Banks and cyclicals are the place to be, JP Morgan says

Going into the end of the year, banks and cyclicals are the best place to be as an investor, according to strategists at JP Morgan.

In a research note sent to clients, they noted a bevy of factors that should see the 'risk-on' phase which started in September run further.

Those included more positive seasonal factors, Citi's economic surprise index for the US was set to move back above zero, a positive third quarter earnings season, rising factory gate prices on the back of a firmer pricing for oil and likely tax cuts in the States.

From a bird's eye view, they said the main drivers in the market would a bottoming out in the US dollar and rising government bond yields.

Thus, defensives were set to 'underperform' while high Beta sectors would contyinue outperforming.

Furthermore, when compared to those of bonds and credit, stock market valuations were "undemanding", they said, and the classic end-of-cycle indicators were not flashing warning signs yet, JP Morgan said.

However, JP Morgan also stood by its 'underweight' on UK equities, reiterating instead a preference for the Eurozone and Japan.

In terms of downside risks, JPMorgan's strategists conceded there had not been a full blown correction in stocks "for a while", the fourth quarter earnings season might prove a hurdle and geopolitics - either due to domestic US issues or North Korea - might see volatility spike higher.

Reduced central bank liquidity might also impact on equity valuations, they said.