NEW YORK (Reuters) - Lagging U.S. equities are poised to outperform their European counterparts as the world's largest economy recovers from a build-up in inventories, said JPMorgan Chase's global equity strategist on Tuesday.
"The data flow in the U.S. gotten much better, the inventory adjustment is over," Abhijit Chakrabortti said at the Reuters Investment Outlook Summit in New York. "And with the weak dollar, external supports are very strong."
Another positive for U.S. stocks is that Europe is more likely to bear the brunt of higher interest rates.
"In Europe, where growth is extremely strong and money supply growth is pretty rapid, the (European Central Bank) needs to do a lot," Chakrabortti said. "You really need to start thinking about 5 and 5.5 percent."
The European Central Bank last week raised interest rates to a near six-year high of 4 percent and showed its readiness to hike again to combat inflationary dangers.
Within U.S. stocks, Chakrabortti has underweight recommendations on financials, utilities and other high-dividend paying sectors because rising bond yields are erasing their valuation support.
"Effectively, what we are communicating is the end of the outperformance of value because 60 percent in the value index is rate sensitive," Chakrabortti said.
While he has an overweight recommendation on U.S. equities versus the rest of the world's stock markets, Chakrabortti said he is still not bullish on stocks, since an increase in the 10-year Treasury yield toward 6 percent will bring profit margins back down from their all-time highs.
Since inflationary pressures are more likely than a slowdown in growth, "we really hate bonds," Chakrabortti said. Continued...
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