Why a Biden election victory will lift a group of beaten-down stocks at the expense of market leaders, according to JPMorgan
The market could be on the verge of experiencing an internal rotation out of the winners and into the losers, sparked by a Joe Biden win this November, JPMorgan said in a note on Monday. With chances rising that there will be a clear result to the November election as Biden rises in the polls, stocks will likely continue to trade higher post-election if Biden wins, according to JPMorgan.
The bank is "warming" to the potential of value stocks outperforming growth stocks after the US election, the note said.Investors are looking for a quick resolution to the upcoming presidential election, rather than a contested one. Therefore, a clear-cut winner in the election will help the market move past the associated uncertainty risk and ultimately move higher. JPMorgan pointed to the 2000 election with Al Gore and George Bush as proof that the market won't do well in a contested election scenario between Trump and Biden. The S&P 500 fell 12% between the 2000 November election and shortly after Gore conceded that December. With rising polls in favor of Joe Biden following the first presidential debate, JPMorgan said it appears more likely that there will be a clear winner this November, and that a Biden victory "will not be a negative for markets," the note said. Despite Biden's proposing an increase in the corporate tax rate, JPMorgan said it believes Biden will instead put his immediate focus on rebuilding the economy, and that any tax increases will likely be "watered down," according to the note.Danton Goei has put more than $1 million into his own international fund, which is beating 97% of its peers year-to-date. The trilingual portfolio manager shares where he is seeing buying opportunities as US-China tensions heat up. But a turn in the market leaders, like growth and technology stocks, "might be coming" after the November election, JPMorgan said. Specifically, a rotation out of growth stocks and into value stocks could be sparked by a more reflationary backdrop, the potential for further stimulus, and positive newsflow on the virus front, the bank said. JPMorgan observed that consensus estimates are for a successful COVID-19 vaccine to be announced "in the near term," with distribution and implementation in the first quarter of next year. A successful COVID-19 vaccine would help hasten the reopening of the economy, which in effect would benefit value stocks that are more tied to the physical economy. But a bigger benefit to value stocks would be a strengthening US dollar and a rise in Treasury yields, according to JPMorgan. Still, while a rotation out of growth and into value is possible headed into year-end, JPMorgan isn't recommending investors sell out of technology stocks. Technology stocks are supported by buybacks, they are somewhat protected from a weak consumer, and "relative valuations still look undemanding," JPMorgan said.On Monday, that a blue wave this November would help drive economic growth on longer-term spending measures targeting infrastructure, healthcare, climate, and education.
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