Growth stocks may suffer as Fed begins to raise rates, JP Morgan says

The beginning of monetary policy tightening by the US Federal Reserve should not worry investors, who would do well to continue overweighting consumer discretionary stocks, although the shares of companies that have seen an increase in their price-to-earnings multiples "might suffer", according to analysts at JP Morgan.

Rather, hikes by the US central bank "should be seen as a confirmation that improved sentiment is sustainable" the team of analysts led by Mislav Matejka said in a research report sent to clients.

"Citigroup´s US economic surprise index is close to breaking above zero, for the first time this year, and historically this pointed to market gains ahead," Matejka and his team explained.

"In addition, market internals could be helped, US Banks show a positive correlation with the bond yields."

Rising bond yields have typically helped what are known as cyclical and value stocks. That holds true even for commodity producers, the broker said.

However, in the current market enviroment US banks, isnurance, tech and discretionary are a better way to be positioned.

"We are worried though that the Growth style might suffer vs Value given that it overshot the move in bond yields."

In parallel, JP Morgan 'closed' its tactical overweight in mining, giving added weight to insurance and consumer cyclicals.

"US Banks historically started to pick up pace close to the first hike and then lead thereafter. In Europe, Insurance has tended to be a strong outperformer."