JPMorgan boosts view on industrials and materials

Stocks may fall nearly 10 percent by the end of summer, giving investors a great opportunity to buy industrials and materials shares, JPMorgan said late Thursday as it boosted its view on the sectors.

JPMorgan strategist Thomas J. Lee said the Standard & Poor's 500 index, which has surged about 32 percent since March could fall to as low as 830 by the end of summer, according to a technical strategist at the firm. The index closed Thursday at 920.26.

"A correction, even if it is two months in duration, we believe should be used as an opportunity to build positions in Cyclicals rather than a window to buy Defensives," Lee wrote. He expects the index to rally as high as 1100 by the end of the year.

So-called cyclical stocks do well when the economy is strong and may falter in tough times, while defensive stocks tend to remain stable in difficult economic environments.

Lee said a global recovery led by emerging markets will boost spending on industrial and durable goods. The boost from emerging economies will be "complemented in the U.S. by the fading of drags from housing and auto production."

"We believe visibility and earnings recovery will not happen until later in this recovery, but, as our analysis shows, (industrials and materials) have typically outperformed even as earnings have deteriorated," the Lee said.

He lifted his rating on the industrials and materials sectors to "Overweight" from "Neutral." Lee also has an "Overweight" rating on the financial, consumer discretionary and technology sectors. He rates utilities and consumer staples at "Underweight" and has a "Neutral" rating on energy, telecommunications and health care.

JPMorgan selected a list of 20 stocks it called its "best ideas" in the second half of the year, among them: U.S. Steel Corp., Textron Inc., Illinois Tool Works Inc., Republic Services Inc. and Sherwin Williams Co.