‘Growth’ stocks still aren’t cheap, warns JPMorgan

Facebook, Amazon, Netflix and Google logos appear in this composite image from Reuters files. / image file

LONDON (Reuters) – Analysts at US investment bank JP Morgan warned on Monday that technology-dominated “growth” shares were still not cheap despite some sharp declines over the past six months.

So-called FAANGs have seen some upsurge in the shrinking COVID era this year, with Facebook (.FB.O) Down 38%, Apple (AAPL.O) It fell 5.7%, Amazon 8.5%, Netflix and Google (GOOGL.O) by 35% and 10%, respectively. (.NYFANG).

JPMorgan analysts estimate that, on average, non-profit tech companies have lost 30% of their value since their peak in September last year, while fintech companies focused on high-tech banking apps and tools are down 40%.

“With growth stocks weakening lately, they are out, but still not exactly cheap,” JPMorgan analysts said in a note to clients, adding that banking and commodity-related stocks have risen this year thanks to higher oil, metals or interest prices. Prices were still “far from expensive”.

The chance is that earnings from the “growth” sectors may not be exceptional anymore, although the main driver remains bond market borrowing costs, which have risen this year as major central banks have laid the groundwork for rate hikes.

Years of record-low rates have fueled soaring tech stocks, but as those rates rise again, the allure of stratospheric tech stocks becomes lackluster for investors, especially if their growth paths falter.

“We believe bond yields will continue to rise during the year,” JPMorgan said, referring to bond market costs.

“Our fixed income strategy analysts expect US 10-year Treasury yields to reach 2.35% by the end of this year, and German 10-year bond yields to 0.5%.” Treasury yields are now at 1.92% and German Bund yields are at 0.2%.

They also said that escalating tensions between Russia and Western powers over Ukraine should not lead to a return to big tech names, which have earned a reputation as a safe haven during the pandemic.

“While geopolitics could flare up until the end of the month…we do not expect this to continue, and call for the resumption of risky internal operations in the spring.”

(Reporting by Mark Jones Editing by Alistair Bell)

Our criteria: Thomson Reuters Trust Principles.