John W Banagan / Investing
- JPMorgan says investors should prepare to dump value stocks as bond yields peak in this year.
- The bank said the dynamic that boosted value stocks last year may be upended by the second half of 2023.
- Strategists downgraded value versus growth stocks, but say value is still more attractive long term.
JPMorgan says traders should prepare to shift back to growth stocks following a year in which their value stock peers drastically outperformed by the most since the dot-com bubble.
"Our core view is that in the second half [of 2023, the] market will be moving back to the recession trade, but even if the opposite scenario gains traction, value might not be the best place to be," Mislav Matejka, the bank's head of global and European equity strategy, wrote in a Monday note.
The beaten down stocks the soared in 2022 are beginning to stall against growth bets as investors begin to position for a more aggressive Federal Reserve.
The central bank hinted at more hawkish moves to come as the Fed's preferred inflation gauge and labor market data came in hotter than expected this month. As value stocks saw a boost from rising yields last year at the expense of growth stocks, that dynamic could be upended this year as yields peak in the second half of 2023, the bank said.
"The concern is just that [value] will likely weaken this year, as markets reprice back into a recession scenario, while the bond yields could reflect the risk of central banks' policy mistakes, with continued yield curve inversion," Matejka wrote.
He added: "We are not outright [overweight] Tech, but we believe it is right not to be short the space, as we were advocating last year. Better relative Tech performance than what transpired last year would ensure Value factor is not a winner this year."
Analysts downgraded value versus growth from overweight to a neutral, as the bank expects the group to underperform in 2023. Still, the cheaper value stocks are still more attractive over the long term, the bank analysts said.