JPM Equity Strategy 2021-03-15 - 3677865

Global Equity Strategy
15 March 2021
Equity Strategy
Is it time to start selling Cyclicals & Banks, and return
to Defensives and Tech?
 We are receiving more and more frequent client inquiries over when should one Equity Strategy
start taking profits in Cyclicals/Banks, and buy back some Defensives, such as
Mislav Matejka, CFA AC
Healthcare & Staples, as well as Tech. (44-20) 7134-9741
 Indeed, Cyclicals had a very strong run over the past year, and especially since mislav.matejka@jpmorgan.com
November. At almost 60% from the low, the Cyclicals/Defensives Prabhav Bhadani, CFA
outperformance ranks near the top of the past recovery moves. Within this, (44-20) 7742-4404
we note that, unlike the typical early cycle recovery trade, where Cyclicals and prabhav.bhadani@jpmorgan.com
Value would rally together, this time around Cyclicals have done much more Nitya Saldanha, CFA
than Value has done, with Val/Mom up 28% and Value/Growth 14% from the (44 20) 7742 9986
nitya.saldanha@jpmchase.com
lows - see middle chart. For the unwind of the risk-on positioning, we consider:
J.P. Morgan Securities plc
 1. Bond yields direction remains key. We do not believe the upmove in yields
The price relatives and valuations of
is exhausted. Yes, in the short term policymakers will keep pushing back, but Cyclicals are starting to appear
are likely to accept higher yields down the line, as the economy strengthens. The toppy, but on the positive side, bond
gaps between bond yields vs activity and inflation expectations remain wide - yields could move further higher, and
see report calling for a breakout. Importantly, Cyc/Def trade is coincident with the earnings of Cyclicals will reflect
yields, ie, as long as yields are moving up, Cyclicals should not be sold. stronger activity…
 2. The global cycle is to some extent disynchronized, with China momentum
60% 30%
potentially peaking, US approaching highs, and Europe ending the mini double
40% 20%
20% 10%
dip, but the general growth backdrop is likely to be firm into summer. Money 0% 0%
supply points to a strong acceleration in European composite PMIs, which are -20% -10%
currently in contraction territory, to high 50-ies. The Cyclical/Defensive trade -40% -20%
didn’t tend to peak out until the PMIs peaked. -60%

96 98 00 02 04 06 08 10 12 14 16 18 20
-30%
 3. Earnings momentum for Cyclicals will continue accelerating over the

Recessions/Growth scare Cyclicals vs Defensives 12m Fwd EPS %yoy IFO %yoy (RHS) - brought forward by 5 months
next few quarters – see top chart. Again, as long as Cyclicals EPS momentum …in contrast to Cyclicals, Value vs
is faster than for Defensives, they tended to hold onto their gains. Growth rebound is not stretched, it is
 4. The valuation case is much more challenging, where certain Defensives are still attractively priced and its price
starting to look cheap in a multi-year context, such as Staples (UW). Cyclicals rel remains near the historical lows…
120
don’t score well on this front, but Value continues to look very appealing, 115
110
especially the Banks – see bottom chart, as well as the reopening trade. 105
100
 5. Big picture, flows have favoured Growth for a long time, but are of late 95
90
switching to Value. More importantly, and in contrast to Cyclicals, the long term 85
80
price relative of Value remains depressed, despite the strong recent run. 75
Jan 20 Apr 20 Jul 20 Oct 20 Jan 21
European Cyclicals vs Defensives European Value vs Growth
 Put together, the size of the Cyclicals run, and their stretched valuations, likely
suggest that the bulk of the Cyc/Def move might be behind us. Still, we think it
is premature to position for an actual reversal. For that, one needs to see …Eurozone Banks continue trading
peaking PMIs, weakening relative earnings and an end to rising bond yields. very cheap, despite being the best
Within this, a potentially firmer USD, which we have advocated for over the performing sector ytd
past weeks, could lead to a reshuffle in leadership, where certain manufacturing 1.0
/China plays could stall - we recently advised to start fading Miners. 0.9
0.8
 Value, on the other hand, is still attractive, and trades not far from multi-year 0.7
0.6
lows. We focus our longs on Banks and on the consumer reopening trade, 0.5
and would potentially look for a general fading of risk-on internals stance 0.4
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
sometime nearer Q4, once the acceleration in activity and in inflation is behind MSCI Eurozone Banks 12m Fwd P/E relative Median +2 stdev -2 stdev
Source: Bloomberg Finance L.P.

us, as well as when the bulk of the tailwind from fiscal stimulus is done.
See page 28 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the
firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in
making their investment decision.
www.jpmorganmarkets.com
This document is being provided for the exclusive use of OLIVIA DENNEHY at JPMorgan Chase & Co. and clients of J.P. Morgan.
Mislav Matejka, CFA Global Equity Strategy
(44-20) 7134-9741 15 March 2021
mislav.matejka@jpmorgan.com
Table of Contents
Is it time to start selling Cyclicals & Banks, and return to
Defensives and Tech?..............................................................3
Appendix – European sectoral relative performance since
Jan '20 .....................................................................................16
Equity Strategy Key Calls and Drivers .................................18
Top Picks ................................................................................19
Equity Flows Snapshot ..........................................................20
Technical Indicators...............................................................21
Performance ...........................................................................22
Earnings ..................................................................................23
Valuations ...............................................................................24
Economic, Interest Rate and Exchange Rate Outlook ........26
Sector, Regional and Asset Class Allocations ....................27
(44-20) 7134-9741 15 March 2021
Figure 2: European and US Cyclicals versus Defensives ytd

Is it time to start selling 112
Cyclicals & Banks, and 110
return to Defensives and 108
106
Tech? 104
We have been receiving frequent questions over the past 102
few weeks regarding whether it is time to start locking in 100
the gains in Cyclicals, and return to Defensives.

98
Jan 21 Feb 21 Mar 21
Figure 1: European sector performance over the last 12 months European Cyclicals rel to Defensives
Basic Resources 111.1% Source: Datastream, J.P. Morgan

Automobiles 98.0%
Travel and Leisure 70.4%

This trend has continued ytd.
Industrial Goods 64.6%
Retail 62.5%
Technology 60.7% The rally in Cyclicals is among the largest on
Oil and Gas 56.6% record…
Const Mat 55.2%
Chemicals 54.0%
Figure 3: European Cyclicals vs Defensives and
Fin Svs 52.0%
Recessions/Growth scares
Banks 46.2%
Insurance 45.9% 105
Media 44.2% 100
STOXX 600 43.1% 95
HPC 39.4% 90
Utilities 30.2%
85
Telecoms 25.1%
80
Fd and Bev 21.4%
75
Health Care 17.1%
70
Real Estate 11.8%
4% 24% 44% 64% 84% 104% 124% 65
60
12m performance
55
50
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Indeed, Cyclicals had a dramatic run over the past year. Recessions / Growth scares European Cyclicals rel to Defensives
The above chart shows a near perfect Source: Datastream, J.P. Morgan
Cyclicals/Defensives split, with Healthcare, Utilities,
Telecoms, Staples, Household Products and Real Estate There have been a number of strong Cyclical rallies over
all bunched at the bottom. the years, mostly in the aftermath of recessions/Growth
scares, and also during the ’05-’07 China FAI bubble
episode.
(44-20) 7134-9741 15 March 2021
Table 1: Size and duration of past Cyclical upmoves Figure 4: European and US Value vs Growth
European Cyclicals vs Defensives 113
Low High % Move # months 111
Jan 99 Aug 00 52% 19
109
Sep 01 Jan 02 32% 3
Apr 03 Sep 03 24% 4 107
May 05 Jul 07 33% 26
105
Nov 08 Feb 11 60% 27
Jul 16 Jun 18 47% 23 103
Average 41% 17 101
Median 40% 21
99
Mar 20 Mar 21 57% 11
97
Source: Datastream, J.P. Morgan
Jan-21 Feb-21 Mar-21
MSCI Europe Value vs Growth MSCI US Value vs Growth

The current near 60% relative outperformance of
Cyclicals is comfortably ahead of the typical, where Source: Datastream
during past recoveries Cyclicals beat Defensives on
average by 40% over a period of 15 months. It is bettered Value style has also put in a strong performance in the
only by the 60% run seen post the GFC. past months.
Table 2: European sectors relative performance during past …but has lagged the run in Cyclicals
Cyclical rebounds
Relative performance during Cyclicals rally Figure 5: European Value vs Growth and Cyclicals vs Defensives
Trough Jan 99 Sep 01 Apr 03 Jul 06 Nov 08 Jul 16 Mar 20
120
Peak Aug 00 Jan 02 Sep 03 Jul 07 Feb 11 Jun 18 Average Current 115
Energy 30% -14% -7% -11% -10% 4% -1% 18% 110
Materials 0% 9% 6% 27% 93% 33% 28% 31% 105
100
Industrials 18% 14% 16% 28% 43% 14% 22% 30%
95
Discretionary -12% 19% 15% 11% 32% 15% 13% 44%
90
Staples -30% -16% -11% -1% -10% -25% -16% -35% 85
Healthcare -26% -20% -9% -30% -33% -25% -24% -32% 80
Financials -10% 6% 5% -6% 2% 19% 3% 9% 75
Jan 20 Apr 20 Jul 20 Oct 20 Jan 21
IT 169% 44% 26% 2% -4% 35% 46% 26%
European Cyclicals vs Defensives European Value vs Growth
Telecoms -2% 2% -12% 6% -24% -31% -10% -24%
Utilities -34% -24% -12% 7% -44% -23% -22% -18% Source: Datastream, J.P. Morgan
Real Estate -21% -19% 3% -16% -5% -11% -11% -17%
Source: Datastream We note though that the relative performance of Value vs

Growth has significantly lagged the move seen in
Most Cyclicals appear to have overshot the typical Cyclicals in the current recovery. Cyclicals have been
recovery move, and Defensives have undershot. outperforming Defensives for almost a year now, at
+57%, while Value appears to have only bottomed in
…Value has also had a strong move… November of last year, at +14%.
Table 3: Size and duration of Value upmoves in past recoveries

MSCI Europe Value vs
Trough Peak Months
Growth
1/26/1999 8/10/1999 7 24%
3/3/2000 9/11/2001 19 65%
10/7/2002 11/17/2006 50 33%
3/9/2009 8/28/2009 6 25%
8/2/2016 12/8/2016 4 17%
Median 7 25%
Average 17 33%
Current 5 14%
Source: Datastream
(44-20) 7134-9741 15 March 2021
The move in Value is well below what was seen during Figure 8: Euro area Financial Conditions Index
past recoveries. There are a number of reasons for this, 1.0
including the bond yields staying subdued during the 0.5
initial stages of the recovery, which pressured Banks, and 0.0
allowed Tech to stay strong. -0.5
-1.0
For the full blown reversal between Cyclical/Defensives, -1.5
and Value/Growth, we consider: -2.0
-2.5
1) Bond yields direction is key… despite the -3.0
heightened risk of central bank intervention, we
-3.5
believe the upmove is not done... Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21
Euro area Financial conditions index
Figure 6: US 10Y bond yield Source: Bloomberg Finance L.P. Note: Higher value indicates accommodative financial
conditions.
1.9%
1.7% This is likely to be the case as long as financial

1.5%
conditions remain well behaved.
1.3%
Figure 9: US Manufacturing PMI and 10Y US bond yield
1.1%
3.9
0.9% 59
3.4
0.7% 57
2.9
0.5%
Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 55
2.4
US 10Y bond yield 53
1.9
Source: Bloomberg Finance L.P. 51 1.4
49 0.9
US 10Y bond yield is up 100bp from the lows see in the
1H of last year. 47
10 11 12 13 14 15 16 17 18 19 20 21
0.4
US Manufacturing PMI US 10Y bond yield, % (rhs)

Figure 7: G5 central bank balance sheet and nominal GDP
Source: Bloomberg Finance L.P., Markit
40% 20%
35%
30%
16% After all, a significant gap remains open between the
25% 12% level of bond yields and the activity indicators in the US.
20%
8%
15% Figure 10: US Savings rate
4%
10%
36.5
5% 0% 34.0
0% 31.5
-4% 29.0
-5%
26.5
-10% -8% 24.0
08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
21.5
US Recessions G5 Central bank balance sheet (%y/y) G5 Nominal GDP (%y/y, rhs) 19.0
Source: J.P. Morgan Economics Research 16.5
14.0
11.5
Clearly, a number of central banks are growing more and 9.0
6.5
more concerned that the rising yields will adversely 4.0
impact the financing conditions, and therefore the 1.5
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
recovery. We could see more aggressive policies to
US Personal savings rate % of Disposable income Average
contain the yields in the near term, but believe that as we
move into summer central banks will become more Source: Bloomberg Finance L.P.
tolerant of rising yields, as it will be see as consistent
with the strong economic recovery.
(44-20) 7134-9741 15 March 2021
Given the continued fiscal stimulus, and the very strong Figure 13: US real GDP and core CPI
households’ savings position, we do not believe the gap
2.8%
will close through PMIs falling. 5%
3% 2.3%
Figure 11: Eurozone New orders to inventories and a change in

1% 1.8%
bond yield
1.4 2% 1.3%
-1%
1.3
-3% 0.8%
1%
1.2
-5% 0.3%
0% 00 02 04 06 08 10 12 14 16 18 20 22
1.1
US Real GDP, %y/y (brought forward by 6Q) Forecast US core CPI, % y/y - rhs
1.0
-1%
0.9
Source: J.P. Morgan
-2%
0.8
Most pricing indicators are likely to show a significant
0.7
98 00 02 04 06 08 10 12 14 16 18 20
-3% acceleration over the following quarters, as the inflation
Eurozone PMI New orders to inventories Change in US 10Y bond yield (vs a year ago) - rhs
typically tended to lag activity momentum.
Figure 14: US - German 10Y yield differential
New orders to Inventories ratios are likely to continue to 1.9%
point to rising bond yields.

1.8%
Figure 12: US 10Y bond yield and inflation forwards

1.7%
2.8% 4.0%
2.6%
3.5%
2.4% 1.6%
2.2% 3.0%
2.0% 2.5% 1.5%
1.8%
1.6% 2.0%
1.4% 1.5% 1.4%

Jan-21 Feb-21 Mar-21
1.2%
1.0% US - German 10Y yield differential
1.0%
0.8% 0.5% Source: Bloomberg Finance L.P.
11 12 13 14 15 16 17 18 19 20 21
US 10Y breakevens US 10Y bond yield (rhs) Within this, we think that it is reasonable to assume that
Source: Bloomberg Finance L.P. the US might be more accepting of rising yields vs
international, which could lead to increasing interest rate
We also note that a very significant gap remains open differential, and consequently a stronger USD. We have
between inflation forwards and bond yields, in what is been highlighting that over the past weeks, and will
typically a very close relationship. Again, we do not see revisit the implications later in the report.
this gap closing solely through inflation forwards rolling
over. …crucially, Cyclicals/Defensives showed a coincident
correlation to bond yields
(44-20) 7134-9741 15 March 2021
Figure 15: European sectors correlation to US 10Y bond yield Table 4: European Cyclicals vs Defensives correlation to US 10Y
bond yield
Banks 63%
Insurance 52% US 10Y bond yield correlation to

Autos & Parts 51% # months lead/lag European Cyclicals vs Defensives
Industrial Goods & Svs 39% 6 24%
Const. Mat. 32%
5 29%
Fin Services 27%
4 35%
Oil&Gas 26%
3 40%
Basic Resources
2 47%
25%
1 57%
Travel & Leisure 24%
0 62%
Media 16%
-1 61%
Technology -1%
-2 54%
Chemicals -3%
-3 44%
Telecoms -20%
-4 36%
Real Estate -22%
-5 27%
Retail -26%
-6 18%
Utilities -41%
Source: Datastream
Pers & HH Pdts -59%
HealthCare -67%
Food & Bev -68%

The highest correlation between the relative performance
-80% -60% -40% -20% 0% 20% 40% 60%
of sectors and the bond yield moves is the coincident
one. Equities didn’t tend to preempt the rise in bond
European sectors correlation to US bond yield
yields, and would show a Cyclical leadership as long as
Source: Bloomberg Finance L.P. yields would be moving higher.
The correlation between sectors and bond yields remains 2) Global growth momentum is not fully
very polarized. Most Cyclical sectors enjoy a strong synchronized, but is generally set to accelerate further
positive correlation to bond yields, with Financials at the into summer…
top, while Defensives are at the bottom.
Figure 17: China credit impulse and industrial metals spot prices
Figure 16: European Cyclicals vs Defensive and 10 year bond 30 100%
yield
25 80%
40%
70% 20 60%
30%
50% 15 40%
20%
30%
10% 10 20%
0% 10%
5 0%
-10% -10%
0 -20%
-20% -30%
-5 -40%
-30% -50%
-40% -70% -10 -60%
08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
96 98 00 02 04 06 08 10 12 14 16 18 20
China credit impulse (brought forward by 9 months) Industrial metals spot price (%y/y, 6mma)
European Cyclicals rel to Defensives (%6mom) US 10y Bdy %6mom (rhs)
Source: Bloomberg Finance L.P., J.P. Morgan, Dotted line represents JPM forecasts
Source: Datastream
We remain bullish on the global growth momentum, but
Crucially, Cyclicals tended to perform as long as bond note that China, which has been accelerating for a while
yields were moving higher, ie there was no lead lag. now, is showing some signs of peaking. Chinese credit
impulse, M2 and PMIs are all softening.
(44-20) 7134-9741 15 March 2021
Figure 18: US ISM manufacturing coming months. This will gain further momentum as the
70
region comes out of lockdowns.
65
60 Figure 21: Infection count by country

55 250 70
50 60
200
45 50
40 150
40
35
100 30
30
75 80 85 90 95 00 05 10 15 20 20
US ISM Manufacturing 50
10
Source: ISM
0 0
Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21
Relative to that, while ISM is near highs, we believe that US, daily new cases (000s, 7dma) Brazil
India UK (rhs)
US activity momentum is likely to stay elevated given Spain (rhs) Italy (rhs)
Germany (rhs)
the next tranche of fiscal support and the consumer Source: WHO, Datastream
upswing.
A combination of a progress on vaccines and targeted
Figure 19: Eurozone composite PMI mobility restrictions are having a desired impact on
60
54.9 COVID case numbers. Globally, new COVID infections
55 51.3 51.9
51.6
50.4 50.0 48.8 have been on a downtrend for a couple of months now.
50
48.5 45.3
45 49.1 47.8
Figure 22: Global real GDP
40
9% 8%
35
31.9 8%
30 29.7 7%
25 7%
20 6%
15 5% 4%
13.6
10 4%
4% 3%
Jan 20 Mar 20 May 20 Jul 20 Sep 20 Nov 20 Jan 21 3% 3%
Eurozone composite PMI 3% 2%
Source: Markit 2%
1%
European composite PMIs, on the other hand, remain in 0%
contraction territory, weighed down by the ongoing '21 Q1 '21 Q2 '21 Q3 '21 Q4 '22 Q1 '22 Q2 '22 Q3 '22 Q4
lockdowns. Global Real GDP, q/q (saar)

Source: J.P. Morgan
Figure 20: Eurozone M1 and composite PMI
62 15 Net-net, aggregate global economic momentum looks set

57 10
to accelerate from here.
52
5
…which means it would be too soon to reverse the
47
0 Cyclicals trade
42
-5
37
32 -10
27 -15
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Recession Eurozone Composite PMI M1, deflated using HICP, %y/y (brought forward by 9m)
Source: Bloomberg Finance L.P., Markit
Having said that, our money supply model suggests that

Eurozone PMIs are likely to start accelerating in the
(44-20) 7134-9741 15 March 2021
Figure 23: European sectors correlation to Eurozone composite Table 5: European Cyclicals vs Defensives correlation to PMI
PMI
Correlation to European Cyclicals vs Defensives
Banks 49% Eurozone Composite
Cap Goods 42% # months lead/lag Global Composite PMI PMI
Div Fin 38%
Met&Min 37%
6 24% 29%
Semicon 21% 5 29% 34%
Cons Durables 17%
4 34% 39%
Prof. Services 13%
Tech Hardware 8%
3 41% 46%
Cons Mat 5% 2 48% 53%
Chemicals 4%
Transport 4%
1 53% 59%
Real Estate 2% 0 55% 61%
Automobile 1% -1 49% 58%
Insurance -3%
Software -5%
-2 37% 50%
Retailing -7% -3 24% 40%
Telecoms -21%
-4 12% 29%
Media -21%
Energy -24% -5 0% 19%
HPC -25% -6 -9% 10%
Food Bev&Tob -32%
Hotels,Rest&Leis -34% Source: Datastream, Markit
Food Drug Ret -35%
Healthcare -40%
Utilities -40% The coincident correlation is the highest.
-50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60%
Correlation to Eurozone Manufacturing PMI Figure 25: Global composite PMI and European Cyclicals vs
Defensives
Source: Datastream, Markit
100 65
Historically, Cyclicals relative performance is positively 95

60
correlated to PMIs. 90
85
55
Figure 24: European Cyclicals vs Defensives and Manufacturing 80
PMI 75 50
70
30%
45
65
20%
60
40
10% 55
0% 50 35
98 00 02 04 06 08 10 12 14 16 18 20
-10%
Recession / Growth Scare European Cyclicals rel to Defensives Global Composite PMI
-20%
Source: Markit, Datastream, J.P. Morgan
-30%
01 03 05 07 09 11 13 15 17 19 21
Looking at the peaks in PMIs, it appears that PMIs
MSCI Europe Cyclicals vs Defensives, %6mom Euro Area manufacturing PMI, %6mom
tended to peak before Cyclicals started rolling over, so
Source: Datastream, Markit equity markets would not be preemptive.
Importantly, there doesn’t appear to be a lead-lag. 3) Earnings outlook remains supportive for Cyclicals
Cyclical sectors perform well, while PMIs are trending
higher and vice versa.
(44-20) 7134-9741 15 March 2021
Figure 26: MSCI Europe Cyclicals vs Defensives +ve to –ve EPS Figure 29: European Cyclicals vs Defensives relative price and
revision EPS
40% 60% 40%
30% 30%
40%
20%
20%
10% 20%
10%
0%
0% 0%
-10%
-10%
-20% -20%
-30% -20%
-40%
-40% -30%
95 00 05 10 15 20
-60% -40%
European Cyclicals vs Defensives +ve to -ve EPS revisions, 3ma 96 98 00 02 04 06 08 10 12 14 16 18 20
Recessions Cyclicals vs Defensives 12m Fwd EPS %yoy Europe Cyclicals rel to Defensives (%yoy, rhs)
Source: IBES
Cyclical sectors are seeing strong relative pace of

While the price relative of Cyclical sectors is already at a
earnings revisions.
high, one didn’t tend to see a strong reversal before the
Figure 27: European Cyclicals vs Defensives forward EPS relative
relative EPS peaks.
115
4) Valuation case is problematic - Cyclicals look
110
rather stretched on most metrics…
105
100
95
Figure 30: European Cyclicals vs Defensives 12m Fwd P/E
90
relative
85 1.5
80 1.4
75
1.3
70
Jan 18 Jul 18 Jan 19 Jul 19 Jan 20 Jul 20 Jan 21 1.2
1.1
European Cyclicals vs Defensives - 12m Fwd EPS (rebased)
1.0
0.9
0.8
Their forward EPS relative are rebounding, but are still 0.7
offering a discount vs the recent highs. 0.6
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Figure 28: European Cyclicals vs Defensives EPS and IFO Europe Cyclicals 12m Fwd P/E rel to Defensives Median +1stdev -1stdev
60% 30% Source: IBES, Datastream
40% 20%
As a combination of strong run, and poorer relative
20% 10%
earnings, Cyclical sectors now look quite expensive
versus Defensives. The above chart doesn’t change even
0% 0% if we consider 2022 earnings.
-20% -10%
-40% -20%
-60% -30%
96 98 00 02 04 06 08 10 12 14 16 18 20
Recessions/Growth scare Cyclicals vs Defensives 12m Fwd EPS %yoy IFO %yoy (RHS) - brought forward by 5 months
Source: Datastream
Cyclicals earnings will continue to recover as long as

economic data is on an uptrend.
10
(44-20) 7134-9741 15 March 2021
Figure 31: European Cyclicals vs Defensives (ex Tech) 12m Fwd On non-earnings based measures, such as PB, Cyclicals
P/E look very expensive vs Defensives, too.
1.5
1.4 …but that is not the case for Value style

1.3
1.2 Figure 33: MSCI World Value vs Growth P/Book

1.1
0.65
1.0
0.60
0.9
0.55
0.8
0.50
0.7
0.45
0.6
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 0.40
Europe Cyclicals (ex Tech) 12m Fwd P/E rel to Defensives Median +1stdev -1stdev 0.35
Source: IBES, Datastream 0.30
0.25
Ex Tech as well, Cyclicals appear expensive on P/E 0.20
metric. 04 06 08
MSCI World Value P/Book rel to MSCI Growth
10 12 14
Median
16
+1stdev
18 20
-1stdev
Table 6: Forward P/Es for Europe L1 sectors Source: Datastream
10Y Median 21e vs

On the other hand, Value continues to appear extremely
(12m 10Y
21e forward) median vs market cheap relative to Growth style.
Europe 17.22 13.96 23% 0%
Energy 14.19 11.48 24% -18% Figure 34: MSCI Europe Value vs Growth trailing P/E
Materials 15.21 13.91 9% -12% 1.1
Industrials 23.19 15.45 50% 35%
Discretionary 20.49 12.81 60% 19% 1.0
Staples 18.85 18.30 3% 9%

0.9
Healthcare 17.42 15.87 10% 1%
Financials 11.83 10.51 13% -31% 0.8
IT 31.08 18.80 65% 80%
Telecoms 14.96 14.18 6% -13% 0.7
Utilities 15.86 13.89 14% -8% 0.6

Real Estate 18.42 17.94 3% 7%
0.5
Source: IBES
0.4
76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
It’s not just the case for sectors such as Industrials, MSCI Europe Value trailing P/E rel to MSCI Growth Median +1stdev -1stdev
Discretionary which have rerated, but certain Defensives,
Source: Datastream
such as Staples, Healthcare have derated significantly in
the last year.
This is the case on P/E metric, as well.
Figure 32: European Cyclicals vs Defensives Price to Book
Figure 35: Eurozone Banks 12m Fwd. P/E relative
1.2
1.0
1.1
0.9
1.0
0.8
0.9
0.7
0.8
0.6
0.7 0.5
0.6 0.4
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Recessions Europe Cyclicals P/Book rel to Defensives Median +1stdev -1stdev MSCI Eurozone Banks 12m Fwd P/E relative Median +2 stdev -2 stdev
Source: Datastream Source: IBES
11
(44-20) 7134-9741 15 March 2021
Banks have had a strong run this year, but remain very In contrast to Cyclicals, which are at highs, Value
attractive in a long term context. rebound is still very muted in the long term context.
Figure 36: JPM Continental reopening basket Price to Book …flows are starting to turn in favour of Value /
relative Cyclicals
1.5
1.4
Figure 39: Flows: US Cyclicals vs Defensives
1.3
40000
1.2
1.1
30000
1.0
20000
0.9
10000
0.8
0.7 0
0.6
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 -10000
Strategy EU reopening basket Price to Book relative to market median Median +1 Stdev -1 Stdev
-20000
Jan 19 Apr 19 Jul 19 Oct 19 Jan 20 Apr 20 Jul 20 Oct 20 Jan 21
Source: J.P. Morgan, Bloomberg Finance L.P
US fund flows into Technology ($mn) Defensives Cyclicals ex Tech Energy + Financials
Our EU consumer reopening basket continues to screen Source: Bloomberg Finance L.P.
cheap.
After a long time of flows favouring Defensives,
Figure 37: JPM UK reopening basket Price to Book relative Cyclicals have seen better setup more recently. Most
1.5
Value sectors, including Energy and Financials,
1.4
benefitted as markets refocused on the reflation trade.
1.3
1.2
We also note that flows into Technology have stalled,
1.1
after peaking in the summer of last year.
1.0
0.9 Figure 40: Flows into US Tech vs Financials as % of AUM

0.8
20%
0.7
0.6
15%
0.5
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
10%
Strategy UK reopening basket Price to Book relative to market median Median +1 Stdev -1 Stdev
Source: J.P. Morgan, Bloomberg Finance L.P 5%
The UK reopening basket also appears attractively 0%
valued.
-5%
Jan 19 Jul 19 Jan 20 Jul 20 Jan 21
5) Big picture, Value is still near multi-year lows…
Flows into US Tech vs Financials as a % of AUM
Figure 38: MSCI Growth vs Value Source: EPFR
30% The relative repositioning between Tech and Banks could

20% run further.
10%
0% Put together, Cyclicals vs Defensives might have seen

the bulk of the move, but probably one should not
-10%
reverse the trade yet…
-20%
-30%
'75 '78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08 '11 '14 '17 '20
MSCI World Growth vs Value
Source: Datastream
12
(44-20) 7134-9741 15 March 2021
Figure 41: Cyclicals vs Defensives RSI Figure 43: USD net positioning
100
60
50
90
40
80
30
70
20
60
10
50
0
40 -10
30 -20
20 -30
10 -40
Jan 19 Jul 19 Jan 20 Jul 20 Jan 21 12 13 14 15 16 17 18 19 20 21
European Cyclicals vs Defensive 14d RSI Overbought Oversold USD net positioning (bn $) -2 stdev
Source: J.P. Morgan

Source: Datastream
We acknowledge that Cyclicals started to look USD speculative positions are very low.
overbought vs Defensives more recently.
Figure 44: JPM Commodity index and DXY
That, along with stretched valuations, suggests that 260 82
Cyclicals/Defensive trade has probably delivered the 240

87
bulk of the recovery move already. 220
92
200
Having said that, we do not believe that there is need to
wholesale go back into Defensives yet, as bond yields, 180 97
PMIs and earnings will still be supportive of Cyclicals. 160

This could keep the price relatives at highs, perhaps into 102
140
Q4. Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21
JPM commodity index DXY (rhs, reverse scale)

…stronger USD calls for some rotation within Source: Bloomberg Finance L.P., J.P. Morgan
Cyclicals…
If USD bottoms, that would be a problem for
Figure 42: DXY commodities.
104
102 Figure 45: MSCI EM ex China vs DM and EM FX
100
105
98 -13%
100 70
96
94 95
65
92 90
90 60
85
88
Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 80
55
DXY 75
70 50
Source: Datastream
Jan 18 Jul 18 Jan 19 Jul 19 Jan 20 Jul 20 Jan 21
Within this, we think that potentially stronger USD will MSCI EM ex China vs DM ($) J.P. Morgan EM FX Index (rhs)
be a headwind for some parts of reflation trade, EM and Source: Bloomberg Finance L.P.
Miners in particular. The 10+% USD weakening seen
last year might be ending. It would also continue to exert pressure on EM.
13
(44-20) 7134-9741 15 March 2021
Figure 46: European Miners relative and CRB Metal Index Figure 48: MSCI US Banks relative and US 10Y bond yield
1100
205 115 3.0%

1000
185 2.6%
900 105
165 2.2%
800 95
145 1.8%
700 85
125
1.4%
105 600 75
1.0%
85 500 65
Jan 16 Jul 16 Jan 17 Jul 17 Jan 18 Jul 18 Jan 19 Jul 19 Jan 20 Jul 20 Jan 21 0.6%
Basic Resources relative to Stoxx600 CRB Metal Price Index (rhs) 55 0.2%
Jan 16 Jul 16 Jan 17 Jul 17 Jan 18 Jul 18 Jan 19 Jul 19 Jan 20 Jul 20 Jan 21
MSCI US Banks relative US 10Y bond yield (rhs)
Source: Datastream
We have recently advised to take profits in Miners, after
huge run. Capital Goods and Chemicals might also get It is Value where we think there is more to go, Banks in
affected from this. Generally, we believe that one should particular.
move from global Cyclicals into Domestic Cyclicals.
Figure 49: European Value vs Growth and US 10Y bond yield
Figure 47: Performance of European Cyclical/Defensives and
105 3.5
Value/Growth
100 3.0
120
95
2.5
115 90
2.0
110 85
1.5
105 80
1.0
75
100
70 0.5
95
65 0.0
90 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21
85 European Value vs Growth total return US 10Y bond yield, % (rhs)
80 Source: Bloomberg Finance L.P.

Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21
Cyclical Value Cyclical Growth Defensive Value Defensive Growth
Value in general is still undershooting the upmove in
bond yields.
We expect the convergence between Cyclical
Figure 50: US Tech relative EPS revisions and returns
Value/Growth and Defensive Value/Growth to continue.
50%
50%
…we believe Value vs Growth will have further legs 40%
this year 30%

30%
20%
10% 10%
0%
-10%
-10%
-20%
-30%
-30%
-50% -40%
96 98 00 02 04 06 08 10 12 14 16 18 20
S&P500 Tech +ve to -ve EPS revisions relative (3ma) S&P500 Tech relative, %y/y (rhs)
Source: Datastream
Technology appears fundamentally sound, but we

reiterate our downgrade made last November, after our
14
(44-20) 7134-9741 15 March 2021
multi-year OW Tech stance. The gap with EPS revisions

needs to close, in our view.
Figure 51: US Tech sub-sectors correlation to bond yields

50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
11 12 13 14 15 16 17 18 19 20 21
US Software relative to S&P500 10Y correltion to US bond yield, 3ma Tech Hardware Semis
Source: Datastream
Also, the Tech subsectors are showing greater and

greater inverse correlation to bond yields, which could
pressure Tech if yields move further higher.
15
(44-20) 7134-9741 15 March 2021
Figure 55: MSCI Europe Discretionary relative

Appendix – European 120
sectoral relative 115
110
performance since Jan '20 105
100
Figure 52: MSCI Europe Energy relative
110 95
90
100
85
90 Jan 20 Mar 20 May 20 Jul 20 Sep 20 Nov 20 Jan 21 Mar 21
MSCI Europe Discretionary relative
80
Source: Datastream
70
Figure 56: MSCI Europe Staples relative
60
125
50
Jan 20 Mar 20 May 20 Jul 20 Sep 20 Nov 20 Jan 21 Mar 21 120
MSCI Europe Energy relative 115
Source: Datastream 110
105
Figure 53: MSCI Europe Materials relative 100
125 95
120 90
115 85
Jan 20 Mar 20 May 20 Jul 20 Sep 20 Nov 20 Jan 21 Mar 21
110 MSCI Europe Staples relative
105 Source: Datastream

100
Figure 57: MSCI Europe Healthcare relative
95
130
90
Jan 20 Mar 20 May 20 Jul 20 Sep 20 Nov 20 Jan 21 Mar 21 125
MSCI Europe Materials relative 120
115
Source: Datastream
110
Figure 54: MSCI Europe Industrials relative 105
115 100
95
110
90
105
MSCI Europe Healthcare relative
100 Source: Datastream
95
90
MSCI Europe Industrials relative
Source: Datastream
16
(44-20) 7134-9741 15 March 2021
Figure 58: MSCI Europe Financials relative Figure 61: MSCI Europe Utilities relative
105 125
100 120
95 115
90 110
85 105
80 100
75 95
Jan 20 Mar 20 May 20 Jul 20 Sep 20 Nov 20 Jan 21 Mar 21 Jan 20 Mar 20 May 20 Jul 20 Sep 20 Nov 20 Jan 21 Mar 21
MSCI Europe Financials relative MSCI Europe Utilities relative
Source: Datastream Source: Datastream
Figure 59: MSCI Europe IT relative Figure 62: MSCI Europe Real Estate relative
130 110
125 105
120
100
115
95
110
90
105
100 85
95 80
Jan 20 Mar 20 May 20 Jul 20 Sep 20 Nov 20 Jan 21 Mar 21 Jan 20 Mar 20 May 20 Jul 20 Sep 20 Nov 20 Jan 21 Mar 21
MSCI Europe IT relative MSCI Europe Real Estate relative
Source: Datastream Source: Datastream
Figure 60: MSCI Europe Communication Services relative

110
105
100
95
90
85
MSCI Europe Commuication Services relative
Source: Datastream
17
(44-20) 7134-9741 15 March 2021
Equity Strategy Key Calls and Drivers

We argued for a likely breakout in bond yields, but also believe that equities will be able to tolerate this repricing, as Growth-Policy
tradeoff remains supportive. The weaker trading in the second half of February was partly due to accelerated yields spike and a move up
in real rates, as inflation forwards fell, but that should not continue at this pace. We expect further rises in bond yields, but not an
imminent convergence with breakevens, at least not while growth and inflation are about to accelerate. Big picture, the phase of activity
pickup is ahead of us, as signalled by a M1 surge, which should also coincide with the easing of lockdowns across Europe. At the same
time, excess liquidity is likely to stay ample, as policymakers err on the side of caution. Out of potential upcoming headwinds to some
aspects of the reflation trade, USD direction and China credit impulse are notable. USD could end up resilient, in contrast to widespread
consensus view that it will keep depreciating, and China credit impulse has peaked, which tended to lead commodity prices by 6-9
months. Miners are tactically stretched, we hold a preference for Financials and the consumer reopening stocks among cyclicals.
Regionally, we believe US will not be the leader this year as bond yields rise, and Tech correlations with bond yields are turning more and
more negative.
Table 7: J.P. Morgan Equity Strategy — Factors driving our medium-term views
Driver Impact Our Core Working Assumptions Recent Developments
Global Growth Positive Expect stronger PMIs in Q2 Global composite PMI is at 53.2
European Growth Positive Eurozone real GDP to expand by 5.7% in ‘21e
Monetary Policy Positive Central banks liquidity support will stay in place, tapering concerns will likely not ECB commits to maintain easy financial conditions. expands asset
be significant this year purchases, sets up new liquidity facility for central banks outside Euro
Area
Currency Positive Dollar could weaken further in 2021
Earnings Positive Very strong earnings expectations for this year, ~50% y/y in Eurozone Consensus projects ~40% EPS growth for Eurozone in 2021
Valuations Neutral Stage of the cycle is supportive for high valuations. Yield gaps vs bonds and MSCI Europe on 16.6x Fwd P/E
credit are far from stretched in a historical context, offering a big 100-200bp
cushion
Technicals Neutral Technicals are stabilising, short squeeze appears well advanced.
Source: J.P. Morgan estimates.
Table 8: Base Case and Risks Table 9: Index levels

Scenario Assumption 2021 Target 11-Mar-21 % upside
Upside scenario Virus impact fades MSCI EMU 268 245 9%
Dramatic policy response to drive a strong recovery FTSE 100 7,100 6,737 5%
Base-case scenario Cyclical recovery MSCI EUROPE 1,830 1,706 7%
Downside scenario Prolonged economic weakness driven by continued virus DJ EURO STOXX 50 4,180 3,846 9%
uncertainty DJ STOXX 600 E 450 424 6%
Source: J.P. Morgan estimates. Source: J.P. Morgan.
Table 10: Key Global sector calls

Overweight Neutral Underweight
Financials Technology Real Estate
Communication Services Energy Staples
Utilities Industrials
Healthcare
Materials
Source: J.P. Morgan.
Table 11: J.P. Morgan Equity Strategy — Key sector calls*

Sector Recommendations Key Drivers
Financials Overweight Sector is cheap, has underperformed, earnings are improving and stands to benefit from a reflationary backdrop
Comm. Services Overweight Sharp underperformance and attractive valuations. Potential value unlocking through disinvestment and M&A announcements
Staples Underweight Shows clear negative correlation to bond yields and could be hurt if yields rise. Earnings momentum could peter out over the coming
quarters.
Source: J.P. Morgan estimates. * Please see the last page for the full list of our calls and sector allocation.
Table 12: J.P. Morgan Equity Strategy — Key regional calls

Region Recommendations J.P. Morgan Views
EM Overweight EM looks attractive given likely easing in trade uncertainty, weaker USD, light positioning and the global activity acceleration this year
DM Underweight
US Neutral US benefits from stronger fiscal stimulus and a greater Fed backstop. It is Growth heavy and will likely lag in a Value driven market
Japan Overweight Global cycle play, with positive correlation to bond yields and to PMI direction. Valuations appear attractive and positioning looks light
Eurozone Overweight Key Value play and should benefit from a more reflationary backdrop in 1H ’21. Also a beta play on improving global activity and trade.
UK Neutral Valuations look attractive, large gap opened between FTSE100 and GBP. However, UK is not a Value play.
Others Underweight Cautious on Canada, Switzerland and Australia.
Source: J.P. Morgan estimates.
18
(44-20) 7134-9741 15 March 2021
Top Picks
Table 13: J.P. Morgan European Strategy: Top European picks
EPS Growth Dividend Yield 12m Fwd P/E Performance
Market Cap
Name Ticker Sector Rating Price Currency (€ Bn) 20e 21e 22e 21e Current 10Y Median % Premium -3m -12m
BP BP/ LN Energy OW 320 £ 76.1 -157% - 47% 4.7% 13.3 11.7 14% 16% 1%
SOLVAY SOLB BB Materials OW 105 E 11.1 -42% 10% 17% 3.5% 15.6 12.6 24% 9% 53%
ANGLO AMERICAN AAL LN Materials N 2990 £ 43.9 -7% 98% -18% 4.5% 8.7 9.9 -12% 22% 97%
BHP GROUP BHP LN Materials OW 2174 £ 145.2 -2% 56% -4% 7.3% 11.2 11.7 -4% 9% 93%
ARCELORMITTAL MT NA Materials OW 22 E 24.6 - - -11% 1.5% 8.7 11.0 -21% 26% 135%
SAINT GOBAIN SGO FP Industrials OW 49 E 26.2 -22% 34% 10% 2.9% 13.0 12.7 3% 25% 72%
ANDRITZ ANDR AV Industrials OW 39 E 4.1 64% 34% 9% 3.3% 13.9 15.2 -9% 9% 38%
SIGNIFY LIGHT NA Industrials N 40 E 5.0 27% -9% 10% 3.8% 11.8 9.6 23% 20% 85%
REXEL RXL FP Industrials OW 15 E 4.8 -18% 21% 20% 3.1% 13.4 11.5 16% 30% 71%
EASYJET EZJ LN Industrials N 1032 £ 5.5 -300% - - 0.0% -20.9 11.2 - 26% 12%
VOLVO VOLVB SS Industrials OW 236 SK 47.5 -42% 42% 16% 2.6% 16.3 12.8 27% 23% 83%
BMW BMW GR Discretionary N 78 E 50.0 -100% - 20% 3.4% 9.3 8.4 11% 11% 55%
KERING KER FP Discretionary OW 587 E 74.7 -38% 42% 16% 1.7% 25.5 15.9 61% 2% 34%
BARRATT DEVELOPMENTS BDEV LN Discretionary OW 760 £ 8.9 -45% 57% 9% 3.3% 11.3 10.1 13% 30% 18%
MARKS & SPENCER MKS LN Discretionary N 156 £ 3.6 -32% -81% 281% 0.0% 13.6 11.3 20% 20% 21%
CARREFOUR CA FP Staples OW 14 E 12.0 11% 8% 11% 3.7% 10.4 13.7 -24% 4% 1%
CARLSBERG CARLB DC Staples OW 1009 DK 20.8 6% 4% 13% 2.3% 21.8 17.7 23% 7% 29%
COCA-COLA HBC CCH LN Staples OW 2351 £ 10.0 -18% 19% 11% 2.4% 19.3 19.8 -3% 2% 19%
DANONE BN FP Staples N 57 E 39.8 -13% 0% 11% 3.5% 16.9 17.4 -3% 9% -1%
ONTEX GROUP ONTEX BB Staples N 10 E 0.8 -6% 9% 5% 2.2% 8.7 14.0 -38% -3% -32%
FRESENIUS FRE GR Health Care OW 36 E 20.1 -6% 2% 13% 2.5% 10.8 15.8 -32% -3% 1%
ROCHE HOLDING ROG SW Health Care N 308 SF 238.3 -5% 3% 6% 3.1% 15.5 14.9 4% 1% 4%
SANOFI SAN FP Health Care OW 80 E 100.8 -2% 5% 12% 4.1% 12.7 13.1 -3% 2% 1%
HIKMA PHARMACEUTICALS HIK LN Health Care OW 2231 £ 5.9 14% 6% 14% 1.6% 16.8 18.0 -7% -11% 22%
IPSEN IPN FP Health Care OW 68 E 5.6 8% 0% -1% 1.5% 9.3 15.9 -42% -1% 37%
SOCIETE GENERALE GLE FP Financials OW 21 E 18.5 -107% - 57% 3.9% 11.0 8.1 36% 28% 14%
BARCLAYS BARC LN Financials OW 174 £ 36.3 -60% 74% 34% 3.0% 10.0 8.5 17% 28% 48%
ING INGA NA Financials OW 10 E 39.3 -48% 49% 13% 7.0% 10.2 8.8 16% 26% 56%
JUPITER FUND MANAGEMENT JUP LN Financials OW 278 £ 1.8 0% -12% 6% 6.1% 10.9 13.1 -17% 5% 12%
AGEAS AGS BB Financials OW 50 E 9.8 19% -21% 9% 5.5% 10.2 10.0 2% 21% 36%
M&G MNG LN Financials OW 219 £ 6.8 -42% -9% 2% 8.0% 9.7 8.2 19% 18% 31%
UBS GROUP UBSG SW Financials OW 14 SF 50.4 46% -19% 14% 2.7% 10.5 10.9 -4% 15% 57%
BNP PARIBAS BNP FP Financials OW 52 E 66.5 -14% -1% 16% 5.4% 9.7 8.4 15% 21% 47%
INMOBILIARIA COLONIAL COL SM Real Estate OW 8 E 4.1 0% 2% 12% 2.3% 29.1 26.8 9% 0% -23%
MICRO FOCUS INTL. MCRO LN IT N 489 £ 1.9 -21% -6% 0% 5.0% 4.7 11.2 -58% 7% -17%
WORLDLINE WLN FP IT OW 77 E 21.1 8% 37% 18% 0.0% 30.8 27.2 13% -1% 31%
AMS AMS SW IT OW 19 SF 4.6 -114% - 92% 0.0% 17.7 14.1 25% 3% 26%
PROSIEBENSAT 1 MEDIA PSM GR Telecoms OW 18 E 4.2 -100% - 11% 3.8% 12.4 12.1 3% 39% 95%
VODAFONE GROUP VOD LN Telecoms OW 132 £ 41.4 20% 25% 31% 5.8% 16.0 18.5 -14% 1% 12%
ENGIE ENGI FP Utilities OW 12 E 29.8 -37% 44% 7% 6.1% 11.9 12.4 -4% -1% -4%
ENEL ENEL IM Utilities OW 8 E 84.0 -100% - 7% 4.6% 15.3 11.7 31% 3% 28%
EDP EDP PL Utilities OW 5 E 19.0 -100% - 10% 3.9% 21.2 12.4 71% 3% 24%
Source: Datastream, MSCI, IBES, J.P. Morgan, Prices and Valuations as of COB 11 th Mar, 2021. Past performance is not indicative of future returns.
Please see the most recent company-specific research published by J.P. Morgan for an analysis of valuation methodology and risks on companies recommended in this report. Research is
available at http://www.jpmorganmarkets.com, or you can contact the covering analyst or your J.P. Morgan representative.
19
(44-20) 7134-9741 15 March 2021
Equity Flows Snapshot

Table 14: DM Equity Fund Flows Summary
Regional equity fund flows
$mn % AUM
1w 1m 3m ytd 12m 1w 1m 3m ytd 12m
Global 12,213 54,421 154,591 113,855 231,914 0.3% 1.5% 4.6% 3.2% 8.5%
Europe ex UK -811 -2,583 -3,735 -3,210 -18,851 -0.2% -0.7% -1.1% -0.9% -6.1%
UK -59 -999 -920 -795 -5,637 0.0% -0.3% -0.3% -0.3% -1.9%
US 6,262 69,009 91,218 71,248 106,473 0.1% 0.9% 1.3% 1.0% 1.8%
Japan -2,374 3,243 6,397 8,672 42,843 -0.3% 0.4% 0.8% 1.1% 7.4%
Source: EPFR, as of 3rd Mar, 2021
Figure 63: DM Equity Fund flows – last month Figure 65: DM Equity Fund flows – last 12 months
Global 1.5% Global 8.5%
Japan 0.4% Japan 7.4%
US 0.9% US 1.8%
UK -0.3% UK -1.9%
Europe ex UK Europe ex UK -6.1%

-0.7%
-10% -5% 0% 5% 10%

-1.2% -0.8% -0.4% 0.0% 0.4% 0.8% 1.2% 1.6%
Equity fund flows - last 12 months
Equity fund flows - last 4 weeks
Source: EPFR, Japan includes BoJ purchases.
Source: EPFR, Japan includes BoJ purchases.
Figure 66: Cumulative fund flows into regional equity ETFs as a

Figure 64: Cumulative fund flows into regional funds as a
percentage of AUM
percentage of AUM
100%
5%
0% 80%
-5% 60%
-10%
40%
-15%
20%
-20%
-25% 0%
-30%
-20%
-35%
Jan 16 Jul 16 Jan 17 Jul 17 Jan 18 Jul 18 Jan 19 Jul 19 Jan 20 Jul 20 Jan 21 -40%
Jan 17 Jul 17 Jan 18 Jul 18 Jan 19 Jul 19 Jan 20 Jul 20 Jan 21
Europe ex UK fund flows as a % of AUM Japan UK US
US ETF flow % of AUM UK Eurozone Japan EM
Source: EPFR, as of 3rd Mar, 2021. Japan includes Non-ETF purchases only.
Source: Bloomberg Finance L.P. *Based on the 25 biggest ETF's with a mandate to invest
in that particular region. Japan includes BoJ purchases.
20
(44-20) 7134-9741 15 March 2021
Technical Indicators
Figure 67: S&P500 RSI Figure 71: Eurostoxx50 RSI
90 90
80 80
70
70
60
60
50
50 40
40 30
30 20
10
20
0
10 13 14 15 16 17 18 19 20 21
13 14 15 16 17 18 19 20 21
S&P500 RSI Oversold Overbought EuroStoxx50 RSI Oversold Overbought

Figure 72: Investors intelligence – proportion of bulls and bears

Figure 68: AAII Bull-Bear
45% 60
30%
50
15%
40
0%
30
-15%
20
-30%
10
11 12 13 14 15 16 17 18 19 20 21
-45%
09 10 11 12 13 14 15 16 17 18 19 20 21 Investors Intelligence Investor Sentiment Readings,% - Bullish Bearish
AAII Bull - Bear Median +1 stdev -1 stdev
Source: Bloomberg Finance L.P., as of 9th Jan’21
Source: Bloomberg Finance L.P
Figure 73: Equity Skew
Figure 69: Hedge Fund Beta 147
95% 142
80%
137
65%
50% 132
35%
127
20%
5% 122
-10% 117
-25%
112
-40%
14 15 16 17 18 19 20 21
-55%
CBOE Skew (1mma)
03 05 07 09 11 13 15 17 19
Global Macro HF beta to MSCI World +1 stdev -1 stdev Source: Bloomberg Finance L.P.
Figure 74: VIX
Figure 70: Speculative positions in S&P500 futures contracts 95
70,000 85
75
50,000
65
30,000 55
10,000 45
35
-10,000
25
-30,000
15
-50,000 5
12 13 14 15 16 17 18 19 20 21 Jan 16 Jul 16 Jan 17 Jul 17 Jan 18 Jul 18 Jan 19 Jul 19 Jan 20 Jul 20 Jan 21
S&P500 non-commercial contracts - Longs minus Shorts VIX
Source: Bloomberg Finance L.P. Source: Bloomberg Finance L.P.
21
(44-20) 7134-9741 15 March 2021
Performance
Table 15: Sector Index Performances — MSCI Europe
(%change) Local currency
Industry Group 4week 12m YTD
Europe 3.1 26.0 5.7
Energy 18.3 23.5 19.3
Materials 3.9 53.7 9.1
Chemicals 2.3 38.4 4.9
Construction Materials 10.3 47.2 15.9
Metals & Mining 5.4 90.0 14.3
Industrials 4.7 40.9 7.9
Capital Goods 5.2 43.2 9.3
Transport 8.4 64.0 9.9
Business Svs (1.3) 15.2 (1.1)
Consumer Discretionary 5.7 55.6 9.9
Automobile 9.6 67.8 14.9
Consumer Durables 5.5 52.0 7.3
Media 5.5 23.0 5.4
Retailing (2.0) 55.0 5.9
Hotels, Restaurants & Leisure 11.3 45.3 16.9
Consumer Staples 0.1 6.9 (2.7)
Food & Drug Retailing (2.6) 3.5 (0.5)
Food Beverage & Tobacco 0.1 6.8 (1.9)
Household Products 0.9 8.3 (5.3)
Healthcare (3.4) 7.3 (0.9)
Financials 7.8 24.3 11.8
Banks 10.4 17.2 16.3
Diversified Financials 1.0 39.1 6.8
Insurance 9.3 25.2 9.8
Real Estate 1.9 (1.0) (3.6)
Information Technology (3.0) 42.8 6.5
Software and Services (1.3) 16.5 1.5
Technology Hardware (1.4) 51.5 8.1
Semicon & Semicon Equip (5.4) 84.0 12.4
Telecommunications Services 4.7 13.6 6.5
Utilities (1.6) 12.5 (3.7)
Source: MSCI, Datastream, as at COB 11th Mar, 2021.
Table 16: Country and Region Index Performances

(%change) Local Currency US$
Country Index 4week 12m YTD 4week 12m YTD
Austria ATX 5.5 36.5 13.2 4.0 44.8 10.7
Belgium BEL 20 1.2 22.0 6.1 (0.3) 29.4 3.7
Denmark KFX (1.7) 38.2 (0.9) (3.1) 47.3 (3.1)
Finland HEX 20 2.3 39.7 6.4 0.8 48.2 4.0
France CAC 40 6.4 30.9 8.7 4.9 38.8 6.2
Germany DAX 3.8 39.6 6.2 2.3 48.0 3.8
Greece ASE General 9.8 41.1 5.1 8.2 49.6 2.7
Ireland ISEQ 10.5 40.5 8.4 9.0 49.0 6.0
Italy FTSE MIB 3.5 34.5 8.5 2.0 42.7 6.1
Japan Topix (0.3) 39.0 6.7 (3.8) 34.3 1.5
Netherlands AEX 2.9 41.2 9.5 1.5 49.8 7.0
Norway OBX 6.9 42.0 9.2 7.2 62.1 10.8
Portugal BVL GEN (1.8) 19.8 (4.3) (3.2) 27.0 (6.4)
Spain IBEX 35 6.9 15.6 6.4 5.4 22.5 4.0
Sweden OMX 7.7 43.2 15.5 5.8 60.6 12.0
Switzerland SMI 0.3 18.9 1.7 (3.5) 20.6 (2.9)
United States S&P 500 0.6 43.7 4.9 0.6 43.7 4.9
United States NASDAQ (4.5) 68.5 4.0 (4.5) 68.5 4.0
United Kingdom FTSE 100 3.2 14.6 4.3 4.3 24.3 6.6
EMU MSCI EMU 3.5 32.1 7.1 2.1 40.1 4.7
Europe MSCI Europe 3.1 26.0 5.7 1.8 33.7 4.0
Global MSCI AC World 0.4 40.1 5.0 (0.0) 42.3 4.3
Source: MSCI, Datastream, as at COB 11th Mar, 2021.
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Earnings
Table 17: IBES Consensus EPS Sector Forecasts — MSCI Europe
EPS Growth (%)
2020 2021E 2022E 2023E
Europe (26.6) 32.6 14.6 9.8
Energy (89.2) 570.7 36.3 12.7
Materials (3.9) 40.4 (2.3) 2.3
Chemicals (10.9) 17.1 12.3 12.9
Construction Materials (7.5) 15.4 11.0 7.3
Metals & Mining 10.0 69.5 (14.9) (7.7)
Industrials (47.7) 73.4 18.2 12.9
Capital Goods (45.8) 63.3 19.6 12.1
Transport (99.3) 13088.2 15.5 22.2
Business Svs (16.3) 17.2 11.9 9.7
Discretionary (62.2) 169.0 26.2 13.7
Automobile (76.5) 358.1 25.6 13.4
Consumer Durables (44.0) 77.1 16.8 11.5
Media (36.6) 35.0 14.4 9.7
Retailing (23.1) 73.5 30.6 18.8
Hotels, Restaurants & Leisure (86.3) 282.3 90.0 18.0
Staples (10.4) 6.3 9.6 7.0
Food & Drug Retailing (4.9) 8.5 8.0 4.6
Food Beverage & Tobacco (12.9) 7.6 10.7 8.1
Household Products (5.5) 1.8 7.4 4.9
Healthcare (0.2) 4.7 11.5 10.6
Financials (25.1) 18.3 16.0 10.0
Banks (44.3) 29.3 22.3 11.9
Diversified Financials 34.5 (9.8) 15.9 11.4
Insurance (15.3) 23.7 8.3 6.7
Real Estate (8.7) 2.6 7.9 1.6
IT 1.9 9.0 17.0 15.1
Software and Services (12.7) 4.4 15.4 15.1
Technology Hardware 30.2 (8.4) 18.2 13.1
Semicon & Semicon Equip 13.9 32.4 18.4 16.1
Telecoms (10.0) 6.4 12.3 8.9
Utilities 3.1 13.2 7.1 5.0
Source: IBES, MSCI, Datastream. As at COB 11th Mar 2021.
Table 18: IBES Consensus EPS Country Forecasts

EPS Growth (%)
Country Index 2020 2021E 2022E 2023E
Austria ATX (37.6) 40.4 21.9 11.4
Belgium BEL 20 (37.1) 23.1 14.3 12.0
Denmark Denmark KFX (0.2) 22.0 8.3 12.1
Finland MSCI Finland (22.8) 24.2 11.1 10.9
France CAC 40 (40.4) 55.0 18.0 10.0
Germany DAX (5.6) 22.4 15.0 9.3
Greece MSCI Greece (23.0) 49.7 8.1 19.7
Ireland MSCI Ireland (4.8) 5.3 15.3 8.9
Italy MSCI Italy (40.6) 45.7 17.7 12.3
Netherlands AEX (22.6) 39.3 17.7 10.0
Norway MSCI Norway (14.4) 21.5 11.0 7.7
Portugal MSCI Portugal (18.8) 45.3 17.5 4.6
Spain IBEX 35 (61.6) 95.0 29.8 13.1
Sweden OMX (10.1) 16.8 10.4 7.4
Switzerland SMI (0.4) 8.8 9.9 8.0
United Kingdom FTSE 100 (40.8) 51.2 14.4 9.1
EMU MSCI EMU (30.1) 37.7 17.9 11.0
Europe ex UK MSCI Europe ex UK (22.3) 28.1 15.2 10.3
Europe MSCI Europe (26.6) 32.6 14.6 9.8
United States S&P 500 (12.8) 24.9 15.2 11.2
Japan Topix (29.1) (4.6) 43.7 15.1
Emerging Market MSCI EM (0.5) 34.8 15.8 12.5
Global MSCI AC World (12.3) 29.1 14.1 11.0
Source: IBES, MSCI, Datastream. As at COB 11th Mar, 2021** Japan refers to the period from March in the year stated to March in the following year – EPS post-goodwill.
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Valuations
Table 19: IBES Consensus European Sector Valuations
P/E Dividend Yields EV/EBITDA Price to Book
2021e 2022e 2023e 2021e 2022e 2023e 2021e 2022e 2023e 2021e 2022e 2023e
Europe 17.5 15.3 13.9 2.3% 2.8% 3.1% 9.9 9.0 8.1 2.0 1.9 1.8
Energy 15.1 11.1 9.8 3.2% 4.2% 4.5% 6.8 4.9 4.1 1.3 1.3 1.2
Materials 15.2 15.5 15.2 3.1% 3.8% 3.6% 8.2 7.1 7.4 2.2 2.1 2.0
Chemicals 23.8 21.2 18.8 2.6% 2.5% 2.6% 13.1 12.1 11.3 3.1 2.9 2.8
Construction Materials 14.7 13.2 12.3 3.0% 3.1% 3.3% 7.1 7.1 6.6 1.4 1.3 1.2
Metals & Mining 9.8 11.5 12.5 3.9% 5.6% 4.9% 5.8 5.0 5.6 1.9 1.8 1.7
Industrials 23.8 20.2 17.8 1.6% 2.0% 2.3% 13.4 11.5 9.9 4.1 3.7 3.5
Capital Goods 23.9 20.0 17.9 1.6% 1.9% 2.2% 12.2 11.7 10.1 3.9 3.5 3.3
Transport - 20.1 16.5 1.1% 1.8% 2.2% 16.7 9.8 8.3 3.9 3.4 3.2
Business Svs 23.5 21.0 18.5 2.2% 2.3% 2.5% 14.7 13.8 12.4 7.6 6.8 6.2
Discretionary 21.3 16.9 14.8 0.9% 1.6% 2.1% 9.0 7.4 6.5 2.7 2.4 2.2
Automobile 9.8 7.8 6.9 1.5% 3.1% 3.8% 3.6 2.3 2.1 1.1 0.9 0.8
Consumer Durables 29.1 24.9 22.4 0.9% 1.5% 1.7% 18.6 15.8 13.8 4.8 4.4 4.0
Media & Entertainment 20.1 17.6 15.8 1.6% 2.1% 2.3% 12.3 11.5 7.9 2.1 1.8 1.7
Retailing 39.1 30.0 25.2 0.4% 0.7% 1.1% 21.4 28.5 22.0 6.0 5.5 5.0
Hotels, Restaurants & Leisure 53.8 28.3 24.0 0.2% 0.8% 1.7% 21.1 23.1 14.9 4.0 3.9 3.7
Staples 19.3 17.6 16.5 2.6% 2.8% 3.0% 11.1 11.8 10.4 3.1 3.0 2.8
Food & Drug Retailing 12.6 11.6 11.1 3.6% 3.8% 4.0% 6.2 6.8 6.2 1.6 1.5 1.4
Food Beverage & Tobacco 19.5 17.6 16.3 2.7% 2.9% 3.1% 12.9 12.0 10.2 3.0 2.8 2.7
Household Products 21.8 20.3 19.4 2.2% 2.3% 2.4% 10.1 14.7 13.7 4.4 4.6 4.3
Healthcare 17.3 15.5 14.1 2.5% 2.6% 2.7% 12.6 12.9 11.1 3.8 3.6 3.3
Financials 12.0 10.3 9.3 2.8% 4.3% 4.7% - - - 0.9 0.9 0.8
Banks 11.4 9.3 8.3 2.2% 4.8% 5.4% - - - 0.6 0.7 0.6
Diversified Financials 15.5 13.4 12.0 2.2% 2.4% 2.7% - - - 1.3 1.3 1.2
Insurance 11.0 10.2 9.6 4.1% 5.0% 5.2% - - - 1.1 1.1 1.0
Real Estate 18.4 17.0 16.7 3.8% 3.1% 3.5% - - - 0.9 0.9 0.9
IT 30.9 26.4 22.9 0.8% 1.0% 1.1% 18.8 18.8 16.5 5.8 5.3 4.8
Software and Services 29.8 25.9 22.5 0.9% 1.0% 1.1% 19.8 19.3 16.9 5.5 5.0 4.6
Technology Hardware 22.4 18.9 15.9 1.0% 1.7% 1.9% 10.3 11.6 10.3 3.6 3.2 2.9
Semicon & Semicon Equip 37.5 31.6 27.2 0.6% 0.7% 0.8% 25.1 23.7 20.4 8.3 7.8 7.0
Communication Services 15.5 13.8 12.6 4.0% 3.9% 4.2% 6.3 6.4 5.9 1.6 1.5 1.4
Utilities 16.4 15.3 14.6 3.7% 4.4% 4.6% 9.3 9.3 9.1 1.9 1.7 1.7
Source: IBES, MSCI, Datastream. As at COB 11th Mar, 2021.
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Table 20: IBES Consensus P/E and 12-Month Forward Dividend Yields — Country Forecasts
P/E Dividend Yield
Country Index 12mth Fwd 2021E 2022E 2023E 12mth Fwd
Austria ATX 13.2 13.8 11.4 9.9 3.4%
Belgium BEL 20 16.8 17.0 15.2 13.3 3.4%
Denmark Denmark KFX 25.0 25.6 23.6 21.1 1.7%
Finland MSCI Finland 20.8 21.4 19.2 17.3 3.6%
France CAC 40 17.7 18.5 15.7 14.3 2.9%
Germany DAX 15.4 16.0 13.9 12.7 2.9%
Greece MSCI Greece 72.7 75.4 69.7 58.3 1.2%
Ireland MSCI Ireland 23.4 24.3 21.1 19.3 1.4%
Italy MSCI Italy 13.9 14.5 12.3 11.1 4.1%
Netherlands AEX 21.7 22.5 19.1 17.3 2.0%
Norway MSCI Norway 16.5 17.0 15.3 14.2 3.9%
Portugal MSCI Portugal 20.3 21.2 18.0 17.2 4.4%
Spain IBEX 35 17.7 19.0 14.6 12.9 3.6%
Sweden OMX 20.1 20.6 18.7 17.4 3.0%
Switzerland SMI 17.5 17.9 16.3 15.1 3.1%
United Kingdom FTSE 100 14.3 14.8 13.0 11.8 3.9%
EMU MSCI EMU 17.7 18.5 15.7 14.1 2.9%
Europe ex UK MSCI Europe ex UK 18.1 18.8 16.3 14.8 2.9%
Europe MSCI Europe 16.9 17.5 15.3 13.9 3.2%
United States S&P 500 22.0 23.0 19.9 18.0 1.6%
Japan Topix 17.0 24.6 17.1 14.9 2.1%
Emerging Market MSCI EM 15.3 15.9 13.7 13.5 2.3%
Global MSCI AC World 19.1 19.7 17.5 16.0 2.1%
Source: IBES, MSCI, Datastream. As at COB 11th Mar, 2021; ** Japan refers to the period from March in the year stated to March in the following year – P/E post goodwill.
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Economic, Interest Rate and Exchange Rate Outlook

Table 21: Economic Outlook in Summary
Real GDP Real GDP Consumer prices
% oya % over previous period, saar % oya
2020 2021E 2022E 2Q20 3Q20 4Q20E 1Q21E 2Q21E 3Q21E 2Q20 4Q20 2Q21 4Q21
United States -3.5 6.2 4.0 -31.4 33.4 4.1 5.0 9.5 8.2 0.4 1.2 3.4 2.6
Eurozone -6.8 5.7 4.8 -39.2 59.9 -2.4 -1.0 13.0 8.5 0.2 -0.3 1.9 2.3
United Kingdom -9.9 6.0 6.7 -57.0 81.9 4.0 -14.0 25.0 19.9 0.7 0.6 2.1 2.4
Japan -4.9 4.1 2.4 -29.3 22.7 12.7 -1.0 5.0 5.0 0.1 -1.0 -0.4 0.4
Emerging markets -1.5 7.6 4.8 3.3 31.7 13.4 3.7 5.2 5.4 3.4 2.4 3.3 3.6
Global -3.6 5.2 5.2 -19.6 38.1 7.5 2.2 8.4 7.2 1.5 1.2 2.8 2.8
Source: J.P. Morgan economic research J.P. Morgan estimates, as of COB 4th Mar, 2021
Table 22: Official Rates Outlook

% Forecast Forecast for
Official interest rate Current Last change (bp) next change (bp) Sep 20 Dec 20 Mar 20 Jun 21
United States Federal funds rate 0.25 15 Mar 20 (-100bp) On hold 0.25 0.25 0.25 0.25
Eurozone Depo rate -0.50 Sep 19 (-10bp) On hold -0.50 -0.50 -0.50 -0.50
United Kingdom Repo rate 0.10 19 Mar 20 (-15bp) On hold 0.10 0.10 0.10 0.10
Japan Overnight call rate -0.10 Jan 16 (-20bp) On hold -0.10 -0.10 -0.10 -0.10
Source: J.P. Morgan estimates, Datastream, as of COB 4th Mar, 2021.
Table 23: 10-Year Government Bond Yield Forecasts

10Yr Govt BY Forecast for end of
11-Mar-21 Mar 21 Jun 21 Sep 21 Dec 21
US 1.63 1.35 1.50 1.60 1.65
Euro Area -0.30 -0.40 -0.35 -0.25 -0.20
United Kingdom 0.83 0.70 0.75 0.85 1.00
Japan 0.12 0.10 0.10 0.15 0.15
Source: J.P. Morgan estimates, Datastream, forecasts as of COB 4th Mar, 2021.
Table 24: Exchange Rate Forecasts vs. US Dollar

Exchange rates vs US$ Forecast for end of
11-Mar-21 Mar 21 Jun 21 Sep 21 Dec 21
EUR 1.20 1.20 1.20 1.19 1.18
GBP 1.40 1.37 1.36 1.35 1.34
CHF 0.92 0.90 0.89 0.89 0.90
JPY 109 102 101 99 98
DXY 91.4 90.8 90.5 90.7 91.2
Source: J.P. Morgan estimates, Datastream, forecasts as of COB 4th Mar, 2021.
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Sector, Regional and Asset Class Allocations

Table 25: J.P. Morgan Equity Strategy — European Sector Allocation
J.P. Morgan
MSCI Europe Weights J.P. Morgan Allocation Deviation From MSCI Recommendation
Energy 4.5% 4.0% -0.5% N
Materials 8.3% 8.0% -0.3% N
Chemicals N
Construction Materials OW
Metals & Mining N
Industrials 14.5% 14.0% -0.5% N
Capital Goods ex Aerospace & Defence N
Aerospace & Defence* OW
Transport OW
Business Services N
Consumer Discretionary 10.0% 10.0% 0.0% N
Automobile N
Consumer Durables N
Hotels, Restaurants, Leisure OW
Speciality Retail OW
Internet Retail N
Consumer Staples 13.3% 11.0% -2.3% UW
Food & Drug Retailing UW
Beverages OW
Food & Tobacco UW
Household Products UW
Healthcare 14.7% 14.0% -0.7% N
Financials 15.3% 19.0% 3.7% OW
Banks OW
Insurance OW
Real Estate 1.4% 0.0% -1.4% UW
Information Technology 7.8% 7.0% -0.8% N
Software and Services UW
Technology Hardware N
Semicon & Semicon Equip OW
Communication Services 5.2% 6.0% 0.8% OW
Telecommunication Services OW
Media N
Utilities 5.0% 7.0% 2.0% OW
100.0% 100.0% 0.0% Balanced
Source: MSCI, Datastream, J.P. Morgan.
Table 26: J.P. Morgan Equity Strategy — Global Regional Allocation

MSCI Weights Allocation Deviation Recommendation
EM 13.3% 15.0% 1.7% Overweight

DM 86.7% 85.0% -1.7% Underweight
US 66.1% 65.0% -1.1% Neutral
Japan 7.8% 10.0% 2.2% Overweight
Eurozone 9.9% 13.0% 3.1% Overweight
UK 4.4% 5.0% 0.6% Neutral
Other* 11.8% 7.0% -4.8% Underweight
100.0% 100.0% 0.0% Balanced
Source: MSCI, J.P. Morgan *Other includes Denmark, Switzerland, Australia, Canada, Hong Kong SAR, Sweden, Singapore, New Zealand, Israel and Norway
Table 27: J.P. Morgan Equity Strategy — European Regional Allocation

MSCI Europe Weights Allocation Deviation Recommendation
Eurozone 51.5% 60.0% 8.5% Overweight
United Kingdom 23.0% 21.0% -2.0% Neutral
Other** 25.4% 19.0% -6.4% Underweight
100.0% 100.0% 0.0% Balanced
Source: MSCI, J.P. Morgan **Other includes Denmark, Switzerland, Sweden and Norway
Table 28: J.P. Morgan Equity Strategy — Asset Class Allocation

Benchmark Weighting Allocation Deviation Recommendation
Equities 60% 65% 5% Overweight
Bonds 30% 25% -5% Underweight
Cash 10% 10% 0% Neutral
100% 100% 0% Balanced
Source: MSCI, J.P. Morgan
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(44-20) 7134-9741 15 March 2021
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didn’t tend to peak out until the PMIs peaked. -60%

 3. Earnings momentum for Cyclicals will continue accelerating over the

European Cyclicals vs Defensives European Value vs Growth

Source: Bloomberg Finance L.P.

Figure 2: European and US Cyclicals versus Defensives ytd

Cyclicals & Banks, and 110

return to Defensives and 108

We have been receiving frequent questions over the past 102

few weeks regarding whether it is time to start locking in 100

the gains in Cyclicals, and return to Defensives.

Basic Resources 111.1% Source: Datastream, J.P. Morgan

Travel and Leisure 70.4%

Media 44.2% 100

STOXX 600 43.1% 95

4% 24% 44% 64% 84% 104% 124% 65

MSCI Europe Value vs Growth MSCI US Value vs Growth

Source: Datastream We note though that the relative performance of Value vs

Table 3: Size and duration of Value upmoves in past recoveries

1.7% This is likely to be the case as long as financial

Source: Bloomberg Finance L.P. 51 1.4

US Manufacturing PMI US 10Y bond yield, % (rhs)

Figure 11: Eurozone New orders to inventories and a change in

point to rising bond yields.

Figure 12: US 10Y bond yield and inflation forwards

1.4% 1.5% 1.4%

Insurance 52% US 10Y bond yield correlation to

Food & Bev -68%

60 Figure 21: Infection count by country

lockdowns. Global Real GDP, q/q (saar)

62 15 Net-net, aggregate global economic momentum looks set

Source: Bloomberg Finance L.P., Markit

Having said that, our money supply model suggests that

Historically, Cyclicals relative performance is positively 95

Figure 24: European Cyclicals vs Defensives and Manufacturing 80

Cyclical sectors are seeing strong relative pace of

60% 30% Source: IBES, Datastream

Cyclicals earnings will continue to recover as long as

1.4 …but that is not the case for Value style

1.2 Figure 33: MSCI World Value vs Growth P/Book

Source: IBES, Datastream 0.30

Ex Tech as well, Cyclicals appear expensive on P/E 0.20

Table 6: Forward P/Es for Europe L1 sectors Source: Datastream

10Y Median 21e vs

Staples 18.85 18.30 3% 9%

Utilities 15.86 13.89 14% -8% 0.6

Source: Datastream Source: IBES

0.9 Figure 40: Flows into US Tech vs Financials as % of AUM

Source: J.P. Morgan, Bloomberg Finance L.P 5%

The UK reopening basket also appears attractively 0%

Figure 38: MSCI Growth vs Value Source: EPFR

30% The relative repositioning between Tech and Banks could

0% Put together, Cyclicals vs Defensives might have seen

Source: J.P. Morgan

Cyclicals/Defensive trade has probably delivered the 240

PMIs and earnings will still be supportive of Cyclicals. 160

JPM commodity index DXY (rhs, reverse scale)

205 115 3.0%

85 European Value vs Growth total return US 10Y bond yield, % (rhs)

80 Source: Bloomberg Finance L.P.

this year 30%

Technology appears fundamentally sound, but we

multi-year OW Tech stance. The gap with EPS revisions