Dec 18 J.P. Morgan Securities said it expects
the "great recession" of 2008 to end by the second half of 2009
and views discretionary and financials as drivers of earnings
growth in the next year.
Investors are likely to approach 2009 with a more bullish
tilt given the expected continuation of the December rally, JP
Morgan's chief U.S. strategist Thomas Lee wrote in a note to
"With the record cash on sidelines, positive expectations
from an Obama administration, and a potential mid-2009 economic
recovery, we see investors buying stocks in early 2009," Lee
An economic recovery will spur risk appetite, reversing
extreme risk aversion, he added.
Financials and discretionary are expected to have
incrementally better fundamentals relative to the S&P 500,
according to the strategist, while resources and exporters are
seen reversing to earnings drag from drivers in 2009.
The brokerage believes the U.S. Federal Reserve's and
Treasury's actions, lower gasoline prices, lower mortgage
rates, $700 billion to $1 trillion in fiscal stimulus, and a
possible auto sales recovery in the second half of 2009 will
almost certainly do something for the economy.
The world's largest economy has been hit from rising loan
defaults and foreclosures in the face of reduced consumer
spending and poor liquidity in the credit markets.
The strategist called the 2008 recession "challenging," and
said "we believe the greatest policy mistake in 2008 was
allowing Lehman Brothers to fail.
A further failure in a financial company is less likely now
that policy makers see the importance of the "lender of last
resort" function, Lee said.
Some potential areas of further weakness are a large
industrial company failure, a large, tentacled hedge fund
failure, a large foreign company defaulting, or even a large
emerging market nation, the strategist added.
Several financial companies have had to file for bankruptcy
or seek government aid as they struggle to keep themselves
afloat amid the financial crisis.
Lee, however, forecast 2009 to be an earnings trough for
the S&P 500, with a strong rebound seen in 2010.
He said any equity rally over the next few months is likely
to fail unless it is confirmed by a broad improvement in the
(Reporting by Sweta Singh in Bangalore; Editing by Vinu
Pilakkott, Dinesh Nair)