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According to the JPMorgan strategists, the big drivers of growth remain bond market borrowing costs.
Strategists from American multinational investment banking giant JPMorgan Chase & Co (NYSE: JPM) led by Mislav Matejka have pointed out in a commentary that “Growth” stocks are not cheap, despite the consistent plunge in the price they have been subjected to in the past 6 months. As reported by Reuters, the strategists also maintained posturing that banks and commodities, despite their perceived gains in the past months are still not fit to be deemed expensive.
“As Growth stocks weakened of late, they derated, but are still not outright cheap,” the analysts said in a note to clients, adding that banks and commodity-linked stocks which have rallied this year thanks to rising oil and metals prices or interest rates were still “far from expensive.”
Once the delight of investors amidst the frenzy that characterized the COVID-19 pandemic era, tech stocks, particularly the FAANG stocks have pared off the gains accrued over the years. From the Year-to-Date (YTD) period, Facebook’s parent company, Meta Platforms Inc (NASDAQ: FB) has plunged by 38%, Apple Inc (NASDAQ: AAPL) is down 5.7%, e-commerce giant Amazon.com Inc (NASDAQ: AMZN) has lost approximately 8.5%, while Netflix Inc (NASDAQ: NFLX) and Google’s parent, Alphabet Inc (NASDAQ: GOOGL) is down 35% and 10% respectively.
According to the strategists, some tech stocks that are yet to turn a profit have plunged by as much as 30% since most of them attained their peaks back in September last year. Per the report, ‘fintech’ firms that focus on tech-savvy banking apps and tools have dropped 40%.
The JPMorgan specialists are not banking on the market moving advantage of earnings in tech stocks again. In fact the Mislav team noted that this earnings outlook may not be exceptional anymore, implying investors’ focus may have to shift to the new promising stocks.
JPMorgan Strategists Highlights Bonds Impacts
According to the JPMorgan strategists, the big drivers of growth remain bond market borrowing costs, a feature that has grown this year as a slew of monetary watchdogs have chosen to increase interest rates in the year-to-date period.
“We believe that bond yields will keep moving higher through the course of the year,” JPMorgan said referring to the bond market costs, “Our fixed income strategists expect US 10-year (Treasury) yields to reach 2.35% by the end of this year, and German 10-year yields to reach 0.5%.”
According to the strategists, the ongoing tensions between Russia and Ukraine may not necessarily help tech or growth stocks to soar in the advent of a possible invasion. While the growth stocks were amongst the top beneficiaries during the pandemic, they noted that the geopolitical tensions may not stir a similar benefit this time around.
“While geopolitics could flare up into month end… we do not expect this to last, and call for risk-on internals to resume into spring,” said the experts.