JPMorgan says investors should be more selective in the second half as markets are showing a 'slight fatigue'
- Investors should be more selective over the next six months as some assets will outperform others, JPMorgan said in a recent note.
- "Own anything but cash" paid off after the market crash, but that strategy could lose steam in the second half of the year, the strategists said.
- The bank advised betting on COVID-19 "endgame winners" such as tech, communications, and healthcare as opposed to all cyclical or defensive stocks.
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Investors should be more discerning over the next six months as markets are showing a "slight fatigue," JPMorgan strategists said in a note dated June 19.
The "own anything but cash" strategy paid off in April and May when the business cycle was healthy, risks were manageable, and economic stimulus was shoring up markets, JPMorgan said.
However, that "indiscriminate approach" to investing is unlikely to perform as well going forward, John Normand and his team said in the note.
Still, they outlined several reasons to remain bullish. A vaccine could be developed by December, world governments may continue spending heavily throughout 2021, and a Joe Biden victory in the US presidential election in November could ensure corporate taxes remain low while geopolitical risks are contained, the strategists said.
The bank's recommendations for investor selectivity include:
- Bonds. Favor countries such as Mexico and Russia where yields are positive after inflation and there are limited concerns about debt defaults.
- Credit. Lean towards safer bonds instead of high-yield ones given the heightened risk of debt defaults. Favor companies in developed markets as those in emerging markets face greater public-health and debt challenges.
- Equities. Bet on COVID-19 "endgame winners" such as tech, communications, and healthcare instead of all cyclical or defensive stocks. Falling emergency demand for the US dollar tilts the scales in favor of emerging-market stocks.
- Currencies. Among the world's safest and most popular currencies, sell only the US dollar and emerging-market currencies with high real yields.
- Commodities. Favor gold as it stands to benefit strongly from low real yields, and agriculture because of its lower prices.