All into Account J.P. Morgan Global Research

Speaker: Mislav Matejka, CFA, Global Head of Equity Strategy
At the overall market level, we remain concerned about the repeat of last summer’s drawdown, inflation staying too hot is a real possibility, market will not like it if bond yields move above 5%. Within this, we have made some regional changes in Q1, specifically we tactically closed our longstanding China bearish view, given 30%+ drawdown in the past 12 months. Also, we have upgraded Eurozone equities last quarter. To be clear, we don’t expect Eurozone to directionally decouple from the US, but it is interesting that in the recent bout of market weakness, S&P500 was down 5-6%, in contrast to EuroStoxx50 down only 3%. We continue to see an improved relative risk-reward for Eurozone equities: 1. Eurozone is trading at 13x forward P/E, vs S&P500 at 20x. In terms of shareholder returns, buybacks yield in Eurozone has moved closer to the US, while dividend yields are remaining double the US. 2. In what is historically atypical, ECB is set to start cutting ahead of the Fed, and by a greater magnitude. At the same time, PMI momentum is improving in Eurozone vs the US, post last year’s reset. 3. Tactically better China performance will help Eurozone vs the US trade, and also UK (OW) and commodities. 4. We have held preference for Growth over Value, for High vs low Quality and for large vs small cap stocks, and we still believe that fundamentally these are right exposures, but do recognize the potential for reversal is very high. Now, the risk of extreme concentration and the momentum unwind is also present in Europe, but it is on a much bigger scale in the US. In the report we address the market, sectors, styles etc. behavior around the first ECB cut in the cycle, which is likely coming up in June. Notably, small caps begin to perform better post the start of ECB cuts.
This podcast was recorded on 28 April 2024.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4683726-0 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, Head of Global Cross Asset Strategy
 
Ipek Ozil, US Interest Rate Derivatives Strategist
 
Powell’s recent comments represent a strong reversal from the dovishness from March, so policy uncertainty remains as elevated as ever. In response to strong CPI data this week, the options markets are implying a significant weight on a hike by year-end, leaving rate-cut scenarios with a total weight similar to rate hike scenarios.
 
This podcast was recorded on 17 April 2024.
This communication is provided for information purposes only. Institutional clients can view the related report at
https://www.jpmm.com/research/content/GPS-4669694-0, and 
https://www.jpmm.com/research/content/GPS-4672843-0 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
Q1 reporting season is upon us. As is typical, consensus projections have been moving materially lower over the past months. For S&P500, IBES is now calling for 3% yoy EPS growth, which is down from 10-12% projections seen last summer. In a break from recent norms, though, the activity momentum firmed up during the quarter, as seen in rising global PMIs. These together suggest that we will get earnings beats. The likely earnings beats do not necessarily mean that equities will advance during the reporting season, though. This is because the market has already strongly rerated during Q1, and the big gap has opened up ytd between Fed projections and equity index levels. The risks of interest rates spiking for the “wrong reasons”, Fed pivot getting fully reversed and inflation staying too hot are all elevated. At the same time, geopolitical uncertainty could quickly spike further, and any de-escalation prove fleeting. In addition, consensus expectations are for a very steep climb in earnings over the next few quarters, from Q1 S&P500 projection of 55$ to Q4 forecast of 65$, amounting to an almost 20% increase. This is at a risk of disappointment. In terms of earnings themes, pricing is likely to soften, with topline growth coming back to earth. At sector level, the pickup in commodity prices could help the respective sectors performance. We recently advised for Utilities to perform better, irrespective of bond yields move, and believe that Banks earnings results could end up underwhelming. Regionally, we believe that the period of US earnings outperformance vs Eurozone might be ending. The relative US-Eurozone PMI momentum is likely peaking, which suggests relative EPS delivery might be turning too. These support our recent upgrade of Eurozone equities vs the US.
This podcast was recorded on 14 April 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4671662-0 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.
 

A hot CPI print following the recent strong jobs print has put ‘high for long’ back in focus, challenging the soft landing narrative. We discuss with Phoebe what these ‘bumps in the road’ mean our views on TIPS, breakevens, and duration generally. As for Gold, Greg dissects the reasons for the recent rally and reviews whether the rate cutting cycle is going to be as bullish for Gold as it was historically.
 
Speakers:
Thomas Salopek, Global Cross Asset Strategy
Phoebe White, Head of US Inflation Strategy
Greg Shearer, Head of Metals Research
This podcast was recorded on 11 April 2024.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4671684-0, https://www.jpmm.com/research/content/GPS-4667440-0, 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
With respect to bond yields’ direction, our call last October was to go long duration, that bond yields have likely peaked. After the ytd bounceback, we think that yields will resume moving lower. Our FI team forecasts that US and German 10-year yields will be below current on 3-, 6- and 9-month horizons. We fundamentally agree with this, especially given the elevated geopolitical risks at present, but note the risks of inflation staying too hot. The Fed might be wrong to assume that all the recent inflation pickup is transitory; also the term premia are outright negative again – pointing to inflation complacency. If bond yields end up moving higher from here, against our base case view, that might be “for the wrong reasons”, with market weakening in that scenario, like last summer. Now, irrespective of how one sees the bond yields’ direction from here, we think that the Utilities sector’s poor performance has likely gone too far. If yields fall, as is our core view, that should help the sector. In the opposite scenario, the overall market could weaken, and the typical low beta of Utilities could come to the fore. In addition: 1. The client concern is with respect to perceived elevated leverage of the sector, but we think this is misplaced. Leverage is higher than in the past, but cash flow generation is strong and Utilities stocks are solidly investment grade. 2. Utilities have been derated to pre-Ukraine levels, but power prices are still higher than pre-Ukraine. Power prices should not go lower from here, as industrial demand is starting to come back. 3. Earnings relative of Utilities are continuing to move up, making the sector very attractive at present. P/E relative of Utilities is near record cheap. 4. Renewables have been underperforming the rest of the sector for more than three years now, and are increasingly more attractively priced. We also think that Real Estate should be looked at again.
This podcast was recorded on 07 April 2024.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4650376-0 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
In terms of leadership, US and Japan are ahead of other markets ytd, Growth is outperforming Value and large caps are again beating small, in all key regions. We continue to believe that this style of leadership will broadly stay the case for a while longer, until there is a break, or a reset, in the cycle. For Value, commodities, low Quality, small caps, EM or International stocks to begin leading more sustainably one needs to see a reflationary backdrop, in our view, but we could have the opposite. Within this, we have recently taken profits on US vs Eurozone OW, as the Eurozone risk-reward has improved, in our view. Among other, Eurozone valuations appear very attractive, relative growth momentum could be bottoming out and ECB could start moving ahead of the Fed, which would be very atypical. We also have a tactical buy on China given extreme cheapness and UW positioning by most investors. Broadly, JPM Fixed Income’s call is that bond yields are fundamentally set to move lower in 2H, but we note a pickup in inflation swaps, as well as the outright negative term premia for bonds again, which suggests that there is a lot of complacency in the bond market with respect to the inflation risk. Consequently, the gap that has opened up ytd between Fed futures and the equity market is getting wider. Equities rallied almost 30% from last October lows, driven in Nov-Dec by the expectation of a Fed pivot, but these projections have fully reversed back to October low levels. Equities are ignoring the most recent pivot of a pivot, which might be a mistake. The assumption that the market is likely making here is one of growth acceleration coming to the rescue in 2H. In this regard, we note that earnings projections for 2024 are still not moving up. Regionally, Japan is staying our top pick, continuing our 2023 preference.
This podcast was recorded on 31 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-4662999-0 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.