JPMorgan says the S&P 500 will surge 25% in 2021 – and lists 6 sectors poised to outperform next year

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  • JPMorgan lifted its S&P 500 target by 25% from current levels to 4,600 points for 2021.
  • Strategists expect stocks that were most impacted by the COVID-19 pandemic to be the biggest beneficiaries of investor inflows next year.
  • Most of the market upside will take place in the first six months of the year, but the sustained backdrop will last into the second half as well, JPMorgan said.
  • The bank listed 6 sectors that it expects to outperform in 2021.
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The S&P 500 could soar as much as 25% to 4,600 in 2021 as the outlook for equities begins to clear following an extended period of elevated risks, JPMorgan said in a note Wednesday.

“We see the S&P 500 reaching 4,000 by early next year,” strategists led by Dubravko Lakos-Bujas wrote. “Our base case S&P 500 price target for 2021 is 4,400 with a range of 4,200 to 4,600.”

The bank expects most of the market upside taking place in the early half of the year, but the backdrop should sustain into the second half when a fuller recovery is priced in, the note said.

The S&P 500 is trading near record highs around 3,670 points. 

Strategists expect investors to be more selective with equities in the second half of the year as the COVID-19 recovery theme sweeps across portfolio positioning. They said value stocks remain their style of preference and stocks that were beaten down by the COVID-19 pandemic will be the largest beneficiaries next year.

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JPMorgan listed 6 sectors and themes set to outperform in 2021:

Consumer Discretionary

“Prior to the COVID-19 shock, consumer durables saw a significant headwind related to US / China tariffs. If there is any easing on the trade front by the Biden Administration, this would be another source of margin expansion for the sector. This sector is our top pick for 2021,” the note said.

Energy

“Given the sharp underperformance, this sector is the most under-owned and universally hated, based on our conversations with investors. Executive action remains an area of concern for names levered to federal lands/pipelines, but political gridlock should cap broader regulatory changes,” strategists wrote.

Financials

“While revenue growth and credit concerns remain, a combination of fiscal and monetary support should sustain an easier credit environment for businesses and consumers in the short-to-medium term. In addition, political gridlock should limit potential for corporate tax hikes and sweeping regulatory changes,” JPMorgan said.

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Healthcare

“Healthcare providers/services are potential beneficiaries from pent-up medical demand (e.g. deferred/elective procedures, etc.) and will have easier comps in 2021,” the note said. “Despite a global slowdown in 2020, healthcare is expected to deliver another year of strong and healthy earnings growth of 7% (vs. Tech 6% and S&P 500 -15%) based on consensus estimates.”

Technology/ Semiconductors

“We favor names that have not been primary beneficiaries of the work-from-home trend and maintain a higher conviction on more cyclical semis/tech hardware (vs. software). Semis in particular should benefit from demand recovery supported by global economic rebound, cloud/capex growth, production increases for 5G smartphones/autos and normalizing supply chain,” strategists said.

Bond Proxies

“With further confirmation of ongoing economic recovery (eg jobs, GDP, etc.), we expect rising inflation and long-term rates to trigger further rebalancing among equity investors out of bond proxies into more cyclical industries,” the note said.

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