All into Account

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy The question is whether the move lower in bond yields is over for the time being, and can it resume further down the line without a clear bout of activity weakness materializing? We called last October to position for the rollover in bond yields, but post the sharp fall of 100bp in 3 months, a pause is likely. Central banks rate projections have already moved substantially, now pricing in a cumulative 150-170bp of cuts by the Fed and ECB over the next 12 months, and markets digested a raft of benign inflation prints. Big picture, we believe that the long duration call will stay relevant for 2024, but the near-term stabilization could happen due to the exhaustion in negative convexity impact, on potentially more longer-dated government bond issuance, and along with likely some more mixed inflation prints ahead. We are unlikely to see another leg lower in bond yields near term unless or until there is a clear deterioration in activity dataflow. Now, what could be the implications of this for equity markets? In November and December equities took the fall in bond yields as an overwhelming positive, fueling a risk-on market rebound. Cyclicals outperformed Defensives, with the exception of Real Estate and Utilities; however, the typical defensive bond proxies significantly lagged. If yields stall near term, this likely stalls the rally too, and crucially we do not expect that the decidedly one-sided interpretation of why bond yields have fallen will continue. This is especially if we do see some weakening in consumer dataflow, which was solid to date – most recently US ISM services employment component fell sharply. If the consumer setup changes, then Defensive names could have a catchup, especially as their valuations vs Cyclicals are now attractive, and as Cyclicals have moved further away from activity dataflow. We note that Healthcare, Telecoms and Staples have started the year on a stronger note in both the US and in Europe, and we expect this to continue. This podcast was recorded on 14 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-4600086-0 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.

Jason Hunter discusses some of the more interesting technical setups and signals from his recent publications and ahead of tomorrow’s CPI report. This podcast was recorded on 10 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-4588098-0, https://www.jpmm.com/research/content/GPS-4596708-0, https://www.jpmm.com/research/content/GPS-4594796-0, https://www.jpmm.com/research/content/GPS-4596573-0, 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.

Mislav Matejka, Head of Global Equity Strategy, discusses the changes in the stock market, the potential consolidation of bond yields, and identifies sectors that have started the year positively.

Thomas Salopek, Head of Cross Asset Strategy, and Marko Kolanovic, Chief Global Markets Strategist, along with other analysts, discuss the outlook for 2024, including topics such as the impact of reopening in China, potential economic slowdown, skepticism towards inflation decline, underperformance of active investors, bullish outlook on Japan, and investment recommendations such as gold and silver.

The global housing market is facing a supply/demand imbalance with divergent prospects across regions, but the housing affordability crisis is a common denominator. In this video and podcast, we discuss current market conditions in the global housing market. Oversupply in China and commercial real estate contrasts with the lack of supply in the US housing market, which is essentially frozen. US housing affordability is at its worst in 41 years, while Japan, Italy and Spain are the only G20 developed market countries with ratios of home prices-to-income below their historical averages. China and the UK stand out as facing the greatest challenges. In China, housing faces the risk of a double-dip, and financial risks from the property sector remain high despite modest policy support. The UK housing market is most vulnerable due to shorter-term mortgage structure and resets.   Speakers Joyce Chang, Chair of Global Research John Sim, Head of Securitized Products Research Michael Rehaut, Head of Homebuilders and Building Products Equity Research Abigail Suarez, Head of Neighborhood Development at JPMorgan Chase Haibin Zhu, Chief China Economist Meghan Kelleher, International Securitization Research Chong Sin, US Commercial Mortgage-Backed Securities Research   This podcast was recorded on November 28, 2023. This communication is provided for information purposes only. Institutional clients please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.  

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy We look at 3 key drivers for next year: first, falling bond yields. We called in October to position for a long duration trade, on the back of likely finished Fed, continued deceleration in inflation, activity softening, and post a big bond selloff. As the move lower in bond yields gains traction, it is initially seen as a positive for equities, but that supportive effect might not hold for too long. Second, sequential activity slowdown vs this year. Our economists are projecting 2024 real GDP growth in almost all key regions at a slower run rate than what transpired this year. Importantly, for 3 quarters in a row next year US real GDP growth is forecast to be between 0-1%. This stall speed is not leaving any margin for error, and it is consistent with underwhelming earnings delivery. While recession is not our base case, it doesn’t take much to tip the activity into contraction at such a low starting point. Crucially, unlike a year ago, when almost all economists and the market pricing had recession as a base case, both are in a soft landing camp now - perhaps one should be contrarian yet again. Third, while consensus is looking for earnings pickup in 2024, weaker pricing might lead to disappointments. At sector level, we look for bond proxies such as Real Estate and Utilities to outperform, and have recently cut European Banks to UW. We also find consumer and corporate cyclicals stretched, post a strong run, and have cut a number to UW. Regionally, we continue to find Japan as attractive. Lastly, despite typically favourable seasonals in December/January, current technicals look far from attractive, with SPX RSI in outright overbought territory. This podcast was recorded on 03 December 2023. This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4575554-0 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.

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy Our key building blocks for 2024 are: first, to enter a long duration trade, as per our last month’s report. After 3 years of an uptrend, with US & German long yields up 400bp, bond yields look set to move lower. That was the case each of the last 8 times post final Fed hike. Second, all key regions are expected by our economists to see weaker GDP growth in ‘24 than this year. US quarterly real GDP prints are projected to decelerate to stall speed for most of 2024, at 0-1% run rate, not leaving much room for error. Finally, we believe that the consensus call that corporate topline and margins are set to re-accelerate next year will be challenged, on weakening pricing and volumes. We look for flat European EPS growth in 2024, based on no recession materializing. If economies enter contraction, then earnings will naturally fall outright. In the 1H of next year, equities will likely need to negotiate earnings adjustment, as activity slows. We believe that the risk-reward for equities will start fundamentally improving once the Fed is advanced with interest rate cuts, especially if that is happening without clear consumer and labour deterioration. Until then, the chances of an accident, or a more pronounced economic slowdown, are likely to be elevated. Given this, we think the backdrop for risky assets is set to be challenging in the 1H of 2024, with spells of material weakness, and could potentially improve thereafter. Our MSCI Eurozone target for Dec ‘23 was 256, with last week’s spot just 1% away from it. For full 2024, we keep the same target. Regionally, Japan stays our OW, initiated last December, and one might not need to keep hedging the FX anymore. We have been cautious on EM vs DM in 2023, with EM seeing 10% relative weakness ytd. We think that potentially in 2H of next year EM could have a more realistic chance to outperform, as Fed starts easing. We stay UW Eurozone vs the US, for now, a call we initiated in early May, but given the increasingly attractive valuations, where SX5E trades sub 12x forward P/E, we would consider potentially changing this call as we move through 1H of 2024. At sector level, we advise a positive view on long duration/bond proxies, such as Utilities & Healthcare, and recently upgraded Real Estate. On the other side, we are UW Banks, Autos, Consumer Cyclicals, and downgrade Food Retail, Hotels & Travel and Semis to UW, post the strong run. Stylewise, we are long Quality, stay cautious on small vs large caps, but note the valuations are starting to look more interesting.   This podcast was recorded on 28 November 2023. This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4572623-0 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.

We discuss the message from overnight trading signals and how the impact is manifested in specific timeframes. Professor Whelan from CUHK joins to discuss his own work in this area, while Erik from Research & Jagadish from QIS offer our take on this subject as well as covering the feasibility of implementing these strategies successfully after costs. This podcast was recorded on November 27, 2023. This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4444582-0 and https://www.jpmm.com/research/content/GPS-4557365-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy Earnings growth this year is on track for a largely flattish outcome. For next year, consensus is implying a significant pickup, at 10% EPS growth globally. Both topline and margins are expected to improve vs this year. There are risks to this, in our view, especially given that the corporate earnings are at present above historical trends, and that the starting point of profit margins is elevated. The consensus view goes against the reducing pricing power that corporates are starting to face - as PPIs have entered negative territory, there is downside risk to earnings, not upside. The headwind to margins could come from higher cost of goods sold through lagging wage increases, as well as higher cost of financing, while on the other side sales mix and volumes could deteriorate. Put together, next year corporate EPS growth could end up more flattish, rather than up, and this is without having recession as a base case. At the sector level, into next year we see downside earnings risks to Banks, Autos and Consumer Discretionary more broadly. On the other side, we believe Utilities earnings trends are likely to be very resilient, and Energy and Mining could be supported by better spot commodity prices. What do the potential EPS downgrades mean for the overall market? We believe that bond yields are set to move lower, as per our call from last month to go long duration, and we thought the knee-jerk equity reaction to peaking bond yields is a positive one, but also that this is unlikely to last. The historical correlation between bond yields and P/Es has not been consistent; it was sometimes inverse, as in the past five years, but quite often outright positive - on many occasions P/Es tended to fall, not rise, as bond yields went down. It is the EPS revisions which always displayed a consistent, and positive, correlation to P/E multiples. Over the past year, equities were resilient as EPS momentum improved. If EPS revisions roll over again, as the above drivers suggest, then P/E multiples could roll too. This podcast was recorded on 20 November 2023. This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4565785-0  for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

We have moved OW EM FX as US yields fell, data stabilized and EM central banks have struck a more cautious tone. At the same time, we remain MW in EM Local Rates and EM Credit. While EM bond yields have also sold off, any retracement is likely to be incomplete and contingent on a renewed dovish pivot by central banks that are clearly cautious for the time being. Instead, we find EM rates attractive selectively rather than generally.      Speakers: Thomas Salopek, Head of Global Cross Asset Strategy Saad Siddiqui, EM Strategist   This podcast was recorded on Nov.13, 2023. This communication is provided for information purposes only. Institutional clients can view the related reports at  https://www.jpmm.com/research/content/GPS-4552508-0, for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.