- Investors should stick with the economic reopening trade as healthy consumers begin to spend their heightened cash pile, JPMorgan said in a note on Monday.
- The bank continues to be constructive on financials, value, and cyclical
stocks relative to technology, growth, and defensive stocks. - "Households are fundamentally in a strong position, with elevated savings rates and a positive wealth effect from the move up in house and financial asset prices," JPMorgan said.
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The reopening trade has legs and should continue to outperform as healthy consumers begin to go out and spend and bond yields rise further, JPMorgan said in a note on Monday.
According to the bank, investors should favor financials, value, and cyclical stocks relative to technology, growth, and defensive stocks, which have lagged the benchmark over the past few months amid a rising interest rate environment.
JPMorgan also expects interest rates to continue to rise due to strong economic growth that is set to pick up as lockdowns ease into the Summer, the note said. A rise in interest rates over the past month is what accelerated the rotation out of high-growth tech stocks into more value-oriented names that are levered to an economic reopening.
"Households are fundamentally in a strong position, with elevated savings rates and a positive wealth effect from the move up in house and financial asset prices," JPMorgan said. On top of that, the labor market is improving and wage growth is beginning to pick up, which will only strengthen the economic reopening trade.
But many investors have expressed caution in buying stocks that are set to benefit from the reopening of the economy due to their elevated leverage and fears that the earnings recovery could be slow.
However, JPMorgan counters that the leverage ratios for these names are still well below the peaks of the Great Financial Crisis, and that the earnings recovery could be stronger than expected due to "pent up demand and a robust households position," JPMorgan said.