MW This sector may be the 'accidental beneficiary' of a U.S. growth scare, says JPMorgan

By Jamie Chisholm

Emerging markets may be helped by a weaker dollar and lower U.S. interest rates

Early futures action suggests stocks will struggle to continue Friday's rebound.

U.S. Treasury Secretary Scott Bessent's comments over the weekend that market corrections "are healthy" has further reinforced the view that the Trump administration is prepared to see equities suffer as it pursues its policies of tariffs and shrinking the public sector.

The S&P 500 is down 8.2% from its record close hit about a month ago as concerns about high valuation meet fears of slowing economic growth.

And analysts at JPMorgan, led by strategist Mislav Matejka, reckon that U.S. economic angst will continue to weigh on stocks for a while.

In a note published Monday, the JPMorgan team say the recent extreme market negativity - as shown, for example by some very pessimistic surveys - could offer some technical support. "Big picture though, our view remains that the growth scare risks will keep returning, resulting in renewed pressure on equities, [and] capping bond yields," they say.

This will drive another period of leadership for defensive stocks relative to cyclicals, and they reiterate that investors should be cautious on growth, the Magnificent 7, and on U.S. technology more generally.

As those big tech names lag the market it will lead to a better performance by the equal-weight S&P 500 XX:SP500EW versus the tech-heavy normally weighted S&P 500 SPX.

But JPMorgan also says there may be an investment style that is an "accidental beneficiary" from what it sees as an "activity air pocket" that has hit the U.S. economy: Emerging markets.

They say that EM will benefit as the U.S. growth scare pushes bond yields lower, encourages the Federal Reserve to cut interest rates - and unlike the historical behavior, where the dollar tended to strengthen during risk-off phases - and have the U.S. dollar move lower. Lower U.S. yields and a soft greenback normally help emerging-market assets.

"To be clear, we are not advocates of directional decoupling. EM, and eurozone, will likely move together with the U.S., but they might not be the traditional high betas on the way down," says JPMorgan. What they mean by that is at times of market and economic stress, emerging-market assets have tended to underperform, but that will not be the case this time.

They take note of the fact that EM has underperformed developed markets $(DM)$ by 40% over the past four years, and consequently now upgrade EM vs DM from Underweight to Neutral.

"EM should look better vs DM over the following months, at least relatively, as DM activity air pocket is worked through. Within this, we stay bullish China Technology exposure, and think that EM ex China will also trade better, partly on likely increasing policy stimulus," says JPMorgan.

Such a trade will also be helped by the fact that emerging-market assets "are underowned, [and] attractively priced," they say, as shown by the chart below.

So, why don't JPMorgan go overweight EM? It's because trade uncertainty "remains a big wild card" and it's currently difficult to judge "the extent of the U.S. growth scare," they say.

JPMorgan's strategists are positive on India INDA, Indonesia EIDO, UAE UAE, Poland EPOL, Greece GREK and Turkiye TUR.

Markets

U.S. stock-index futures (ES00) (YM00) (NQ00) are lower as benchmark Treasury yields BX:TMUBMUSD10Y dip. The dollar index DXY is lower, while oil prices (CL.1) rise and gold (GC00) is trading around $2,996 an ounce.

   Key asset performance                                                Last       5d      1m       YTD     1y 
   S&P 500                                                              5638.94    -2.27%  -7.78%   -4.13%  10.20% 
   Nasdaq Composite                                                     17,754.09  -2.43%  -11.35%  -8.06%  11.15% 
   10-year Treasury                                                     4.315      9.90    -16.50   -26.10  -1.90 
   Gold                                                                 2995.2     3.53%   3.51%    13.48%  38.42% 
   Oil                                                                  67.77      2.82%   -3.97%   -5.70%  -17.56% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

U.S. economic data due Monday. include retail sales for February at 8:30 a.m. Eastern, and homebuilder confidence for March at 10 a.m.

The Organization for Economic Cooperation and Development lowered the U.S. and global economic outlook.

Warren Buffett's Berkshire Hathaway $(BRK.B)$ said Monday that it had added to its stakes in the five biggest Japanese trading houses.

Bank of America $(BAC.SI)$ says it is stepping up its oversight of young bankers' workloads, the firm's latest change since the death of an employee working 100-hour weeks sparked an outcry across Wall Street.

Retail sales in China increased 4% in the first two months of 2025 from a year earlier, while industrial output rose 5.9%, in signs Beijing's pro-growth policies took effect ahead of raised tariffs by the U.S.

U.S. President Donald Trump is expected on Tuesday to speak to his Russian counterpart Vladimir Putin about the war in Ukraine.

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The chart

Once a market has fallen into a correction, the decline can often get much worse. "On average, once the market has dropped 10% from it's relative high, it's taken 72 days for the 'major decline' to end (either by reaching a new high or by bouncing +10% from the lows) which puts us at the end of May before things start making sense again. Ooof," says the blog StreetSmarts.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   PLTR    Palantir Technologies 
   GME     GameStop 
   QBTS    D-Wave Quantum 
   TSM     Taiwan Semiconductor Manufacturing 
   AAPL    Apple 
   NIO     NIO 
   SMCI    Super Micro Computer 
   AMZN 

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-Jamie Chisholm

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March 17, 2025 06:28 ET (10:28 GMT)

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