JP Morgan sees positive equities mood carrying into 2021

JP Morgan said it expected the positive mood for equities to carry over into 2021 despite some technical measures appearing "toppy" in the short term.

With betas valuations at highs and short interest at lows investor sentiment could be stretched but those who have not take part in the share rally will use any weak patches to add to holdings, JP Morgan's Mislav Matejka said in a note to clients.

JP Morgan advised clients to buy banks and value shares in early November to take advantage of depressed valuations with an end in sight for the worst effects of coronavirus. He said the shift into value shares "will have legs" driven by a rise in bond yields, a lower US dollar and a very strong rise in value shares' earnings, which appears to have started.

"Some technicals are getting toppy, given a very strong move, but we believe the positive sentiment continues in 2021," Matejka said in a note to clients. "While the near-term newsflow could remain challenging, the delta is coming, and we believe that this leg will give way to stronger PMIs [purchasing managers' index surveys] in 1H, helped by an acceleration in M1 and the fading of the virus impact on economic activity."

Earnings per share will recover strongly in 2021 with eurozone earnings rising 50%, Matejka said.