Analysts at JPMorgan said in a note Monday that they are neutralizing the US vs. Eurozone preference due to several reasons.
The bank cut the Eurozone to Underweight vs. the US in early May 2023 and has preferred the US since. However, it is now closing the US over Eurozone Overweight, with the Eurozone trading the cheapest compared to the US vs. any time pre-COVID.
"In absolute terms, Eurozone valuations are fair value vs. historical median of 13x PE, and fair value vs. fixed income. On both counts, US is more stretched," explained the firm.
"We had a preference for Growth over Value style through 2023 and again this year," wrote JPMorgan. "Even as we stay with this tilt, we note that Growth style has already performed exceptionally well, it is trading stretched and is at risk of a reversal, given the MOMO concentration. Of course, within Europe there is also an increasing risk of MOMO unwind, but the magnitude of the potential impact would always be greater for the US market."
Furthermore, they noted that the relative growth disappointments of the Eurozone region "might have peaked," while there is also a chance the ECB will move ahead of the Federal Reserve this time around.
"We are neutralizing the US vs. Eurozone preference, but not reversing," added the bank. "This is because the potential for a market drawdown is elevated."
"We note that every single Eurozone level 1 sector is trading at a greater than historical discount vs the US."