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Reflation trade is back - JP Morgan

According to JP Morgan the trend that pushed indices higher after the US election is now back at the market. What’s more,  investors who pushed equities higher in recent months on bets of faster global growth and inflation should stay the course, the bank suggests.

Despite stocks reaching new peaks, extending the rally that began after the U.S. election, the trade remains supported by robust macroeconomic indicators, JPM strategists wrote in a note. An uptick in earnings momentum and a pickup in inflation that would boost top-line growth and corporate pricing power are among factors JPMorgan sees helping equities, saying the asset class remains underowned. Consumer prices are expected to rise faster in both Europe and the U.S. this year.

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 SP500 gained almost 300 points since the US election. source: xStation5

JPMorgan strategists are overweight euro-area stocks, and within the region, prefer Germany. The DAX Index looks relatively cheap and will benefit from any euro weakness, they wrote. The benchmark trades at 13.6 times the estimated earnings of its members, a lower valuation than the Stoxx Europe 600 Index, even after surging 17 percent since a November low. 

The bank is also bullish on Japan, while cautioning that a stronger yen would pose a risk, and underweight U.K. equities. With the prospects of a Fed rate hike in March almost entirely priced in, the time might be approaching to re-enter emerging markets, according to JPMorgan.

Our take can be found here. 


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