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EURO ZONE TO STAY STUCK POST-US ELECTION - JPM

With the U.S. election result out of the way, attention is likely to turn to the sustainability of the last week's market moves. But JP Morgan equity strategists see the euro zone staying stuck.

In a note, they say they have argued for a while that the EuroSTOXX 50 will keep struggling versus the U.S., and they see it staying range-bound.

"With a potentially weaker growth outlook as tariffs risks increase, as well as geopolitical uncertainty, this stance looks set to continue for longer, despite more ECB cuts in the pipeline," they write.

Europe's underperformance is already stark.

The STOXX 600 is up 7% this year, versus a 25.7% rise in the S&P 500. Since the Nov 5 close, European stocks have added 0.7% while U.S. equities are up 3.8%.

More broadly, the S&P 500 could plausibly stay supported into year-end, says JPM, after which it might take its cue from two drivers; what bond yields do and what priorities the incoming administration focuses on.

Zooming in, small-caps are in focus.

"...in 2016 small caps rallied after Trump won. We have argued last Monday that this is the area that could benefit, and given the very low positioning, the outperformance of small caps could be the case again, even with higher yields."

They've also introduced an overweight value vs growth trade.

Elsewhere, JPM doesn't think it's yet the opportunity to buy EM in general, or the indirect China plays.

"In 2016, EM dipped 10%+ in the aftermath of Trump’s victory", they highlight.

Meanwhile, they keep an overweight on Japan. Sector-wise, healthcare is a tactical buy on stronger dollar, while utilities are at risk of weakness on potentially lower gas and power prices.

"We stay short autos, and reiterate OW aerospace and defence. There was a consolidation through summer, but long lasting defence under-spending stands to be reversed" they write.

(Lucy Raitano)

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EARLIER ON LIVE MARKETS:

DEFENCE STOCKS CHARGE BROAD STOXX RISE CLICK HERE

EUROPE BEFORE THE BELL: FUTURES UP, CONTINENTAL BEATS CLICK HERE

MARKETS FEEL FAMILIAR FRUSTRATION WITH BEIJING CLICK HERE