- President-elect Joe Biden’s victory and a divided Congress form a “market nirvana” scenario for investors, JPMorgan strategists said Monday.
- The team lifted their S&P 500 target for early 2021 to 4,000 in a note to clients, implying a roughly 11% rally from current levels.
- While Biden will push for additional fiscal stimulus, Senate Republicans will block market-adverse policies like tax hikes and stricter regulations, according to JPMorgan.
- The new target can be nullified if Democrats win both Georgia Senate run-off races and take control of the Senate, the team added.
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After bouts of market turbulence driven by the pandemic, US-China trade tensions, and election uncertainties, stocks are on track for a sustained rally higher, JPMorgan said Monday.
The bank’s market outlook “is significantly clearing up,” strategists led by Dubravko Lakos-Bujas said in a note to clients. The firm says that President-elect Joe Biden’s victory and a split Congress makes for a “market nirvana” scenario where Senate Republicans can block tax increases and stricter regulations sought by Democrats, while the Biden presidency will still push for fresh stimulus.
JPMorgan also expects the Federal Reserve’s extremely supportive monetary-policy stance to further bolster stock valuations. To that end, the firm expects the S&P 500 to reach 3,600 by the end of the year and continue climbing to 4,000 by early 2021. The latter target implies a roughly 11% climb from current levels.
To be sure, the year-end target was reached on Monday when stocks climbed higher. Major indexes surged after Pfizer announced its coronavirus vaccine candidate was more than 90% effective at preventing COVID-19 in trial patients. The pharmaceutical giant now plans to apply for emergency-use authorization to more rapidly distribute the drug.
Georgia’s upcoming run-off races for its two Senate seats present the most significant short-term risk, the bank said. Dual Democratic victories would create a blue-wave election outcome and form an entirely Democrat-controlled government. Such results “would pose downside risk” by negating the divided-government scenario deemed ideal by the strategists. The risk is likely overstated, the team added, since Republicans are largely expected to win at least one of the seats.
Investors looking for the best way to position for the market upswing should look to the value stocks beaten down by the coronavirus pandemic. Growth stocks – particularly mega-cap tech firms – led the market’s rebound through the summer and continue to trade at heightened valuations. A sturdy economic recovery should pull investor capital from momentum stocks and into value names as their earnings bounce back, the team said.
“The backdrop of globally synchronized expansion, legislative gridlock, and positive vaccine news should mark a breakout point for value stocks,” the strategists said.
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