Equity Strategy: November Chartbook: The call that bond yields are peaking stays key – long bond proxies and short European Banks

We reiterate our call from October that bond yields are likely in the process of peaking during Q4, and that one should go long duration. As this view gets confirmation, it is in the short term interpreted by investors as a knee-jerk positive for equities, especially after some derisking that took place in the past months. Having said that, we believe that equities will soon revert back to an unattractive risk-reward into year end. This is especially if 2024 earnings projections start to reset lower. We think that pricing power is waning, profit margins are at risk and the slowdown in topline growth is set to continue. Money supply in the US and Europe keeps contracting. Labour markets are lagging indicators, and could weaken abruptly – continued ytd strength doesn’t mean anything for the next 6-12 months. Within this, we have recently advised to tactically close the shorts on China, given fresh stimulus and an already weak ytd performance – this was behind our call to close the shorts on Miners. If bond yields are rolling over, as we suspect, Defensives will get a tailwind, such as Utilities and Staples. We also reiterate our upgrade of Real Estate, done in September, after 2 years of an UW stance. Finally, we have last week cut European Banks to UW. They had a very strong run again ytd, and will likely have a headwind if yields start moving lower.   This podcast was recorded on 05 November 2023. This communication is provided for information purposes only. Institutional clients can view the related report at http://www.jpmm.com/research/content/GPS-4553659-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

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