The fate of value stocks rests on the Georgia Senate races, JPMorgan strategists say

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The fate of value stocks rests on the Georgia Senate races, JPMorgan strategists say


The runoff elections in Georgia could spark a return to the rotation toward value stocks — but only if Democrats sweep both races, according to strategists at banking giant JPMorgan.

Georgia is holding two Senate races on Tuesday, and if the Democrats win both, they would get control of the upper chamber of the U.S. Congress. Two incumbent Republicans, Kelly Loeffler and David Perdue, are facing Raphael Warnock and Jon Ossoff, respectively.

London-based JPMorgan Cazenove strategists led by Mislav Matejka say risk assets are likely to make further gains in the first half, regardless of the results. But if the Democrats take both Senate battles, the dollar
DXY,
-0.40%

is likely to fall and bond yields
TMUBMUSD10Y,
0.946%

will bounce higher.

“This might weigh on the overall market in the very short term, but it could also catalyze the next leg up in value rotation,” the strategists say.

Though the Georgia races are expected to be close, they expect Republicans to win, and “anything different would be a genuine surprise.”

Besides the Georgia race, the strategists say regions that lagged behind the U.S. and China last year will catch up. They say emerging markets
EEM,
-0.06%

look attractive, given likely easing in trade uncertainty, a weaker U.S. dollar, light positioning and the global activity acceleration this year.

The eurozone, they add, is trading cheap and is helped by the spreads of periphery countries trading at a narrow discount to countries like Germany. The strategists are also overweight Japan, given their positive correlation to bond yields and the direction of purchasing managers indexes. They are neutral U.S. after a strong run and a likely stalling in technology leadership, and neutral U.K. despite “very attractive valuations.” The U.K., they noted, was behind other markets in every single value rally seen in the last 10 years.

U.S. stock futures
ES00,
+0.33%

pointed to gains on the first trading day of 2021. The U.K. FTSE 100
UKX,
+2.69%

led global stock markets higher.



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