JPMorgan warned about the fact that the interest margin of the banks has hit a ceiling, something that was evident during this fourth quarter earnings season.
In its latest report on global market strategy ahead of the publication of business accounts for the last three months of 2023, it states that “the profit margins of Semiconductors, Automobiles and Banks are at historic highs and could weaken.”
He added that this could also be applicable to commodity sectors. “Margins for Construction Materials and Capital Goods are also high, but could hold up relatively better. On the other hand, margins for Basic Necessities could stabilize after 3 weak years. Telecommunications also they seem to be hitting rock bottom. Chemicals margins are weak, but we fear they could remain weak; We maintain our view of ‘underweight’ in the chemical sector,” the bank explained.
Overall, the profit margins of the cyclical sectors They are elevated compared to historical evolution, as in Finance and Consumer Goods, says JP Morgan. On the other hand, the margins of the defensive sectors are not far from historical trends.
“The Covid distortions seem to have benefited the most cyclical sectors than defensive ones, and this is where the rollback could occur. We maintain a position of ‘overweight’ on Growth vs. Value, Continuing with last year’s style preference, we remain ‘overweight’ in the US versus the eurozone and believe defensives are poised to outperform this year.”
Economic activity decreased
Regarding specific aspects of the results for the fourth quarter of 2023, JP Morgan advises that activity momentum has generally slowed in the quarter, “suggesting sequential weakness” in earnings. Additionally, he added, price indicators are softening further, and corporate guidance could be “moderate” due to the renewed supply disruptions and a lack of visibility into consumer perspectives in particular, given some difficult comparisons.
For JPMorgan there is excessive optimism among investors
This scenario that poses JP Morgan contrasts with the “complacent feeling” of investors marked by excessive optimism. Thus, the current position of investors is much higher than that held last year, sentiment is complacent and valuation multiples have been revalued, he says. With this, the key driver of the fourth quarter rebound, decline in bond yields, “is probably over for the moment.”
The US bank also highlights that, in initial reports, they are observing that the excess profits are not being rewarded with a better performance on the stock market. In the case of S&P500, The average company that has beaten estimates is down 1% versus the market on the day.
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