JP Morgan says to use strength in shares on Q1 results to reduce positions

Equity strategists at J.P. Morgan recommended that clients use any strength in equities in the wake of the first quarter results season to reduce positions.

In a research note sent to clients, Mislav Matejka and his team also reiterated their overweight stance on European stocks versus their US peers, but judged that the time to take profits was approaching.

So too, they were still minded to favour Growth style investing in 2023 instead of a value approach.

In the case of the US, consensus estimates for earnings had dropped sharply over the past months with analysts penciling in a 7% decline for S&P 500 companies' first quarter profits, against a previously projected rise of 7%.

Estimates for earnings in Europe meanwhile were for a 9% decline in comparison to the year earlier quarter.

Activity had been better in most places than during the preceding three-month stretch, although positive drivers such as falling natural gas prices and China's reopening, in the case of Europe, were already in the open.

"The combination of low hurdle rate and the improving fundamentals bodes well for the corporate results, where we expect beats," they said.

However, the earnings beats might not translate into upgrades for the remainder of 2023 with projections continuing to slip, they cautioned.

Another factor take into account was that the analyst consensus had penciled in a renewed expansion in margins for 2024, an assumption that in their opinion might prove too optimistic as pricing normalised.

According to Matejka, it also remained to be seen whether stocks would rally much thanks to beats, given the already strong rally.