JP Morgan sounds bullish note on global equities

Strategists at JP Morgan continued to sound a 'bullish' note on the outlook for global equities at the start of the week, pointing to upside for price-to-earnings multiples and earnings estimates.

Indeed, they even saw the scope for stocks to 'overshoot' their "constructive" base case for an advance of approximately 15% over the next 12 months, despite gains running at almost a 20% pace year-to-date.

However, the investment bank's strategy team, led by Mislav Matejka, was also anticipating a rotation in market leadership towards so-called value stocks and shares of banks.

The Invesco MSCI World UCITS ETF fund was sporting a P/E multiple of about 15.9, in line with the 15.6 median seen over the past two decades and the P/E premium versus the five-year average was roughly 20% below that seen in past market peaks.

"While the consensus view is that multiples can only go lower, we think there is a potential for the market to start to price in that the Fed will end up too dovish for the remainder of the current cycle, and as real assets rerate due to much lower late cycle Fed rate, bond yields and inflation rates than typical," Matejka said.

And although the second quarter was likely to be "poor", he was also expecting the rate of growth in earnings per share to rebound in the back half of 2019, further pointing out that P/Es were typically positively correlated to momentum in EPS.

"We note that earnings typically didn't peak for the cycle until they strongly overshot the trend line."