Equity rebound set to continue, JP Morgan says

Global equity markets were set to continue their bounce going into the next European Central Bank policy meeting, but any strength in stocks resulting from the announcement of new stimulus measures would best be used to "reduce exposure again", strategists at JP Morgan said at the start of the week.

From a medium-term perspective, the roll-over in equities continued to be the main headwind facing equity markets. Year-to-date, price-to-earnings multiples had barely fallen (indeed, in the case of US equities they were higher than where they had been on 1 January), revisions to earnings per share remained negative and weak purchasing managers´ indices were pointing to little change in that regard.

Low and falling bond yields suggested one should stay 'overweight' defensives, the broker´s strategy team said.

Cyclicals on the other hand were likely, as always, to see the largest downgrades to earnings per share, given the weakening momentum in economic activity.

Discretionary stocks were the one exception to their stance towards cyclicals, it said, exhibiting better than expected EPS and sales growth in all three main geographgical regions.

In the case of Eurozone equities, their p/e relative to the US had dropped below 'fair value' and new central bank stimulus should help the relative performance of the region, JP Morgan said.

To take note of as well, Mislav Matejka and his team said they drew encouragement from the continuing improvement in credit conditions in the euro area and that the credit generation data had been very strong.