momentum over growth stocks is the acceleration of earnings, which should continue over the next few quarters. “As long as cyclicals EPS is faster than for defensives [and tech], they tended to hold onto their gains,” JPMorgan explained.

“Put together, the size of the cyclicals run, and their stretched valuations, likely suggest that the bulk of the move might be behind us,” JPMorgan said before adding, “Still, we think it is premature to position for an actual reversal.”

Investors should position for a reversal out of cyclical stocks and into high-growth tech stocks once country PMIs begin to peak, relative earnings begins to fade, and as interest rates stop rising and instead begin falling, according to JPMorgan.

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Tech stocks’ market leadership may be over and investors aren’t ‘bullish enough about the reopening’, says Fundstrat’s Tom Lee

Tom Lee
Thomas Lee Managing Director and Head of Research at Fundstrat

  • Fundstrat’s Tom Lee says tech stock’s market leadership is fading as energy, financials, and cyclicals takeover.
  • The Head of Research at Fundstrat argued investors aren’t “bullish enough about the reopening.”
  • Lee sees the reopening of the US economy post-pandemic as akin to a “post-war reconstruction period with government stimulus.”
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Tech stocks’ market leadership may be fading and investors aren’t “bullish enough about the reopening,” according to Fundstrat’s Tom Lee.

Lee made an appearance on CNBC’s “Fast Money” on Wednesday. In the interview, he said he sees tech stocks’ market leadership fading as the post-pandemic reopening gets underway.

“I think tech’s leadership, which was so astounding for the past decade, I think we’re seeing a new leadership emerge,” Lee said.

The managing partner and head of research at Fundstrat Global Advisors argued energy, financials, and cyclicals are leading the way now. And according to Lee, that means “a vigorous economic recovery is underway.”

Lee argued that the leadership of cyclicals will hurt tech and growth focused stocks going forward as well.

“These cyclicals could turn into growth stocks which means traditional growth stocks aren’t as shiny and interesting,” he said.

Lee also expects a faster reopening than other observers, arguing “people aren’t bullish enough about the reopening,” although he noted that “nobody can say COVID has been vanquished.”

Lee said although his reopening bullishness might be looked at as a “contrarian view” he sees the current era as a type of “post-war reconstruction period with government stimulus.”

He added that is “extremely boomy for real investment spending which is the biggest multiplier to GDP.”

Lee isn’t alone in the crowded reopening trade, but his somewhat bearish view on tech stocks is a shift from the norm. Lee has been a fan of tech stocks, and in particular Big Tech, for some time.

The head of research at Fundstrat even called big tech companies “unkillable businesses” in an interview in June of last year. For now though, Lee recommends avoiding the names.

His view isn’t shared by all, though. 

Analyst Dan Ives from Wedbush Securities said in a note to clients on Wednesday that he believes “tech stocks have another 25%+ upward move in the cards over the coming year led by FAANG, cloud, and cybersecurity names despite this risk-off moment on the Street.”

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AMC rips 8% higher as Reddit traders stick to their favorite meme stocks

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  • AMC gained as much as 8% on Tuesday as Reddit traders piled into the theater chain’s shares.
  • While the day-trading phenomenon died out earlier this month, Tuesday’s climb suggests the crowd still holds some sway in the market.
  • Reopenings and vaccination could lift AMC from its COVID-19 slump, one Reddit user said.
  • Watch AMC trade live here.

AMC Entertainment surged as much as 8% on Tuesday as retail investors banding together in online forums returned to the struggling theater chain.

The world’s biggest movie-theater company saw its stock price skyrocket in late January as traders in Reddit groups including r/wallstreetbets piled into highly shorted stocks. Shares soared as high as $20.36 on January 27 before plunging back to earth as the day-trader phenomenon fizzled out.

Tuesday’s price action suggests the crowd of casual investors is still somewhat in it. The gains placed shares at their highest in about a week. Posts on Wall Street Bets hailed AMC as a top recovery play and praised the company’s recent stock sales as a key lifeline. Vaccinations and economic reopening could revive AMC from its virus-induced downturn, Reddit user u/ImFedUpWithItAll said in a post detailing his bullish thesis.

“I’m not Buffett so I’m not buying for life. I’m in this for the rally to normalcy,” they added.

AMC was the most heavily traded company on the New York Stock Exchange before the market opened. Other stocks featured on Wall Street Bets fared worse. Investors looking to lift Palantir saw shares tumble in early trading. GameStop – the group’s favorite stock during the January rally – rose slightly.

Read more: GOLDMAN SACHS: These 40 heavily shorted stocks could be the next GameStop if retail traders target them – and the group has already nearly doubled over the past 3 months

The theater chain was among the few companies able to convert extraordinary retail-trader demand into a stronger balance sheet. The company raised more than $300 million last month by selling shares during the Reddit-trader rally. When coupled with a $411 million credit line, the fundraising efforts took bankruptcy talks “completely off the table,” CEO Adam Aron said in a statement.

To be sure, locations in key markets including California and New York remain closed as COVID-19 cases rise across the country. The halt to regular operations endangered the company earlier in the pandemic and forced warnings of extinguished cash reserves.

Daily COVID-19 case counts have since fallen, prompting investors to shift back into so-called reopening sectors including travel, leisure, and entertainment.

AMC closed at $5.59 on Friday, up roughly 158% year-to-date. The company has three “buy” ratings, 10 “hold” ratings, and four “sell” ratings from analysts, with a median price target of $3.99.

Read more: UBS says bitcoin is a bubble and too volatile to diversify a portfolio, unlike gold – here’s why the bank says it could end up ‘worthless’

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