JPMorgan analysts expect the current market rotation away from US Big Tech, the Magnificent 7, and overall Growth stocks to persist as market conditions evolve. In a recent note, they stated, “We think the rotation out of US Tech, Mag-7 and out of Growth style continues.” This outlook follows the closure of their two-year-long overweight position on Growth stocks last summer.
Softening Economic Indicators and Market Risks
The analysts pointed to a range of softening economic signals, including:
Declining consumer confidence
Slower retail sales
Weakening services PMIs
They also observed that the performance of US cyclicals lags behind defensive sectors, while bond yields have trended lower. Despite these trends, a significant risk remains: a potential “broadening air pocket in activity” could emerge, driven by more aggressive trade, immigration, and fiscal consolidation policies. This uncertainty may create further downside risks for the market.
Stretched US Equity Valuations and Elevated Household Exposure
JPMorgan highlighted that US equity valuations appear stretched. They noted that the US forward price-to-earnings ratio is at 22x, which is considered high in both absolute terms and relative to real yields. Moreover, positioning remains a concern as households’ equity weight is at a record high, suggesting heightened vulnerability should market conditions worsen.
For investors interested in detailed valuation metrics, Financial Modeling Prep’s Ratios (TTM) provides comprehensive data on forward P/E and other key ratios.
International Opportunities and Market Outlook
While US Tech stocks face headwinds, JPMorgan noted that China Tech remains attractive. International and emerging market trades, however, typically require a period of reflation to achieve sustained outperformance, as opposed to stagflation. Additionally, the Eurozone’s valuation discount appears to have normalized, which means any further rally in that region would likely require significant improvements in economic activity.
The analysts also pointed out that broader market sentiment could be influenced by factors such as the strength of the US dollar and potential geopolitical developments like a ceasefire in Ukraine.
Conclusion
JPMorgan’s analysis suggests that the shift away from US Big Tech and Growth stocks is not only ongoing but is also likely to continue amid a backdrop of softening economic indicators and high equity valuations. With market conditions remaining fluid, investors should keep an eye on both domestic and international factors that could sway sentiment. For real-time insights into market performance, consider exploring Financial Modeling Prep’s Sector Historical Overview to monitor shifts across various industries.
Stay informed and prepared as the market navigates these evolving challenges.
