This is the time to sell cyclical winners and buy back technology stocks, says JPMorgan

US stocks are expected to open higher after the Dow Jones Industrial Average DJIA,
+ 0.90%
and S&P 500 SPX,
+ 0.10%
closed at record highs last week.

It is the yield of the 10-year US Treasury TMUBMUSD10Y,
1,632%
remained stable at 1.619%. However, attention will quickly turn to the Federal Reserve meeting on Wednesday, which has become key in the context of rising bond yields in recent weeks. The central bank is under pressure to prevent a further destabilizing increase in yields.

In our call of the day, JPMorgan strategists said that the increase in bond yields is not over yet and that it is premature to start selling cyclical stocks and buying back defensive stocks, such as health and technology stocks.

Investment bank strategists, led by Mislav Matejka, said that valuations of cyclical stocks – those that are expected to gain from increased economic activity – are starting to look “high” after their strong run last year.

European cyclicals, for example, have outnumbered defensive stocks by 57% in the past 11 months – ranking close to the top when it comes to past recoveries. As a result, they said that most of the cyclical / defensive movement “may have been left behind”, given the size of the cyclical run and its stretched ratings.

But strategists warned that it is still “premature” to position yourself for a reversal. “To do this, you need to see peak PMIs, relative earnings weakened and an end to rising bond yields,” they noted.

These three crucial things are unlikely to happen yet, they said, with the profit momentum for cyclical activities set to “continue to accelerate in the coming quarters”. As for purchasing manager indices, the out-of-sync nature of the global cycle – with China potentially peaking, the US approaching highs and Europe trying to recover during the summer – means that a peak is not imminent, they said.

The key factor for cyclicals remains the direction of bond yields and, most importantly, JPMorgan strategists said the yield increase has not yet been completed. “Yes, in the short term, policymakers will continue to back off, but [they] they will likely accept higher yields in the future as the economy strengthens. ”

“While yields are rising, cyclicals should not be sold,” they added.

Valuable stocks, on the other hand, continue to look very attractive, said JPMorgan, by focusing its long positions in banks and the reopening of the market.

The graph

Deutsche Bank DB,
+ 1.44%
strategists raised their S&P 500 earnings per share (EPS) forecast to 2021 to $ 202 and 2022 to $ 222, after approval of the $ 1.9 trillion stimulus package and economic forecast updates.

Source: Bloomberg Finance LP, Haver, Deutsche Bank Asset Allocation

The tweet

The value of short bets against shares of special-purpose acquisition companies (SPACs) has tripled since the beginning of the year, according to data from S3 Partners published by the Wall Street Journal.

The markets

US stock futures YM00,
+ 0.30%

ES00,
+ 0.09%

NQ00,
+ 0.05%
pointed slightly higher in front of the open. European stocks achieved more significant gains with the pan-European Stoxx 600 index, up 0.6% at the beginning of the trading session. Asian markets were mixed overnight, with investors anticipating the Fed meeting.

The buzz

Bitcoin BTCUSD,
-6.56%
prices reached a record high on Saturday, exceeding the $ 60,000 mark. The cryptocurrency has since dropped and was last traded at $ 56,272, according to CoinDesk.

Elon Musk officially changed his title to “Technoking”, according to a Tesla TSLA,
-0.84%
filing released on Monday.

Mexican President Andrés Manuel López Obrador criticized the U.S. government on Sunday, saying the United States did not help Mexico with the COVID-19 vaccines.

Danone BN,
+ 4.51%
President and Chief Executive Emmanuel Faber will step down, the French food group’s board confirmed on Monday. It comes amid pressure from activist investors in recent months.

Swiss pharmaceutical company Roche Holding ROG,
+ 0.97%
said on Monday that it has agreed to acquire GenMark Diagnostics GNMK,
+ 0.19%
in a business valued at approximately $ 1.8 billion.

Digital payments company Stripe said on Sunday that it closed a $ 600 million financing round that values ​​it at $ 95 billion – more than double its valuation the previous year.

Beyoncé and Taylor Swift made Grammy history, where the top awards were won for songs.

Random reading

Father and son discover the death tunnel of World War I hidden in France for a century.

Need to Know starts early and is updated until the opening bell, but sign up here to have it delivered once to your inbox. The emailed version will be sent around 7:30 am Eastern Time.

Want more for the next day? Sign up for The Barron’s Daily, a morning briefing for investors, including exclusive comments from Barron’s and MarketWatch writers.

.Source