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Need to Know: J.P. Morgan is betting these stocks will dominate as an uncertain second-half of the year looms

Need to Know

Critical information for the U.S. trading day

Here comes the second half.

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Stocks are wobbling on the last trading day of the quarter, as the World Health Organization warns “the worst has yet to come” with COVID-19.

But up around 16% and 18% respectively, the Dow

and S&P 500

are poised for the best three-month stretch since end-1998, though that doesn’t quite make up for ugly first-quarter losses. Beating all comers is the Nasdaq Composite, up 28% as technology stocks have largely emerged in decent shape from a tough six months.

Our call of the day advises sticking with the winners for the rest of the year. “We believe that the U.S will remain the relative regional outperformer and that the style leadership will firmly return to tech and defensives, post the tactical value rally seen in [second half] of May and [first half] of June,” says Mislav Matejka and a team of strategists at JPMorgan Casenove.

Value stocks, often in cyclical industries that perform better as economies recover, have been bouncing back in recent weeks. Laggards in the post-financial crisis rally, they have lured in investors looking for bargains and feeling hopeful about a ‘V-shaped’ recovery.

But Matejka says whatever rotation we’ve seen out of defensive and techs into cyclicals is over. To keep outperforming, value stocks need purchasing managers indexes to show signs of economies expanding. Continued high jobless levels in the second half and fears of a virus resurgence will stop that in its tracks, he adds.

“Our economists forecast that the worst of the labor market weakness is likely behind us; however, the projected path is far from a V-shaped recovery,” and that will make it tough on the consumer, say the strategists.

And defensive and tech stocks are still attractively priced, says Matejka.

His forecast isn’t far off from an investor survey conducted by DataTrek Research, which found 52% of respondents expect technology stocks to beat all other sectors by miles for the rest of 2020.

But Nicholas Colas, DataTrek’s co-founder, says the survey also finds we are headed into a “convictionless market.” A fifth of respondents say they expect the S&P 500 will finish the year 10% higher.

“Every option from ‘really bad’ (down +10% from here) to ‘really good’ (+10%) got basically the same number of votes,” he says. “And we’re only talking about the next six months.”

The market


and Nasdaq

futures are softer, with European stocks

mixed, but headed for the best quarter since 2015. Asian stocks finished in the green, with China’s CSI 300

up 1.3%, and maybe getting a little help from data showing factory and business activity at three-month and seven-month highs respectively.

The chart
The buzz

At noon, lawmakers will grill Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin over the effectiveness of the trillions of dollars in emergency aid doled out since the pandemic began. Case-Shiller home prices and consumer confidence data are also ahead.


is reportedly in talks to buy rival San Francisco food delivery group Postmates, in what could be a $2.6 billion deal. Lululemon stock

is up after the sports retailer said it will buy in-home fitness company Mirror, for $500 million.

More reopening pauses — indoor dining in New Jersey and maybe New York, and the U.K.’s Leicester. China researchers have identified a new swine flu with pandemic potential.

The EU will on Tuesday lay out rules on who can travel into the 14-country bloc. The U.S, Russia, Brazil and India likely won’t make the cut.

Packaged food group Conagra

will report earnings, with results from global shipper FedEx

due after the close.

Random reads

California’s Golden State Killer admitted to 13 murders.

Iran has sentenced a journalist to death over 2017 protests.

“Buy Apple” started trending after this thread:

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. Be sure to check the Need to Know item. The emailed version will be sent out at about 7:30 a.m. Eastern.

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the year.

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