Eurozone banks is where the money is, JP Morgan says

Emmanuel Macron's win at the weekend could spark an up to 10% re-rating in Eurozone equities in comparison to US stocks, strategists at JP Morgan said.

With polls ahead of the second round of voting in the country's presidential elections assigning Macron a 20 point lead over his rival Marine Le Pen, "the hurdle rate for a surprise is too big now", they said.

That should see 'risk-on' trades being put back on, with yields on German government bonds and the spread between them and those from periphery euro area countries narrowing, which is "very positive" for banks.

Corporate earnings are delivering too, with upwards revisions in the euro area printing their best levels of the upcycle so far, with cyclicals doing best, JP Morgan said.

Unlike at the same time of the year in 2016, analysts' forecasts for companies' earnings per share in 2017 are heading higher, with those for cyclicals - especially Materials, Discretionary and Industrials - up by 5% year-to-date.

For Defensives, on the other hand, they are 0.5% lower.

Reflecting that, euro area stocks have seen fund inflows worth between 1% to 3% of assets under management, in stark contrast to the 15% of AuM in outflows witnessed at the worst point in 2016.

"If one were to see the reversal in the outflows, we project that this could drive a 10% relative re-rating in the price-to-earnings multiples of Eurozone equities versus the US."

Banks and stocks from the periphery have the most upside, with Spain being JP Morgan's top-pick, although Italy "should catch up too".

Cyclicals should continue leading Defensives - as they have over the past two months - in order to close the gap in terms of their relative earnings, the strategists said.

So what's the proper strategy at present? "Buy the dips".