JPMorgan says preparing to dump value stocks for growth

(Bloomberg) — Last year’s strong outperformance in so-called cheaper value stocks relative to growth peers may soon reverse as the economic recovery slows, JPMorgan Chase & Co strategists. said.

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A market favorite in 2022, value trading is starting to lose its luster. The next move for investors in the next month or two could be “totally underestimate value relative to growth,” the team led by Mislav Matejka wrote in a note.

“Our core view is that in the second half the market will head back to the recession, but even if the opposite scenario gains traction, value may not be the best place to be. ,” he wrote on Monday.

Recently, value stocks have begun to stall out compared to their growth peers, after outperforming them last year, the most since the dotcom bubble of 2000. With cheaper stocks boosted by rising bond yields and inflation, investors have begun pricing in a more hawkish policy, which could reduce support for the trade as yields peak.

Value stocks such as financial companies and commodities have rallied since the market lows in September, and higher rates have weighed on growth stocks as sectors undervalued. as high as technology is squeezed profits. Initially, the trade was also supported by better-than-expected macro data.

But now, Matejka said, the momentum in economic activity could peak and could soon end, while stalled inflation expectations suggest the value factor won’t be as good as growth since here onwards.

Strategists are currently holding a neutral view of value versus growth. While they find cheaper stocks more interesting than growth stocks over a two- to three-year period, they expect this group to weaken this year.

“Relatively better technology performance compared to what happened last year will ensure the value factor is not the winning factor this year,” Matejka wrote.

But for BlackRock Investment Institute, value stocks could continue to rise as major central banks keep interest rates higher for longer after growth stocks led the US rally so far. in this year. Strategists led by Wei Li argue that higher borrowing costs reduce the value of future cash flows, putting more pressure on growth stocks.

For Li, persistently high inflation “has the potential to cause investors to claim more for holding long-term government bonds, driving higher yields,” she wrote in a note to clients. stock on Monday. “Value tends to outperform when the yield curve slopes up.”

–With support from Kit Rees and Jessica Menton.

(Updated last two photos with BlackRock’s perspective)

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