JPMorgan pinpoints the exact trigger for when investors should start buying tech again at the expense of value stocks
- 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.
- Sign up here for our daily newsletter, 10 Things Before the Opening Bell.
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.
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.
- Girish Mathrubootham, the son of a retired bank officer who built a $13 billion company in just 10 years
- A couple who traveled to 48 states in an RV share 17 things they would never go on a trip without
- The Taliban is bringing back executions and cutting off hands as punishment after retaking control of Afghanistan
- Ethereum’s scaling issues strike again as TIME Magazine’s NFTs sell for 30 times their price
- Best baby swing cradle and chair in India
- China's FUD drags down Bitcoin, Ether and other cryptocurrencies yet again
- The India Chapter of the International Advertising Association elects Megha Tata as its President for a second term
- The beer ‘cartel’ of Kingfisher, Budweiser and Carlsberg have to cough up ₹870 crore in fines