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JP Morgan sees trade deal and elections driving S&P 500 to 3,400

By Alexander Bueso

Date: Tuesday 10 Dec 2019

JP Morgan sees trade deal and elections driving S&P 500 to 3,400

(Sharecast News) - JP Morgan strategists set a year-end 2020 'fair value' estimate for the S&P 500 of 3,400 points, telling clients that a partial trade deal and economic policy easing should drive improved business sentiment over the course of the year.
The investment bank's strategists also expected the US equity benchmark to be lifted by pro-growth election year rhetoric and neutral investor positioning.

"Growth upside will primarily depend on the magnitude and timing of trade deal(s), in our view," they said.

Their forecast was for S&P 500 constituents' earnings to grow by 10.0% versus 2019 to reach $180.0 per share.

Nonetheless, the tailwind from the US presidential elections was also quite significant, what with the benchmark having typically clocked in with gains of 12% on average over the 12 months preceding each election - with a hit rate of 90.0%.

And while so-called systematic investors had raised the share of equities in their portfolios over the past month, discretionary and fundamental fund managers had done so less.

JP Morgan's US equity strategy team also expected fears related to Brexit, and other one-off shocks to the likes of India and Italy to fade over the course of the year.

"[Low volatility] stocks as possessing the worst risk-reward, while Growth stocks should be less vulnerable due to their superior fundamentals in a

moderate growth environment and lower sensitivity to yields.

"Small/Mid-caps is a GARP play relative to Large-caps and could see re-rating on improving growth and credit outlook, as well as pick up in M&A. In our view, the largest risk to equity portfolios going into 2020 is being implicitly long duration (i.e. positioned for rates falling/staying low)."

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