Getting spooked by the recent changes and volatility in the stock market?

Let’s back away from the screen, take a deep breath, and turn to the Global Equity Strategy team at J.P. Morgan, for some perspective.

After all, as we’ve noted before, they’ve been very accurate in reading the economy and market expectations since the pandemic began.

Here’s why concerns about peak growth and peak earnings are overdone and why these research pros are upping their year-end target for the S&P 500.


We remain constructive on equities and see the latest round of growth and slowdown fears premature and overblown.

Even though equity leadership and bonds are trading as if the global economy is entering late cycle, our research suggests the recovery is still in early-cycle and gradually transitioning towards mid-cycle.

While the second derivatives of macro-cyclical indicators in US and Asia (Figure 6 and Figure 7) appear to be cresting, going from exaggerated low levels to seemingly extreme high levels, we believe this does not signal the beginning of a down cycle but rather a transition to a more sustained cycle.

Continuation of US recovery is rooted in the improving labour market (healthy job gains and wage growth), still very strong consumer setup (i.e. record household savings and wealth), healthy corporate fundamentals with strong pricing power, supportive global central bank policies which continue to prioritize employment growth over inflation fears, and further potential for broadening fiscal policies.

Global reopening has taken a step back recently on account of re-emerging COVID-19 fears , but as detailed in our recent research we remain of the view that this latest wave will not derail the broader reopening process.

We are revising higher our EPS estimates by an additional $5 to $205 for 2021 and raising our long-held 2021 year-end price target of 4,400 to 4,600.

At a thematic/sector level, the risk/reward for reopening stocks has improved significantly with the recent pullback creating many unusually attractive opportunities for investors to re-enter various parts of the cyclical cohort.

Consumer Discretionary (i.e. Retail, Travel & Leisure), Semis, Banks and Energy are strong buys at current levels.

Expecting a boom in shareholder return led by buybacks.

Buybacks are reemerging as a key theme with net buyback activity significantly improving this year after bottoming in 2Q20.

Corporate buyback announcements, typically a leading indicator of buyback execution activity and corporate confidence, have already exceeded 2020 levels ($43B YTD vs. $307B 2020, Figure 25).

In fact, the rebound in announcement activity is tracking towards and it is likely to easily surpass ~$650B by year-end and likely to see rolling 12-month announcements surpass prior record level of ~$1T.

Historically, buyback announcements have been concentrated within Technology and Financials.

However, YTD we are seeing strong announcement activity from Communications as well, driven by GOOGL ~$50B in April.

As a reminder, ~$90B of Tech’s $133B in announcements YTD is supported by AAPL and ~$25B of Financial’s ~$92B is supported by BAC.

With the June 30th lifting of pandemic era restriction on US Banks, we could see some further pick-up in buyback announcements.

Announced repurchase programs not yet executed levels have been recovering to pre-pandemic levels, ~$658B, see Figure 27, as executions have been relatively slower to rebound but should show a material sequential growth in the coming quarters.

With record profit margins (~13% in 2022 vs ~11.5% in 2019), bloated cash levels of $2.0T ex-financials (vs. $1.6T preCOVID), and lower high grade debt yields, we are expecting a boom in buyback activity over the next year.

Gross buybacks should surpass the prior executed high of $850B. Assuming $875B in buybacks and dividend income of $575B over the next year, the expected shareholder yield is 3.9%.

This is a significant cross-asset valuation support for equities at a time when 10yr US bonds are yielding 1.2% and $13 trillion of global debt has a negative yield.


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