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JPMorgan sees improved risk-reward profile for Eurozone stocks vs. US

Published 2024-04-30, 05:00 a/m
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JPMorgan strategists said Monday they remain concerned about the Eurozone market, highlighting the potential for a repeat of last summer's downturn.

Specifically, strategists said they are wary of the Growth-Policy trade-off potentially shifting away from the Goldilocks narrative and the ongoing risk of a concentration reversal. Moreover, they also note overly optimistic projections for earnings growth this year and the possibility of position unwinding.

“We don’t expect Eurozone to directionally decouple from the US, but we see an improved relative risk-reward for Eurozone equities versus the US” due to several reasons, strategists wrote.

Those include a significant pre-COVID P/E discount and a more attractive equity yield in the Eurozone and expectations that the ECB will initiate rate cuts sooner and more aggressively than the Fed, coupled with improving PMI momentum.

Moreover, improved performance in China is also likely to benefit the Eurozone market while the US faces higher risks of concentration and momentum unwind. In addition, Eurozone small caps are poised to benefit after ECB cuts.

On a macro level, strategists revised their Q2 2024 US growth forecast to an annual rate of 2.5%, up from the previous 1.5%.

“Ahead of the FOMC meeting, we see Powell’s opening remarks echoing recent comments that 1Q24 data haven’t increased its confidence of getting back to its 2% target, so we stay neutral on outright duration and prefer 5s/30s steepeners,” they said.

On currencies, JPMorgan said the USD's rally is stabilizing after a 3% increase since early March. While concerns about the spike in IMM USD positions are justified, they're less reliable as a contrarian indicator.

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