Traders will be working on the New York Stock Exchange on December 9, 2019.
Brendan McDermid | Reuters
The "Once in a Decade" trade called J.P. Morgan is still alive and has more room to run.
The massive rotation towards value stocks and out-of-momentum names started in September is, according to Dubravko Lakos-Bujas, chief strategist for US stocks at J.P. Morgan, not even halfway through. The analyst said the trend would continue when the economy picked up, aided by central bank easing.
"We currently estimate that 42% of the potential rotation has been realized," said Lakos-Bujas in a note on Thursday. "As data prints improve, business cycle re-acceleration becomes more apparent and should lead to increased risk appetite."
Value stocks made a big comeback after years of underperformance in September as investors turned to economically sensitive, cheap stocks that hoped for a trade agreement between the United States and China and an economic recovery.
Value names have outperformed momentum stocks in recent months. IShares Edge's MSCI USA Value Factor ETF, one of the largest exchange-traded funds focused on Value Factor, has grown nearly 10% over the past six months, while iShares Edge's MSCI USA Momentum Factor ETF has increased 6% over the same period ,
Despite the recent rally, stocks are still oversold and "very cheap" compared to history, Lakos-Bujas emphasized.
Investors will continue to be interested in value and cyclical stocks due to a simpler monetary policy, the analyst said. The Federal Reserve reversed course last year, cut interest rates three times, and began expanding its balance sheet.
"The global cyclical upswing has legs and is not as fragile as many fear," said Lakos-Bujas. "The changing development of global monetary policy and the growth of central bank balance sheets will be a powerful engine for a new recovery within the cycle."
J. P. Morgan has set its year-end target for the S&P 500 at 3,400, an increase of approximately 3%.
The largest positions in the iShares Edge MSCI USA Value Factor ETF include Berkshire Hathaway, Exxon Mobil, UnitedHealth, Bank of America and AT & T.