Rotation out of US Big Tech and the Magnificent 7 is likely to continue: JPM

Investing.com -- JPMorgan analysts believe the shift away from US Big Tech and the Magnificent 7 stocks is set to persist as market conditions evolve.

"We think the rotation out of US Tech, Mag-7 and out of Growth style continues," JPMorgan said, adding that they previously closed their two-year-long overweight position on Growth stocks last summer.

The analysts pointed to softening economic indicators, noting that "certain activity indicators are softening – consumer confidence, retail sales, services PMIs, among others, as is the performance of US Cyclicals vs Defensive sectors, and bond yields are lower."

They warned that the risk of a "broadening air pocket in activity" remains underappreciated, with potential downside risks from "more aggressive trade, immigration and fiscal consolidation policies" that could create further uncertainty.

JPMorgan also highlighted that US equity valuations appear stretched, stating that "at 22x, US forward P/E looks very stretched, in absolute terms and vs real yields."

Meanwhile, positioning is said to remain a concern, with "households’ equity weight as a share of total assets at record high."

While the analysts see weakness in US Tech, they noted that "China Tech still remains attractive" and that international and emerging market trades typically require "reflation to have a sustained outperformance, not stagflation."

They also cautioned that "Eurozone valuation discount has normalized, so it would likely need activity surprises from here to keep rallying."

JPMorgan concluded that market conditions remain fluid, and factors such as the strength of the US dollar and the potential for a Ukraine ceasefire could influence global sentiment.

"USD is the wild card," they said, warning that renewed strength in the second quarter "might become problematic for risky assets."

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