Latest reflation rally has good fundamentals, JP Morgan says

Don't fret if you've been left out of the latest reflation rally in stocks, strategists at JP Morgan are telling clients, because it is not too late to join in.

Yes, since end-August cyclicals had outperformed their defensive brethren by as much as 425 basis points - but the move had been justified.

To back up the main thrust of its argument, JP Morgan noted that the move up had been 'contrarian', the 'pain trade' for a majority investors would be further gains for shares as many investors had underperformed their benchmarks, the advance for stocks was on the back of improved earnings, wage pressures were building and there was a valuation cushion.

And what about rising bond yields? One shouldn't fear them as the correlation between them and 'beta' - especially banks - remained "extremely strong".

On top of that, a downturn had never begun with real policy interest rates below 180 basis points and now they were at -55 basis points.

Indeed, global real policy rates were near 30-year lows as was global unemployment, JP Morgan said.

"This is a very good combination for stocks, but possibly not for bonds."