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The bull market from here 'is more likely to be narrow': Strategist

J.P. Morgan Global Markets Strategist Nikolaos Panigirtzoglou weighs in on the impact of the 2020 U.S. elections on the stock market.

Video Transcript

JULIE HYMAN: And Nikolaos, as we watch the returns here, you had written, going into the election, that you expected once we would get past it, that stocks would indeed resume their upside. Given the events of the last 12 hours or so, 24 hours, are you still of that view? And what were you hearing from clients overnight, as all of this was going on?

NIKOLAOS PANIGIRTZOGLOU: Yeah, indeed. We had some derisking in the previous two weeks ahead of the US election. Maybe that derisking was a bit of an overreaction. We saw similar derisking four years ago ahead of the 2016 election. And it doesn't matter who is going to be the president. The market will go up anyway.

I think the issue here of the fiscal stimulus [INAUDIBLE] more like in terms of the composition of the equity bull market, rather than the size of the equity upside. In my opinion, the market would go up anyway. Whether the bull market will be broad or none from here would depend on the fiscal stimulus.

And what it looks like is that we are going to get a split Congress, which means perhaps delayed or smaller fiscal stimulus down the road, which means that the bull market from here is more likely to be narrow, as it has been over the past seven, eight months, more like driven by growth oriented rather than value oriented stocks.

So, again, the fact that the steepening trade in the US Treasury [INAUDIBLE] hasn't been a consensus trade in the previous weeks, it's being unwound today. It doesn't bode well, obviously, for the value trade. It favors growth oriented sectors, such as that. And growth of the [INAUDIBLE] S&P 500 index versus non-US equity [INAUDIBLE] tend to be more value oriented.

MYLES UDLAND: And then, Nikolaos, I guess, just thinking about some of those flows dynamics and the value trade unwinding and all these sorts of drivers that was such a big part of how the market began its rally, you know, that was such a flows and momentum sort of beginning to if go back to the spring.

How do you see that playing out as we get past this risk event, where we've had the election. We know where things are going. I mean, how do you expect money to kind of allocate itself through the end of the year and into 2021?

NIKOLAOS PANIGIRTZOGLOU: Yeah. The bull market since March has been driven mostly by liquidity and debt correction. And what I mean by that is that the stock of [INAUDIBLE], the stock of debt had been rising so steeply since March due to the virus crisis that the equity market has to catch up. The equity universe has to grow to catch up with this massive expansion in the stock of [INAUDIBLE] and the stock of debt.

And if you think now about the US election, if anything, the trend of liquidity creation is likely to accelerate. And the reason is that in the absence of any big fiscal stimulus here as a result of a split congress, monetary policy will have to play a bigger role going forward, which means perhaps even more QE by the Federal Reserve and other central banks, which means even more liquidity creation, which means even more expansion of the stock of [INAUDIBLE] supply. As it [INAUDIBLE] the equity market that the equity universe will have to do even more cutting up without liquidity expansion going forward.