JP Morgan swings in favour of financials following Biden victory

JP Morgan Cazenove has thrown its weight behind financial stocks following Joe Biden’s victory in the US presidential race.

Updating its equity strategy, the Wall Street bank said it was rotating away from technology stocks into banks and insurance.

Analyst Mislav Matejka said: "The current set up might be one of the better scenarios. Biden victory, but without the Senate, suggests it is very unlikely that he will be able to execute on some of the potentially market-negative policies, such as tax hikes.

"At the same time, the trade uncertainty is likely to come down, and the US dollar could potentially weaken.

"Finally, while the magnitude of the next round of stimulus is likely reduced, it will be coming, as both Republicans and Democrats will want to be seen as supportive of the continued economic recovery."

Matejka said the bank had upgraded value versus growth by buying into banks and insurance stocks and taking profits on overweight technology stocks.

"When the dust settles, either election result would be supportive of stronger performance of the broader market but also of the style rotation," argued Matejka. "Our call was that the initial sector moves could be rocky, but one should use the elections-induced sector volatility as an opportunity to reposition the portfolio for 2021.

"We continue to believe markets are primed for rotation, post the record growth versus value run witnessed year-to-date."

Bank stocks surged on Monday, as global stock markets continued to react positively to the Biden victory - although current incumbent Donald Trump has yet to concede - and following a positive update on a potential Covid vaccine from Pfizer.