It's Still Too Early to Turn Bearish on Stocks, JPMorgan Says

(Bloomberg) -- Investors who are tempted to book profit and get out of stocks after such a good year should think again, say equity strategists at JPMorgan Chase & Co.

Growth momentum might start to lose steam but activity is still likely to remain above trend, which means corporate earnings should rise further after this year's brisk rebound, Mislav Matejka and Emmanuel Cau wrote in a research note Monday.

The MSCI World Index has jumped 20 percent so far in 2017 when including dividends, making equities by far the best asset class. With valuation ratios increasingly looking stretched and the U.S. Federal Reserve set to continue raising interest rates next year however, some investors seem to be getting antsy, with tech stocks as well as European and emerging markets experiencing a pull-back recently.

“Granted, equity multiples do not look cheap in absolute terms,” the strategists write. “But relative to both bonds and to credit, we find equities continue to offer an almost 300 basis-point valuation gap, and this is just to get to the fair value.”

As for monetary tightening in 2018, JPMorgan strategists said it's still in early stages, and that the U.S. yield curve is unlikely to invert until at least the second part of next year. Historically, stocks have “never peaked before the yield curve would get outright inverted" they wrote.

To contact the reporter on this story: Blaise Robinson in Paris at brobinson58@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, James Cone

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