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See earnings downgrade, but market may ignore it: JP Morgan

According to JP Morgan, the key driver of market performance in the current cycle has been surplus global liquidity and relative appeal within emerging markets

The News International Team

The stock market has been resilient to weak corporate earnings for the December quarter, and the trend could continue for a while, feels brokerage house JP Morgan.

“The Street cut earnings estimates for FY15E and FY16E by 3-4 percent. Despite these cuts, we think current estimates for earnings growth for the next two years at 10 percent and 18 percent look vulnerable to further downgrades,” says the JP Morgan note to clients, adding that an earnings recovery could take 4-6 quarters to gain momentum.

Yet, the brokerage feels the market is not vulnerable to earnings cuts and that the divergence between market performance and corporate earnings could continue in the near term.

“We have seen this narrative twice over the last decade – continuing for four quarters each over 2007-08 and over 2012-13. During these phases also the changes in earnings expectations and the market performance were inversely correlated,” the JP Morgan note says.

According to JP Morgan, the key driver of market performance in the current cycle has been surplus global liquidity and relative appeal within emerging markets.

“We would expect markets to remain well supported until these drivers remain in place, with investors extending the timeframe for their investments to pay off,” the note says.

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