Investors should sell into the post-election market rally and continue cutting their exposure to emerging markets in the wake of Donald Trump's election win, JPMorgan Cazenove said in a note Monday.
"After seven years of having a structural overweight stance on global equities, we believe the backdrop for stocks has deteriorated," JPMorgan Cazenove said. "One should use the potential bounce to reduce into," it said, adding rising bond yields may act as a potential constraint on already elevated equity valuations.
"Bond yields are strongly breaking out, and this is likely to hurt multiples. EM (emerging markets) is starting to roll over and could show some liquidity stress," it said. "At the same time, political headline risk is bound to stay elevated as the U.S. policy priorities are formed."
After initially tumbling, stocks climbed after Trump's surprise election win.
The Dow Jones industrial average gained about 20 points on Monday, completing a six-day winning streak and closing at a record high.
The stock rally came as U.S. Treasurys sold off, sending the yield on the benchmark 10-year to touch its highest level since Dec. 31, 2015. The benchmark yield touched levels above 2.2 percent, up from levels below 1.80 percent in the days before the election.
The dollar index, which measures the dollar against a basket of currencies, traded above 100 in early Asia trade on Tuesday, up from levels below 97 prior to the U.S. election.