Value stocks are the safe haven in the second half of the year
A report by JPMorgan Chase shows that bond yields and stock cyclical bets may bottom this month and will continue to rise for the rest of 2021, but rising interest rates and "bubble behavior" are unlikely to shake the stock market.
Despite rising U.S. bond yields and some "bubble" market behaviors, such as the surge in new stock listings, the surge in virtual currencies such as SPAC and Bitcoin, etc., JPMorgan Chase analysts are still optimistic about the performance of U.S. stocks in the second half of the year. The three major U.S. stock indexes were not disturbed by geopolitical events on Monday, and they still set record highs.
JPMorgan Chase said in the report that the moderate rise in US bond yields will not necessarily change stock market valuations. The bank also said that preference for value stocks will provide a cushion because they may perform well in an environment of rising yields.
According to the report, a survey of JPMorgan Chase customers last week found that 48% of respondents expect the S&P 500 index to rise to 4,600 points by the end of this year, and 26% of respondents expect the index to be around 4,400 points. Range trading. The S&P 500 index rose 0.3% this Monday to close at 4479 points.
As for bonds, the 10-year U.S. Treasury bond yield was 1.257%, which was as low as 1.17% in early August and rose to 1.26% on Monday afternoon.
The JPMorgan Chase strategist team said that it still believes that bond yields are too low, and it is recommended to actively reduce bond holdings and over-allocate value stocks in accordance with the trading strategy provided by the bank. They predict that the yield of the "Global Agg" bond index may rise by nearly 0.50 percentage points this year, as the global imbalance between supply and demand continues to deteriorate.
Although "mechanically increasing the actual rate of return will reduce the stock risk premium," they wrote:
"People need a substantial increase of 100bp from the current level in the actual rate of return before the increase in the rate of return is included in the stock valuation."
Among U.S. stocks, value stocks measured by the Russell 1000 Value Index have risen from their lows in early August. This Monday rose less than 0.1%, while the Russell 1000 Growth Index rose 0.2% that day.
JPMorgan Chase’s strategists said that they are particularly optimistic about cyclical stocks and value stocks, partly because of the company’s strong earnings in the second quarter and the US "Delta variant virus risk is showing signs of fading." JPMorgan Chase said optimistically:
"Regarding the delta mutant strain of the new crown virus, we believe that the low mortality rate in the vaccinated countries should help investors see this possible last wave of large-scale infections. Investors are waiting for the number of new coronavirus infection cases in the United States. The turning point, we believe that these days will come."
In JPMorgan's view, the spread of Delta virus in the United States is an exaggerated risk. However, the bank said that next year, "geopolitical and political risks are expected to magnify."
Other market concerns include industries with "bubble behavior" and listed stocks related to the new crown epidemic blockade, renewable energy, electric vehicles and digital currencies, as well as "super-growth" and innovative stocks. The bank believes that this type of risky assets will lag behind when U.S. bond yields rise, but it is not enough to shake the entire market.
