All into Account

Speaker: Mislav Matejka, CFA - Head of Global Equity Strategy So far ytd, US and Japan are ahead of other markets, Growth is outperforming Value and large caps are again beating small in all key regions. We continue to believe that this, ultimately unhealthy, high concentration and narrow leadership is set to stay for a while longer. To buy Value and International stocks one needs to see a reflationary backdrop, in our view, but we could have the opposite. In terms of bond yields, we argued last October to go long duration, but also in January to look for a tactical bounce back in bond yields, as Fed easing became overdiscounted in markets. We now think that the counter-rally in yields might be running out of steam, and would advocate to go long duration again. The move back higher in Fed futures might be getting done – they roundtripped back to October levels, and activity momentum could soften from here. The question is, why didn’t equities weaken as US 10-year yields backed up 50bp during Jan-Feb? We think that this is because investors assumed that the yield upmove is reflective of economic acceleration, but we note that earnings projections for 2024 are not reacting positively – they keep coming down in most sectors. If the growth acceleration does not come through, this could act as a headwind. Overall, we keep OW Growth vs Value, US vs Europe, and still see Japan as top regional pick – we look for these to continue tracking.   This podcast was recorded on 04 March 2024. This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4642382-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.

Speaker: Mislav Matejka, CFA - Head of Global Equity Strategy Bulls are to a good extent basing their constructive market call on the premise that corporate profits are set to accelerate, supported by the bottoming out in activity indicators that is now in progress. However, the earnings reality might turn out to be the opposite as we move through the year. In aggregate, corporate profit margins are elevated in a historical context, and appear to be peaking out. The historical pattern where profit margins always start to move lower ahead of the next economic downturn is clear. We see three sources of downside to profit margins from here: 1) Many corporates benefitted from the unique feature of this cycle: as interest rates increased 300bp+, the net interest expense came down. That could be explained by companies locking in low cost of financing through extending the duration of their debt, and also through many corporates seeing an improving return on their cash balances. This development is set to normalize. Separately, the basket of stocks with high refinancing needs is losing 20% vs SXXP over a year ago - JPDEHFCL, and our basket of cash rich companies is ahead by 14% - JPDEHFCW. We think this outperformance will continue through 1H. 2) Topline was exceptionally strong post COVID for many corporates, and pricing power was high. As nominal GDP growth rates fade, margins could weaken. 3) If the economy slows, partly because the supports that it enjoyed last year do not repeat, such as fiscal stimulus, ULCs could pick up. Profit margin proxy, corporate deflator minus ULCs, could turn into more of a headwind. Putting the above three together, one might end up with a disappointing profits outcome even without seeing an outright recession, and we note that 2024 EPS projections keep coming down in key regions. It is interesting to note that for S&P500 all the profit growth in the past few quarters was due to Magnificent 7, and this is one of the reasons why we remain OW Growth vs Value.  Ex these stocks, EPS growth for the remaining S&P500 constituents is outright negative.   This podcast was recorded on 26 February 2024. This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4633138-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.

Yields have move up sharply since the mid-January trough on the back of strong growth and inflation data, although we feel the market may have gone too far, providing an entry point to get long duration, especially now that positioning has neutralized.  Jay and Jason join today to discuss the fundamental and technical picture for US Fixed Income. Speakers: Thomas Salopek, Global Cross Asset Strategy Jay Barry, Co-Head of US Rates Strategy Jason Hunter, Head of Technical Strategy This podcast was recorded on 22 February 2024. This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4625977-0, https://www.jpmm.com/research/content/GPS-4630257-0, https://www.jpmm.com/research/content/GPS-4624689-0, for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy One of the sector calls where we face the most pushback from investors is our UW on Banks, entered in Q4. Until Q4, Banks had outperformed for three years in a row, driven by better EPS momentum and ultimately by rising bond yields. We have downgraded the sector as we think this phase is over. US 10-year moved from 0.5% in 2020 to 5% last October, the point at which we argued that bond yields have likely peaked. This is even as we tactically think that short-term bond yields are likely to consolidate, and be somewhat higher. Central banks will be cutting rates this year, which will directly reduce the earnings power of the sector. Second, the pressure could arise from the peaking out in relative EPS growth of the sector. The stalling in Banks’ relative EPS momentum could be enough for the sector to stop working. We note that the EPS revisions of European Banks have just recently entered negative territory.  In addition, the net interest income for Banks could weaken, from elevated levels, and deposit betas could increase. Banks meaningfully increased capital return to shareholders, but this could be as good as it gets. Finally, Banks are still a high-beta play on economic momentum and on credit spreads, where the current, rather optimistic, outlook that is priced in the markets might not last. Notably, the commercial real estate remains an overhang for the sector. Regionally, our top pick is Japan, and we still like Japanese Banks vs US and European ones, a call started last April. The Japanese rates cycle remains disconnected from the US and Europe, and it could be moving in the opposite direction this year. Big picture, we keep our view of OW Growth vs Value and preference for US vs International, in effect fading the Nov-Dec market broadening rally. So far ytd, US, Growth and large caps are strongly outperforming International, Value and small caps,  in all regions, and our UW on Banks fits this dynamic. This podcast was recorded on 18 February 2024. This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4622395-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.

Speaker: Mislav Matejka, CFA - Head of Global Equity Strategy From a global equity perspective, we had upgraded Japan to OW in Dec ’22. While we still think that USD is likely to be stronger from here, it might not be crucial to hedge JPY anymore, as the interest rate differential between the US and Japan looks set to start converging this year. For the continued bullish view on Japan, we reiterate: First, TSE reform is set to lead to improved corporate profitability and greater shareholder returns, given that more than half of Japanese stocks are still trading net cash, and 40% are trading below tangible book. Second, even though it feels as though Japan is a consensus overweight, we think that flows are still at an early stage. Foreigners bought 5trn Yen of Japanese stocks in 2023, which compares to 35trn Yen during the Koizumi era and 25trn Yen during Abenomics, the last two times when Japanese stocks moved up more than 100%. Third, there is a case to be made for some reflation in Japan, through house price appreciation and positive wage growth for Japanese consumers, and lastly, Japan is the only large DM market with dividend yield above bond yield, vs historical. In a European context, after outperforming strongly in 2022, the only large DM market up in that year, the UK lagged significantly in 2023. This has left UK at record cheap, even ex US. UK has the highest dividend yield out of all markets, at 4.3% yield, vs 2.0% for MSCI World. With the central bank cutting cycle about to commence, dividend strategies might come into the spotlight. The UK is a commodity-heavy market, and both Materials and Energy lagged last year, dragging the index down. If commodities find a floor, especially as the FCF yields of both Mining and Energy are very high at present, this could help. China outlook could play a role, too. We held a cautious fundamental view on the China market for a while, but recognize that it is heavily underowned and cheap post the big selloff: MSCI China lost 30% in a year. If China sees short squeezes, that could indirectly benefit the UK.   This podcast was recorded on 12 February 2024. This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4622327-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.

Speaker: Mislav Matejka, CFA So far this year, US is ahead of International, Growth is outperforming Value, large caps are again beating small - Russell2000 is outright down on the year 3%, and China continued struggling. We believe that this, ultimately unhealthy, high concentration and narrow leadership is set to continue until something breaks. To buy Value, beta and International stocks, one needs to see a reflationary backdrop, in our view, but we could have the exact opposite. The risk is of a disappointment on both sides of the Goldilocks narrative. Fed cuts might still be overdiscounted, despite the recent hawkish repricing, and the chances are that inflation picks up again, supply side driven, rather than due to stronger activity, freight rates have nearly tripled. We believe our long duration call made in October will have legs in 2024, but have argued at the start of this year that yields will likely consolidate near term, and the USD could be bottoming out. Regionally, we have preferred US to International stocks since May of last year, and don’t see that changing yet. We remain cautious on China, keep fading the bounces, and keep OW Japan – it remains our top regional pick. We are OW Growth vs Value, continuing our call from 2023, and reiterate our downgrade of Banks to UW in Q4 of last year, after three years of Banks beating the market. This podcast was recorded on 04 February 2024. This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4619832-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.

Jason Hunter discusses the short-term technical setups or US Treasuries and equities following the Jan FOMC meeting. He also highlights the key resistance on Shanghai Composite, after the failed bounce leaves that market in a bear trend and vulnerable to further downside. Speakers: Jason Hunter, Head of Technical Strategy This podcast was recorded on 1 February 2024. This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4612852-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.

We’ve seen a three-month period of underperformance for Chinese stocks and outperformance for Japanese stocks. Our positioning indicators based on futures and cross-border flows hint at flows from China to Japan. The recent China stimulus points to better days ahead for Chinese equities, and the worry was money flowing back from Japan would blunt the Japanese equity rally. Overall, we downplay the idea that a recovery for Chinese stocks must come at Japan’s expense.   Speakers: Thomas Salopek, Head of Global Cross Asset Strategy Wendy Liu, Chief Asia and China Equity Strategist Rie Nishihara, Chief Japan Equity Strategist   This podcast was recorded on Jan. 30, 2024. This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4613215-0, https://www.jpmm.com/research/content/GPS-4609156-0, and https://www.jpmm.com/research/content/GPS-4614086-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.  

Speaker: Mislav Matejka, CFA - Head of Global Equity Strategy The last positive spell for Eurozone was between Sept ’22 and May ’23, when it outperformed S&P500 by as much as 32%, in USD terms. We cut Eurozone to UW in early May of last year, and the question is what can help Eurozone to deliver another leg of outperformance. It certainly screens cheap vs the US, at a 15% greater discount than typical on a sector-neutral P/E metric, and is likely underowned, as seen in 40 weeks of outflows over the last year. A more constructive China backdrop would definitely be a help for Eurozone to take the lead. As MSCI China is down as much as 30% vs a year ago and is likely a fully consensus UW everywhere, the current short squeeze could continue for a bit longer. Having said that, from a fundamental standpoint, we remain bearish on the region, for now. Another factor is the style leadership. We stay OW Growth vs Value, a position we held through 2023. As long as the market stays narrow, Tech driven, the US is likely to have the upper hand vs Eurozone. We note that EPS revisions in Europe remain worse than in the US. Finally, USD direction matters. The Q4 USD downmove might be finishing as the Fed cuts might have been overdiscounted in the near term. If USD is bottoming out, it would be hard for Eurozone to work. Backtested, Eurozone was actually the worst-performing region in times of USD strength, and Japan was the best international market – Japan remains our key regional OW for 2024. What to buy/sell in Europe? From the negative side, we highlight: we are still UW Chemicals and UW Autos, as of Q4 UW Hotels and Airlines, and have in November turned bearish on Banks. On the buy side, we have OW Utilities, upgraded Healthcare in November. We double upgraded Real Estate to OW last October, and finally, we are still bullish Aerospace & Defense.   This podcast was recorded on 29 January 2024. This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4609199-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.

Speakers:   Thomas Salopek, Global Cross Asset Strategy   Pedro Martins, Chief EM Equity strategist   David Aserkoff, Head of CEEMEA Equity Strategy     This podcast was recorded on January 25, 2024. This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4609169-0, https://www.jpmm.com/research/content/GPS-4602980-0,  https://www.jpmm.com/research/content/GPS-4605609-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.