LONDON — After moving sideways for months, JPMorgan believes the next leg higher for markets is upon us, and named dozens of European stocks best placed to capitalize. In a note Monday, JPMorgan Head of Global and European Equity Strategy Mislav Matejka said that although some economic activity indicators have peaked, the market is "likely to get comfortable" with above-trend growth for the remainder of the year, as consumer spending and capital expenditure continue to prop up risk assets. Crucially, Matejka suggested, inflation fears are likely to reduce after the next one to two elevated readings, which may allow the U.S. Federal Reserve to uphold its view that inflation is "transitory" even as it begins to taper its asset purchases in early 2022. JPMorgan is backing cyclicals and value stocks over defensives. Value stocks are viewed as undervalued and are seen benefiting from an economic recovery; they often include cyclicals — stocks whose trading patterns tend to be levered to the business cycle. Defensive stocks, meanwhile, typically provide consistent earnings and dividends regardless of stock market conditions. Regionally, JPMorgan said the euro zone is tipped to continue its outperformance of the U.S . The key sectors across the bank's top European equity picks are materials, consumer discretionary, staples, industrials, health care and financials, the latter of which were the most heavily represented in JPMorgan's basket of stocks. With regards to financials, the bank holds an "overweight" position in banks including Barclays , Societe Generale , ING and UBS . Some of its industrial stock picks were Saint Gobain , Andritz , Signify and Rexel . While JPMorgan's consumer staples picks included Carrefour , Carlsberg , Coca-Cola Hellenic and Danone . Health care also had featured heavily in the basket, with stocks such as Fresenius , Roche and Sanofi . Anglo-American , BHP Group , and Arcelormittal were among the materials stocks to be included in JPMorgan's basket, while BMW , Barratt Developments and Marks & Spencer came under the consumer discretionary bracket. Utilities names included Engie and EDP , and Micro Focus and Worldline joined Austrian chipmaker AMS among the bank's IT stock picks. Two telecoms inclusions were ProSiebenSat.1 and Vodafone , while Inmobiliaria Colonial was the only real estate company on JPMorgan's list, and BP was the only energy stock. Chipmakers have infamously failed to keep up with demand during the pandemic did they take hit, causing a global shortage which touched all areas of the market. However, JPMorgan estimates that AMS will see earnings-per-share growth of 103% in 2022 as the economy stabilizes. Meanwhile, British retailer Marks & Spencer is tipped to grow EPS by 827%. EPS divides a company's profit by the number of outstanding shares of its current stock to gauge profitability. Within the inflation discussion, Matejka said the recent "unhealthy feedback loop" between rising commodity prices and inflation expectations could break. He pointed out that many investors had been buying commodities to hedge against rising inflation expectations, which were in part driven by rising commodity prices. Should this break, investors are likely to see the current cycle as "more sustainable" as the Fed will be less likely to "blink," he added. "The gap between inflation forwards and yields is still large, and is likely to close from both sides. This calls for higher real rates in 2H, and we believe that it is premature to come back to Tech and one should stick with Value," Matejka said.
LONDON — After moving sideways for months, JPMorgan believes the next leg higher for markets is upon us, and named dozens of European stocks best placed to capitalize.