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Euro-Zone, UK Stocks Have Upside Potential: JPMorgan

JPMorgan strategists are overweight euro-zone and U.K. stocks and neutral on the U.S. after last year's surge of megacap tech stocks.
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JPMorgan strategists are bullish on global stocks, seeing positive fundamentals and only a modest negative impact from the Covid omicron variant.

“We believe there is further upside for stocks, despite a strong run so far,” the strategists, led by Mislav Matejka, wrote in a commentary. 

“The new variant is proving to be milder than the prior ones, and the adverse impact on mobility much more manageable.”

As for fundamentals, “the [economic] growth backdrop is likely to stay supportive,” the strategists said.

“The euro zone in particular stands out, with 2022 real GDP [growth] forecast at 4.6% year-over-year, above the U.S. for the first time since 2016,” the strategists said. JPMorgan economists project 3.8% growth for the U.S.

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“Inventories are very low and their replenishing should be a tailwind. Fiscal support is still there, and credit spreads remain very well behaved,” the strategists said.

As for the Federal Reserve it is “unlikely to keep moving further and further into hawkish territory in the first half of 2022, at least relative to what is priced in currently,” they said.

“This holds for the European Central Bank too. Headline inflation is likely peaking, which will result in steeper curves, a tailwind for stocks.”

Meanwhile, “we continue to see gains for earnings, and believe that consensus projections for 2022 will again prove too low.”

JPMorgan is overweight eurozone and U.K. stocks, but it’s only neutral on the U.S.

“The U.S. had a renewed period of outperformance since March, as [megacap technology stocks] dominated,” the strategists said. Price-earnings multiples are high, and stocks could “stall … if the tech outperformance starts to wane.”