JPMorgan: Kursstigningerne bliver små fra nu af

• Our investors think the best of that market recovery is now behind us, and few see supercharged returns from here. But with highly supportive monetary policy, and hopes and expectations of a medical solution to COVID-19, it is hard for us to be too cautious. For our team, the big debate is about stock selection rather than market direction.
• Valuations vary enormously within the markets, and we see a good chance of better returns from a wider range of stocks. As the perceived winners have gotten expensive, though still supported by strong growth, we think investors should balance their portfolios and look for opportunities elsewhere in less expensive companies poised to benefit from a rebound in economic activity.

The struggle against the COVID-19 virus is far from over, but investors are reassured by the beginnings of a rebound in economic activity, supported by exceptionally low interest rates. Markets have continued to rally as profit forecasts have stabilized.

After slashing 30% from our expectations for global profits for this year, our research team has stopped cutting near-term profit forecasts and has even made a few upgrades of late.

Overall, our 2021 forecasts fall roughly in line with the 2019 pre-pandemic numbers, but our long-term “normalized” forecast (a key element of our investment process) comes in around 10% below pre-crisis levels.

We see some regional nuances to the recovery, but differences among industries remain far more significant and indeed extreme.

Energy stands out as the industry with the biggest decline in expectations; our long-term numbers are more than 40% lower than in January, and near-term profitability has essentially disappeared. Energy companies face enormous challenges, which have hardly escaped the market’s attention (the sector has delivered the worst returns over all the time periods we reviewed).

The near-term profitability of the financial sector has also fallen sharply, accounting for almost a quarter of all of our cuts for this year across the globe.

Meanwhile, technology companies, drug companies and many consumer staples businesses are sailing through the year with little or no impact from the violent cyclical downturn, and with long-term structural drivers of profitability as powerful as ever.

Equity market valuations already anticipate a significant rebound in profits and naturally look less compelling to us than they did in March, but they still do not seem especially demanding. Comparisons between equities and fixed income still flatter our market. Overall, we expect average rather than spectacular returns from current levels.

Within markets, the picture is more complex. The premium for owning the best growth companies is as high as ever, while the discounts applied to out-of-favor value stocks remain stubbornly wide.

On any metric we can find, this has been a historically challenging year for value stocks.

Meanwhile, the median forward P/E of the fastest-growing quintile of companies globally now is 38x, a level last seen in early 2000 (EXHIBIT 1).

The fastest-growing companies then and now were growing at similar rates, but they operated in very different interest rate environments. The 10-year U.S. Treasury yields around 80 basis points (bps) today vs. 6%-plus at the turn of the century. For high multiple stocks with a long duration, that really matters.

Are investors mesmerized by the growth narrative heading for a similar fate as in 2000–01, when the Nasdaq index lost 80%? Or are the structural forces at play powerful enough to support growth stock performance for years to come? It’s a subject of spirited debate.

The premium for owning the best growth companies is as high as ever.

EXHIBIT 1: FORWARD PRICE-TO-EARNINGS RATIOS BY FACTOR