JPMorgan: Can Defensive Sectors Maintain Their Q2 Performance?
By Investing.com
Analysts at JPMorgan believe the outperformance of defensive sectors in the second quarter will continue, contrasting their underperformance in Q1.
"Key bond proxy Defensive sectors – Utilities, Real Estate, and Staples – were the 3 worst performers in Q1," notes JPMorgan. However, Q2 has seen a turnaround, with these sectors leading performance gains in Europe. This coincides with a decline in cyclical sectors like Autos, Travel & Leisure, and Chemicals.
JPMorgan disagrees with the common investor sentiment of buying cyclical stocks based on rising Purchasing Managers' Indexes (PMIs). They believe several factors favor defensive sectors:
- Cyclical sectors have already significantly outperformed in 2023 despite falling PMIs. Their valuations are no longer attractive.
- While manufacturing activity is increasing in Europe and China, US growth is likely to slow by year-end, benefiting defensive sectors.
- US bond yields have peaked, which typically supports defensive sectors and growth stocks over value stocks.
Sectors with Potential
The bank highlights specific defensive sectors with potential:
- Healthcare remains positive even without large-cap pharmaceutical companies like Novo Nordisk.
- Utilities are seen as benefiting from rising CO2 and gas prices and steady earnings growth.
- Real Estate is favored due to an improving financing environment after a two-year slump.
- Staples are viewed as attractively priced compared to 2022.
Areas of Caution
Conversely, JPMorgan advises caution on consumer discretionary sectors, particularly autos and luxury goods. They remain underweight on chemicals despite their recent weakness and reiterate a cautious stance on banks.
By emphasizing these points, JPMorgan believes the defensive sectors can continue their Q2 performance, offering growth opportunities for investors.
