LIVE MARKETS-U.S. equity underperformance to persist throughout 2025 say JPM

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U.S. EQUITY UNDERPERFORMANCE TO PERSIST THROUGHOUT 2025 SAY JPM

J.P.Morgan see 2025's big equities market shift - out of U.S. large caps and into value names elsewhere - as having plenty of room to run, and expect European and Chinese stocks to outperform this year.

"We believe, these rotations have been fundamental in nature and reflect the underlying changes in the profit landscape." Looking ahead, there will be volatility, and it is by no means a straight line up for different definitions of value, but this trend should persist throughout the year," JPM strategists led by Khuram Chaudhry, said in a Wednesday note.

Last week a survey of investors from BofA Global Research showed allocation to U.S. stocks saw the biggest drop ever in March and U.S. stocks confirmed they had entered correction territory earlier in the month.

Chinese tech stocks are in demand while Europe has also benefited due to a brighter regional economic outlook led by a fiscal stimulus boost in its largest economy, Germany.

In Europe, the benchmark STOXX 600 index .STOXX gained 8.4% so far this year. In contrast, the S&P 500 .SPX is down 1.8% since the start of the year.

The Wall Street brokerage said Japan stands out with net earnings-per-share upgrades while Europe shows resilience with improved earnings profiles, particularly in Spain and Germany.

Expected U.S. rate cuts and a weakening U.S. dollar could make this trend more sustainable, and Chaudhry sees a high probability of the greenback weakening progressively in 2025.

But a U.S. recession remains a way off, also good news for rest of the world stocks.

"A ‘soft-landing’ allows central banks to ease policy as inflation slows and economic growth remains steady, which allows investors to broaden their portfolios away from Quality, Momentum and Growth stocks to more Value, Small caps , and high Risk stocks outside of the USA," say JPM.

(Kanchana Chakravarty)

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