All into Account

Equity Strategy: Year Ahead 2024 – Europe and Cross-Regional Outlook

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.
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All into Account: ‘Overnight trading signals and their use in QIS’

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.

Equity Strategy: Earnings outlook - consensus is implying both a margins and topline reacceleration next year

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.

All into Account: ‘View on EM Fixed Income & EM FX’, with Saad Siddiqui, EM Strategist

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.

Equity Strategy: How can Defensives catch a bid?

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy
After a prolonged spell of weakness, at first driven by the inflation and bond yields spike last year, and then this year by macro recovery trade, certain Defensives are starting to trade a bit better of late. We think that Defensives could catch a more sustained bid if: 1. Bond yields could be in the process of peaking out, we reiterate the call from last month that one should go long duration. If the turn lower in bond yields is confirmed, on the Fed being done, a continued move down in inflation, but also on softer activity indicators, as seen in disappointing PMIs, then a range of Defensives should benefit. There is a clear link between bond yields and Utilities. Long bonds have lost half of their value over the past 3 years, as did Utilities relative, and that could be turning. Now, even if bond yields ramp up further, the trade might be on. Any break in yields above 5% will, in our view, be taken negatively by the market. In that scenario, Defensives might not behave as they did in August-September, when they underperformed against the backdrop of rising yields, but could be seen more as a traditional low beta part of the falling overall market. 2. Global output PMIs have been weakening for 5 months now, both manufacturing as well as services, and the risk is of a move into outright contraction. Money supply trends suggest that there could be more downside. 3. Earnings of Cyclical sectors are elevated vs Defensives, and are showing signs of a turn. In the latest reporting season, Cyclicals - Discretionary & Industrials had the most profit warnings, and Utilities the least. 4. Valuations of Defensives are not demanding anymore, having de-rated from outright expensive territory to fair value currently. Within Defensives, we have a preference for Utilities (OW), Telecoms (OW) and Staples (OW), and have recently upgraded Healthcare and Real Estate post the big spell of weakness.
This podcast was recorded on 12 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-4560156-0  for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

All into Account: ‘The view on European Banks’ with Mislav Matejka, Head of Global & European Equity Strategy, Kian Abouhossein, European Banks Analyst, Esmail Afsah, European Derivatives Strategist

Mislav, Kian, and Esmail join to discuss our view of European banks, after our recent shift to UW given that the outperformance of the sector may stall assuming bond yields are peaking. We also discuss the bottoms up perspective and how best to implement the views within vol markets.
 
Speakers:Thomas Salopek, Head of Global Cross Asset StrategyMislav Matejka, Head of Global & European Equity StrategyKian Abouhossein, European Banks AnalystEsmail Afsah, European Derivatives Strategist
 
 
This podcast was recorded on Nov. 9, 2023.This communication is provided for information purposes only. Institutional clients can view the related reports at https://www.jpmm.com/research/content/GPS-4546791-0, https://www.jpmm.com/research/content/GPS-4488904-0, and https://www.jpmm.com/research/content/GPS-4555229-0, for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

Equity Strategy: November Chartbook: The call that bond yields are peaking stays key – long bond proxies and short European Banks

We reiterate our call from October that bond yields are likely in the process of peaking during Q4, and that one should go long duration. As this view gets confirmation, it is in the short term interpreted by investors as a knee-jerk positive for equities, especially after some derisking that took place in the past months. Having said that, we believe that equities will soon revert back to an unattractive risk-reward into year end. This is especially if 2024 earnings projections start to reset lower. We think that pricing power is waning, profit margins are at risk and the slowdown in topline growth is set to continue. Money supply in the US and Europe keeps contracting. Labour markets are lagging indicators, and could weaken abruptly – continued ytd strength doesn’t mean anything for the next 6-12 months. Within this, we have recently advised to tactically close the shorts on China, given fresh stimulus and an already weak ytd performance – this was behind our call to close the shorts on Miners. If bond yields are rolling over, as we suspect, Defensives will get a tailwind, such as Utilities and Staples. We also reiterate our upgrade of Real Estate, done in September, after 2 years of an UW stance. Finally, we have last week cut European Banks to UW. They had a very strong run again ytd, and will likely have a headwind if yields start moving lower.
 
This podcast was recorded on 05 November 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at http://www.jpmm.com/research/content/GPS-4553659-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

All into Account: ‘The broader impact of GLP-1s’ with Chris Schott, Robbie Marcus, Andrea Teixeira, Ken Goldman, Brett Gibson, and Carla Casella

We expect GLP-1s will be an important theme now and in the years to come, so we’ve gathered up both the Stock and Credit analysts for a number of sectors including Pharmaceuticals, Med Tech, Food, Beverages, Healthcare, Insurance, Retail etc. to get an overview of the broad impact.
 
Speakers:Thomas Salopek, Head of Global Cross Asset StrategyChris Schott, Pharmaceuticals AnalystRobbie Marcus, Medical Supplies & Devices AnalystAndrea Teixeira, Beverage, Household & Personal Care Products AnalystKen Goldman, Food Producers & Retailers AnalystBrett Gibson, US Credit Analyst: Healthcare and InsuranceCarla Casella, US Credit Analyst: Food, Beverages, Tobacco, Consumer products, Retail
 
This podcast was recorded on Nov 01, 2023.This communication is provided for information purposes only. Institutional clients can view the related reports at  https://www.jpmm.com/research/content/GPS-4537812-0, https://www.jpmm.com/research/content/GPS-4532586-0, for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

Equity Strategy - Open UW in Banks, add to Healthcare; Peripheral views; Earnings season update

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy
We are advising to open a short in European Banks, and we move the sector from Neutral to UW. Banks have been one of the best performers in the past 6 months, second only to Energy, are ahead nicely ytd, up 8% vs SXXP at 1%, to be cumulatively ahead by 60% since Sept 2020. If bond yields are in the process of peaking this quarter, as we suspect, then Banks could start to struggle. After all, the Banks rally was underpinned by the sharp move up in bond yields over the past 3 years, with German 10 year moving from -0.5% to 3%, and US 10 year from 1% to 5%. Any potential fall in yields, or the ECB cuts next year, will reduce Banks’ profitability. Further, Banks’ deposit base is likely to fall, and with rising deposit betas their net interest income is likely peaking now. From the regulatory side, the sector might not enjoy as favourable a backdrop as it did recently, with buybacks and capital return to shareholders as good as they get. Finally, Banks remain much more levered than any other sector, and are a beta play on the overall activity. Banks could suffer if economies enter contraction, and if some of the very benign credit backdrop changes next year, with spreads widening and delinquencies rising. We are using the funds to upgrade Healthcare, from Neutral to OW. The sector has lagged this year, but could benefit from high USD exposure, low beta and the long duration angle. If Banks start to lag, then the periphery could fall behind core markets. Periphery nicely outperformed the core for a while, Italy is top European performer ytd, up 15%, but Banks relative and peripheral markets relative performances remain very strongly correlated. We remain bearish on the market direction, and our sector positioning stays the barbell of commodities – led by Energy, and the bond proxies – such as Utilities and Staples, which are catching up post the earlier poor performance. This is likely to continue if the long duration trade takes hold, and if the earnings momentum for the overall market deteriorates.
This podcast was recorded on 29 October 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at http://www.jpmm.com/research/content/GPS-4546791-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.
 

All Into Account: Corporates vs. MBS: It’s always good to have options Introducing a framework for comparing MBS option value versus credit downgrade probabilities

“Mortgages are cheap to Corporates” has become one of the most popular adages in the HG credit market this year, achieving near Taylor Swift status within certain circles of investors (aka the Taylor rule). In this podcast, we roll out a novel framework to look at Corporates versus MBS relative value. If we compare the OAS of MBS (which takes call risk into account) versus Corporate spreads adjusted for downgrade risk, then are Corporates cheap to MBS?
 
Speakers:Stephen Dulake, Global Head of Credit, Securitized Products and Public Finance ResearchNathaniel Rosenbaum, Head of U.S. High Grade StrategyNick Maciunas, Head of U.S. Agency MBS Research
 
This podcast was recorded on 27 Oct 2023
This communication is provided for information purposes only. Institutional clients visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.