S&P 500 Likely To 'Test The 5,000 Level': JP Morgan On Where To Allocate In 2024

For the first quarter of 2024, JPMorgan Chase & Co JPM is for overweight U.S. equity, Japanese equity, U.S. Treasury and high-yield corporate debt. The company said “cash returns are set to fall” and the U.S. stock market would “likely see the S&P 500 test the 5,000 level in 2024.”

Read: 2024 Outlook: Put, Pause, Pivot

John Bilton, head of Global Multi-Asset Strategy at JPMorgan, and his team shared insights from the Multi-Asset Solutions Strategy Summit they had recently.

“We see positive U.S. stock performance broadening beyond tech as an improving U.S. inventory cycle boosts cyclical sectors,” said Bilton. “Japanese stocks remain attractive, given rerating potential driven by corporate governance reforms.”

Here’s a quick look at their perspective on each asset class and few trading ideas around them (added by author):

Equity

JPMorgan is overweight on U.S., U.K. and Japanese equity, and underweight on European equity and Emerging Markets (ex-China).

• U.S.: Expectations for an earnings growth estimate of 7% into the next year. Lower rates to provide support to stock multiples. Cash generation potential in U.S. equity. Equities outlook is also improving as the earnings downgrade cycle appears to be bottoming. The SPDR S&P 500 ETF SPY, the iShares Core S&P 500 ETF IVV and the Vanguard 500 Index Fund ETF VOO are popular funds to gain exposure to broad-market U.S. equity.
• U.K.: U.K. equity is cheap and supported by valuations and flows. It is a defensive market; with a positive gearing towards commodities. The iShares MSCI United Kingdom ETF EWU is a popular U.K. equity tracking ETF.
• Japan: Japanese stocks remain attractive. There’s rerating potential, given improving nominal growth in the country and scope for valuation expansion. The corporate governance reforms mandated by the Tokyo Stock Exchange should support shareholder returns and drive up ROE. The iShares MSCI Japan ETF EWJ offers exposure to Japanese equity.
• Europe: European growth is expected to remain sluggish going into 2024.
• EM: Emerging market equities, though cheap, lack clear catalysts for a rebound.

Fixed-Income

From the fixed-income space, JPMorgan is overweight U.S. Treasury and high-yield corporate. It is underweight EMD hard currency.

• The prospect of rate cuts in 2024 supports a duration overweight position. Yields may begin to fall steadily as rate cuts begin.
• Investors should prefer U.S. Treasuries to other G4 countries. Yields in the low 4s should be attractive ahead of Fed rate cuts. JPMorgan sees potential returns of 10%–20% if growth disappoints. The iShares 20+ Year Treasury Bond ETF TLT, the iShares 7-10 Year Treasury Bond ETF IEF and the SPDR Bloomberg 1-3 Month T-Bill ETF BIL are popular ways to get exposure to U.S. Treasury.
• Overweight corporate high-yield debt as there’s modest scope for spread tightening. Fundamentals appear supportive with limited rise in defaults. Overall, the carry looks attractive. The iShares iBoxx $ High Yield Corporate Bond ETF HYG and the iShares Broad USD High Yield Corporate Bond ETF USHY are two of the largest ETFs providing exposure to high-yield corporate debt in the U.S.

Currency & Cash

The US dollar, as tracked by the Invesco DB US Dollar Index Bullish Fund UUP, appears set to weaken in 2024. JPMorgan sees a soft landing for the greenback as growth broadens out globally.

Rate cuts possibility in the U.S. further supports a US dollar underweight position.

Bilton is also underweight on cash. “Cash returns set to fall as cutting cycle begins; long-term USD rates likely nearer 2.5% than 5.5%,” he laid out.

Now Read: Goldman Sachs’ 2024 Equity Outlook: Winning Stocks And Sectors To Watch