This is when to sell cyclical winners and buy back tech stocks, JPMorgan says

In our call of the day, JPMorgan strategists said the rise in bond yields wasn’t over yet and that it was premature to start selling cyclical stocks and buying back defensive equities, such as healthcare and technology stocks.

The investment bank’s strategists, led by Mislav Matejka, said valuations of cyclical stocks — those that stand to gain as economic activity picks up — were beginning to look “toppy” after their strong run over the past year.

European cyclicals, for example, have outperformed defensive stocks by 57% over the past 11 months — ranking near the top when it comes to past recoveries. As a result they said the bulk of the cyclicals/defensives move “might be behind us,” given the size of the cyclicals run and their stretched valuations.

But the strategists warned it was still “premature” to position for a reversal. “For that, one needs to see peaking PMIs, weakening relative earnings and an end to rising bond yields,” they noted.

Those three crucial things are unlikely to happen just yet, they said, with earnings momentum for cyclicals set to “continue accelerating over the next few quarters.” As for purchasing managers indexes, the desynchronized nature of the global cycle — with China potentially peaking, the U.S. approaching highs and Europe looking to pick up over the summer — means a peak isn’t imminent, they said.

The key factor for cyclicals remains the direction of bond yields and, importantly, JPMorgan strategists said the upmove in yields wasn’t finished yet. “Yes, in the short term policy makers will keep pushing back, but [they] are likely to accept higher yields down the line, as the economy strengthens.” 

“As long as yields are moving up, cyclicals should not be sold,” they added.

Value stocks, on the other hand, continue to look very appealing, JPMorgan said, as it focused its long positions on banks and the reopening trade.

The chart

Deutsche Bank
DB,

strategists upgraded their S&P 500 earnings per share (EPS) forecast for 2021 to $202 and for 2022 to $222, following the passage of the $1.9 trillion stimulus package and economic forecast upgrades.

The Tweet

The value of short bets against shares of special purpose acquisition companies (SPACs) has tripled since the start of the year, according to data from S3 Partners published by the Wall Street Journal.

The markets

The Dow Jones Industrial Average
DJIA,

was flat in early trading, while the S&P 500
SPX,

fell 0.1% and the tech-heavy Nasdaq Composite
COMP,

edged 0.2% higher. European stocks made early gains with the pan-European Stoxx 600
SXXP,

index 0.6% up in early trading, before dropping back to trade flat. Asian markets were mixed overnight as investors looked ahead to the Fed meeting.

The buzz

Bitcoin
BTCUSD,

prices hit a record high on Saturday, climbing above the $60,000 milestone. The cryptocurrency has since slipped back and was last trading at $56,284, according to CoinDesk.

Elon Musk has officially changed his title to “Technoking”, according to a Tesla
TSLA,

filing disclosed on Monday.

AstraZeneca
AZN,

has said there is no increased risk of blood clots from its COVID-19 vaccine, as the Netherlands and Ireland joined a fast-growing list of European countries suspending inoculations.

Mexican President Andrés Manuel López Obrador criticized the U.S. government on Sunday, saying the U.S. hasn’t helped Mexico with COVID-19 vaccines.

Danone
BN,

Chairman and Chief Executive Emmanuel Faber will step down, the French food group’s board confirmed on Monday. It comes amid pressure from activist investors in recent months.

Swiss pharmaceutical company Roche Holding
ROG,

said on Monday it has agreed to acquire GenMark Diagnostics
GNMK,

in a deal valued at approximately $1.8 billion.

Digital-payments company Stripe said on Sunday it has closed a $600 million funding round that values it at $95 billion — more than double its valuation a year ago.

Beyoncé and Taylor Swift made history at the Grammys, where the top awards were won by female musicians.

Random read

Father and son discover World War I tunnel of death hidden in France for a century.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Want more for the day ahead? Sign up for The Barron’s Daily, a morning briefing for investors, including exclusive commentary from Barron’s and MarketWatch writers.