All into Account

Equity Strategy: What was a supportive phase of Growth-Policy tradeoff ytd is likely to look quite different in 2H

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy
The general perception is that investor bearishness is ubiquitous, but at the same time a potential downturn is not seen as happening anytime soon by the vast majority, and when it comes, it is expected to be rather mild, without much pain to profits, topline or credit. Most importantly, markets need to negotiate what is likely to be an increasingly challenging Growth-Policy tradeoff in 2H, a setup that could look very different to a near “Goldilocks" backdrop that investors got used to in the past 3 quarters. On the Growth side, after a meaningful improvement at the turn of the year, CESIs are down in US, Eurozone and China. After two years of us arguing profit margins will keep showing strength, margins appear to be finally peaking. Consumer and labour markets are resilient, so far, but that can change quickly. Historically, the time that passes from the best labour market prints in the cycle to the next downturn is surprisingly short. Certain labour indicators are softening, and consumer confidence is weakening again. On the Policy/Inflation side, the market is projecting a sharp Fed pivot in 2H, with nearly 70bp of rate cuts priced in by January. If these do not materialize, USD might bounce, strengthening USD is usually a risk-off indicator for markets. Of course, the Fed could stay hawkish for longer for the more problematic reasons, as well – i.e. sticky inflation. Inflation is seen to be on a down path by most, a view we agree with, but the wildcard is the inflation expectations and the wage growth. Notably, inflation expectations in the US consumer confidence survey have moved to 12 year highs. In a sense, the markets in 2H could be caught between a rock and a hard place. We reiterate UW Value style for this year, and low beta positioning, with overall market levels that could provide a better entry point in 2H.
This podcast was recorded on 22 May 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at http://www.jpmm.com/research/content/GPS-4419519-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

Part 2: Key themes for the S and G and investment screens

In this All into Account podcast, which is part 2 of our two part series, we discuss the key highlights from our latest J.P. Morgan Perspectives: ESG and Supply Chain Risks: Putting the Spotlight on the “S” and “G” in ESG report. We also discuss key themes emerging in the Social and Governance pillars as well as J.P. Morgan’s proprietary social and governance screens and Human Capital Factor metric developed by our quant research team.
 
Speakers:
Gloria Kim, Head of the Global Index Research & Co-Head of ESG & Sustainability Research
Jean-Xavier Hecker, Head of EMEA ESG & Sustainability Research
Hannah L Lee, Head of Asia Pacific ESG Equity Research
Khuram Chaudhry, Global Quantitative Strategy
 
This podcast was recorded on May 10, 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.
 
 
 

Part 1: ESG and Supply Chain Risks: Putting the Spotlight on the “S” and “G” in ESG

In this latest All into Account podcast, which is part 1 of our two part series, we discuss the key highlights from our latest J.P. Morgan Perspectives: ESG and Supply Chain Risks: Putting the Spotlight on the “S” and “G” in ESG report and examine the Social and Governance risks that increasingly impact supply chain resiliency. The current focus on securing resilient supply chains has spurred deeper evaluation of the “S” (Social) pillar, spotlighting human capital management issues related not only to human and labor rights, but also to diversity, equity and inclusion considerations.
 
Speakers:
Joyce Chang, Chair of Global Research
Sophie Warrick, Head of EMEA Equity Research & Co-Head of ESG & Sustainability Research
Pedro Martins Junior, Head of Emerging Markets Equity Strategy
Stella Y. Xu, Strategic Research
 
This podcast was recorded on May 10, 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.

Equity Strategy: Closing the preference for Eurozone over the US

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy
In a regional allocation, we had a preference for International equities, and within that for Europe over the US, in the past year. We believe that the time has come to close the trade of OW Eurozone vs the US. Europe was the least liked region last summer, when the consensus of economists was that it has already entered a recession, but it has transitioned to a consensus long, a preferred play on China rebound, and has enjoyed a big move up in activity, from 47 Euro Composite PMI in November to 54 currently. Given this, from the low last September to last week, Eurozone equities have advanced as much as 30% vs the US. One should be locking in these gains, especially if our current sector and style views of more Defensive leadership keep gaining traction – Eurozone has always been a global Cyclical Value play. The best of the improvement in Eurozone activity is likely behind us, CESI just turned negative. In contrast, ECB is likely to stay hawkish, due to persistent inflation, implying that the Growth–Policy tradeoff is likely to deteriorate. The region still screens cheap, but it historically acted as a high-beta play on the way down, when discounting past US recessions. China reopening clearly helped European performance, both directly and indirectly, as many investors preferred to position through non-China stocks. However, the best of the momentum is likely behind us, with peaking in China CESI and PMIs, and with many mobility metrics having normalized. Unless China delivers a meaningful fiscal stimulus in the near term, it is unlikely that it will be a positive catalyst for European equities from here. With this change, we now have the following pecking order regionally: we are OW UK, Japan and smaller parts of DM, such as Switzerland, we stay unexcited by EM, Neutral vs DM, and we keep UW in the US, now joined with an UW in Eurozone.
This podcast was recorded on 08 May 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at http://www.jpmm.com/research/content/GPS-4406422-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.

All into Account: ‘All things Japan: YCC, JGBs, Yen and Equities’, with Tohru Sasaki, Head of Japan Macro Research

Tohru joins us to discuss the end of YCC, and where we see fair value for the JGB yield. Rising JGB yields will likely not translate into Yen strength this time around, given the wide short-term yield gap and the trade deficit.  But a weak yen should still be a positive for stocks.
 
Speakers:
Thomas Salopek, Head of Global Cross Asset Strategy
Tohru Sasaki, Head of Japan Macro Research
 
This podcast was recorded on 5 May 2023.
This communication is provided for information purposes only. Institutional clients can view the related report https://www.jpmm.com/research/content/GPS-4391169-0 and https://www.jpmm.com/research/content/GPS-4399337-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.
 

Equity Strategy: May Chartbook

Speaker: Mislav Matejka CFA, Head of Global Equity Strategy
Beneath the surface, the leadership is turning Defensive, and away from Value & Cyclicals… we think this rotation continues into/around last hike
In the past weeks, a range of Defensive sectors, such as Staples, Utilities and Healthcare, have rebounded. They joined the already robust performance of the Tech sector ytd. We are more positive on Tech this year than last, but think the sector is becoming stretched in absolute terms now, especially as good results are out in the open. On the other side, many Cyclical and Value plays are losing momentum, among others Mining, Autos, Retail, Construction and Semis, joining the weaker Banks run ytd. We think this rotation will continue as we approach the last Fed hike in the cycle, on the back of our view that US bond yields will be flat/down, and as the Q4&Q1 acceleration in PMIs, and in particular in European PMIs, starts to wane. The narrow and increasingly risk-off internal leadership adds to the main disconnect that the market will need to grapple with: hopes of a soft landing, without much pain to profits, labour or credit, but at the same time the consensus expectation that inflation will come down quickly and that central banks will be cutting in 2H. We believe that the consensus view that the worst of pressures is behind us will be proved wrong, as the impact of monetary tightening worked historically with a lag. Labour markets are lagging indicators, and could weaken abruptly – continued Q1 strength doesn’t mean anything for 2H. We held a view over the past two years that corporate earnings would be resilient, and argued that Q1 results would still be robust, but this is likely to start changing into 2H, as pricing power wanes.
This podcast was recorded on 30th 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-4400022-0.pdf  for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.
 

All into Account: ‘IMF highlights from the Markets and Volatility panel’, with Thomas Salopek, Head of Cross Asset Strategy

Sharing a few of the highlights from the recent IMF meetings of the ‘Markets and Volatility’ panel, which included JP Morgan’s business heads of Trading and Research.
 
Speakers:
Thomas Salopek, Head of Global Cross Asset Strategy
Steve Dulake, Global Head of Spread Research
 
This podcast was recorded on 01 May 2023.
This communication is provided for information purposes only. Institutional clients can view the related report https://www.jpmm.com/research/content/GPS-4391169-0  for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

All into Account: ‘Credit Watch: Navigating the bull market in bearishness’, with Steve Dulake, Global Head of Spread Research

Speakers:Thomas Salopek, Head of Global Cross Asset Strategy
Steve Dulake, Global Head of Spread Research
This podcast was recorded on Apr 24, 2023.
 
Our overall market thesis a few weeks ago was that while spreads were in something of a ‘no-man’s land’ valuation-wise, the path of least resistance was likely tighter, based on the continued absence of ‘scary’ headlines, resulting in further declines in volatility.  What has changed is market pricing and, as much as the ‘pain trade’ could be tighter still, risk-reward feels much more symmetric today.
 
This communication is provided for information purposes only. Institutional clients can view the related reports at https://www.jpmm.com/research/content/GPS-4391169-0 and https://www.jpmm.com/research/content/GPS-4391285-0,  for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.  

Does impact investing hold the future for ESG investing? Impact investing on the rise to meet demand for measurability

Speakers Joyce Chang, Chair of Global Research
Stella Y. Xu, Strategic Research
Jean-Xavier Hecker, EMEA ESG & Sustainability Research
This podcast was recorded on Apr 20, 2023.
In this latest episode of our All into Account podcast and video, Joyce Chang, Chair of Global Research, is joined by J.P. Morgan’s Stella Y. Xu, Strategic Research and Jean-Xavier Hecker, EMEA ESG & Sustainability Research discuss the rise of impact investing, how it differs from other ESG investing strategies, size of the market, historical returns and regulations.
While macro drivers such as the generational shifts in wealth from Baby Boomers to Millennials and Gen Xers will continue to drive adoption, this sector is arguably the most challenging ESG investing strategy to implement when considering the duration mismatch between shorter-term financial returns alongside longer-term progress on social and environmental impact.
This communication is provided for information purposes only. Institutional clients can view the related reports at https://www.jpmm.com/research/content/GPS-4377094-0,  for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.  

Equity Strategy: When to close the preference for Europe over the US? Q1 results still to be better, but don’t extrapolate

Speaker: Mislav Matejka, Head of Global Equity Strategy
Regionally, we are OW International equities vs the US, and within this specifically Europe vs the US, a position we held through 2022 and so far ytd. The question is when should one close this trade? Internal leadership might become increasingly difficult for Europe to keep beating the US, especially if our call of Value underweight this year, and the recently introduced preference for lower beta part of the market - where we in particular cut Autos, and added to Staples - keeps gaining traction. So far ytd, Value is behind in both Europe and in the US, and the Defensive stocks are staging a recovery - Eurozone has historically been more of a Cyclical Value tilted play. The big benefits for Europe that we were highlighting in Q4, of falling gas price and the China reopen, are now in the open. Eurozone has enjoyed a strong rebound in PMIs since November on the back of these, of 7 points, but the upmove could be petering out soon. We note that Eurozone valuations vs the US continue to screen cheap, but it appears that the consensus call these days is to be OW Europe vs the US, and the region has strongly outperformed in the past few quarters. Eurozone is up vs the US by 31% in USD terms since the September low. We are remaining OW Europe vs the US, for now, but think that the time to take profits on the trade is approaching. Looking at Q1 reporting season, the consensus expectations have come down aggressively over the past months, from +7% yoy for S&P500, to current -7%. In contrast, activity in most places was better in Q1 vs the previous quarter. The combination of low hurdle rate and the improving fundamentals bodes well for the corporate results, where we expect beats. Having said that, the beats might not lead to upgrades for the rest of the year. 2023 projections keep moving lower. Also, the question is whether the stocks will rally much further on the back of beats, post an already strong rally. We advise to use any strength on the back of positive Q1 results as a good level to reduce from. Finally, consensus expectations are for a renewed margin acceleration in 2024, which could prove too optimistic, as pricing normalizes.
 
This podcast was recorded on 24 April 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at www.jpmm.com/research/content/GPS-4392460-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.