J.P. Morgan expects economic uncertainty clouding the outlook for risky assets in the first half of next year as investors look for clarity on the direction of monetary policy, reports Reuters.
"Equities will likely need to negotiate earnings adjustment, as activity slows. We believe that the risk-reward for equities will start fundamentally improving once the (US Federal Reserve) is advanced with interest rate cuts," strategists at J.P.Morgan, led by Mislav Matejka, said in a note.
Fed funds futures are now pricing in more than hundred basis points (bps) of cuts in 2024 and a 40 per cent chance they begin as soon as March.
Earnings growth in Europe will be flat in 2024 provided no recession materializes, J.P.Morgan said, warning that expectations of a re-acceleration in corporate topline and margins will be challenged on weakening pricing and volumes.
They hold an "underweight" position in European equities, but note that they are not expensive, especially compared to stretched valuations in US stocks.
The pan-European STOXX 600 index is up 7.6 per cent so far this year, compared with an 18.5 per cent jump in the S&P 500 index.
Easing monetary policy could see a reversal of their underweight opinion on European equities in the second half of 2024, Matejka said.
At sector level, J.P.Morgan downgraded European food retail, hotels and travel and semiconductors to "underweight".
© 2024 - All Rights with The Financial Express
