2 min read.Updated: 05 Oct 2020, 07:44 PM ISTBloomberg
The analysts, who have for months preferred growth, defensives and US stocks, say that they’re 'warming' to a possible switch after the US vote, which Biden is currently predicted to win over Trump
A Joe Biden victory in the U.S. presidential election could herald the start of a rotation toward parts of the equity market that have been left behind by the rally, according to strategists at JPMorgan Chase & Co.
“We need to get through U.S. elections event-risk first, but there could be a broadening in styles and in regional performances thereafter," said JPMorgan strategists led by Mislav Matejka in a note on Monday. “A potential Biden victory should not be seen as a negative for markets, and could in fact lead to an internal rotation."
The analysts, who have for months preferred growth, defensives and U.S. stocks, say that they’re “warming" to a possible switch after the U.S. vote, which Biden is currently predicted to win over President Donald Trump. They point out that value, or cheaper equities, have “dramatically" underperformed companies with stronger earnings growth in recent months, while European stocks “have gone nowhere" for four months.
The strategists are weighing in on the dilemma that’s keeping many investors up at night after the Nasdaq 100 in September had its worst drop since March as mega-cap technology stocks sold off. The 50% rally in U.S. equities over the past six months and frothy valuations in the leaders of the rebound and winners of lockdowns are pushing such investors as Eaton Vance and BlackRock Inc. to prefer European stocks instead.
And JPMorgan isn’t alone in its view. Goldman Sachs Group Inc. strategists including Sharon Bell and Peter Oppenheimer on Friday said that a U.S. Democrat clean sweep would favor European cyclicals, value, China-exposed stocks and renewables.
Matejka’s team has favored long positions in such defensive and growth sectors as healthcare, tech, staples and utilities at the expense of financials, consumer discretionary and energy, but is now considering a change after the election. In addition to increased political clarity after the Nov. 3 vote, the strategists cite such factors as an increasingly reflationary environment, possible additional stimulus and positive news on the Covid-19 front.
While many market participants are fretting over uncertainty and volatility that could result from a contested U.S. election, JPMorgan said the chances of a clear election result are rising. Biden’s possible victory is often associated with concerns over higher corporate taxes, however, the strategists say that in light of the economic slowdown he’s likely to instead prioritize business recovery and jobs growth.
“A potential Biden victory is unlikely to deliver significant tax increases, with these likely to be watered down, and additionally there could be a greater stimulus focus and consumer support," JPMorgan strategists, which also include Prabhav Bhadani and Nitya Saldanha.