All into Account

Equity Strategy - Trading around the last Fed hike: typically low beta bond proxies work; Equities-bonds correlation turning

Speaker: Mislav Matejka, Head of Global Equity Strategy
 
Our view remains that Q1 will have likely marked the high point for equity prices for this year, and we look for recessionary trading in 2H, with low beta preference, and an increasing caution on Cyclicals/Banks/Value exposure. As the initial SVB/CS driven correction was sharp, we argued last week that market appeared oversold short term, with relief bounce likely, but also that one should use the bounces to reduce exposure. We do not see these rebounds persisting, the policy mistake risk keeps building. In a nutshell, we do not expect a fundamental improvement in equities risk-reward until the Fed is advanced with rate cuts. Within this, we believe that the bonds-equities correlation is reversing. Both bonds and equities lost money in 1H of last year, then both made money into year-end ’22 – the correlation was positive. As the recession odds are likely increasing again for 2H of this year, in our view, we think the correlation is likely to go back to a normal, inverse one. This should mean that, in down markets, low beta works, as is typical of risk-off trading, and is opposite to last year, when Value worked. The point of the last Fed hike in the cycle is approaching, and we note that bond yields move strongly lower in the aftermath of last hike. Looking at market internals, there is a clear preference for low beta bond proxies into, and post, the last Fed hike in the cycle. Healthcare and Staples were the consistent outperformers. The question is how does this align with what is still seen as a robust labour market. We see the labour market as a lagging indicator of the cycle, it is likely that there is already weakening beneath the surface – note the construction job openings falling, and the Challenger job cuts moving up. It is notable that the amount of time that passes between the best/lowest unemployment rate in the cycle, and the official start of a recession, is quite short historically. It would not be unusual for the economy to see the best labour market prints in Q1 of the year, only for the 2H to potentially show recessionary behaviour. Will lower yields help equity valuations? Equity dividend yield vs bond yield gaps, vs historical averages, are not overly exciting, at present. US and Eurozone have DY-BY gaps below what is seen on average, while only Japan stands out as a clear positive. Cash at near 5% is a very high hurdle rate to surpass to be long risk assets at this stage.
This podcast was recorded on 26th March 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at www.jpmm.com/research/content/GPS-4369291-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.
 

All into Account: Interest rate volatility in the wake of the regional banking stress

Speakers:
Thomas Salopek, Head of Global Cross Asset Strategy
Srini Ramaswamy, Co-Head US Rates Strategy
Ipek Ozil, US Interest Rate Derivatives Strategist
This podcast was recorded on March 23, 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at www.jpmm.com/research/content/GPS-4363888-0, www.jpmm.com/research/content/GPS-4363906-0  for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

All into Account: Cost of living pressures mounting

In this episode of our All into Account podcast Joyce Chang, Chair of Global Research is joined by US Economist Daniel Silver, Head of US Retailing Matthew Boss and Head of European General Retail Georgina Johanan to discuss J.P. Morgan Research’s bi-annual US and EMEA consumer surveys, which provide a pulse check on consumer sentiment and spending plans ahead. The US survey reflects the trend of 1,000 consumers in March, while the European survey reflects the trends of 5,000 consumers in March. They highlight that consumers face increasing affordability pressures, and in the US, tighter financial conditions are eroding cumulative excess savings.
 Speakers:
Joyce Chang, Chair of Global Research
Daniel Silver, US Economic Research
Matthew R. Boss, Head of Retailing: Department Stores & Specialty Softlines
Georgina Johanan, Head of European General Retail
This podcast was recorded on March 22, 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at www.jpmm.com/research/content/GPS-4358197-0, www.jpmm.com/research/content/GPS-4358583-0, www.jpmm.com/research/content/GPS-4363373-0, for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

All into Account: The state of global gender balance in 2023

In this latest episode of our All into Account podcast Joyce Chang, Chair of Global Research is joined by Head of Women on the Move at J.P. Morgan Chase & Co, Samantha Saperstein, along with Amy Ho and Stella Xu from Strategic Research to discuss the highlights from their annual report on gender balance, J.P. Morgan Perspectives: The state of global gender balance in 2023. Their discussion delves into the details on the progress towards achieving gender balance and assesses the challenges facing women as we approach the end of COVID-19 as a public health emergency on May 11 in the US.
 
Speakers
Joyce Chang, Chair of Global Research
Samantha Saperstein, Head of Women on the Move
Amy Ho, Strategic Research
Stella Y. Xu, Strategic Research
 
This podcast was recorded on 16 March 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.
 

Equity Strategy: Use relief bounces to reduce beta and Value factors further: Growth-Policy tradeoff remains unattractive

Speaker: Mislav Matejka, Head of Global Equity Strategy
 
We stick to our call that Q1 will likely end up the high point for stocks this year. While parts of the market look short term oversold, and there could be potential relief bounces, we advise to use these to sell into. It is unlikely that we will have a fundamental low reached until the Fed is well advanced with rate cuts. We argued three weeks ago that the next trade is likely to go UW Value, and that one should be defensive in portfolio allocation. Fundamentally, this call is predicated on the view that bond yields will be moving lower, in effect marking a double-top for the US 10-year yield at ~4%, along with a likely end of PMI rebound soon, as the impact of past policy tightening starts to take full effect, and the positive offsets, such as the cushion of COVID savings for consumers, erode. March PMIs could still be sequentially higher, continuing the streak from November of an improvement driven by gas price fall and China reopening, but that could be nearing the peak. Money supply trends point to renewed weakness in PMIs in 2H. The yield curve is likely to be proven right, as every single time in the past. Even if one were to believe that yield curve will stop flattening, perhaps as central banks pause, if the Fed were to pass on a hike this week for example, this might not be a helpful sign. After all, the curve would typically begin to steepen just ahead of a recession starting. From the point of maximum curve inversion to the start of recession, the sector leadership would be dominated by low beta bond-proxy defensives, and Banks in particular tended to perform poorly. Central banks could keep their “higher for longer” mantra. Labour markets and inflation continue to be some of the most lagging indicators of the cycle, and as inflation stays elevated, the pain threshold for the Fed might be higher this time around than what investors would hope for – the market could be increasingly pricing in a policy mistake. Banks and Cyclicals performed strongly in the past few quarters, and even post last week’s correction are still elevated. It is not clear that Cyclicals enjoy valuation support vs Defensives anymore, and their earnings will be more sensitive to potential consumer and corporate disappointments ahead.
 
This podcast was recorded on 19 March 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at www.jpmm.com/research/content/GPS-4363473-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.
 

All into Account: ‘Stocks and the business cycle: Sector, Style and Regional views’ with Khuram Chaudhry, Head of European Quantitative Equity Strategy

Speakers Thomas Salopek, Head of Global Cross Asset Strategy Khuram S Chaudhry, Head of European Quantitative Equity StrategyThis podcast was recorded on Mar. 10, 2023. This communication is provided for information purposes only. Institutional clients can view the related reports at https://www.jpmm.com/research/content/GPS-4357479-0, https://www.jpmm.com/research/content/GPS-4352510-0.pdf for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved. 

Equity Strategy: With Q1 still likely to be the high watermark for the market, and with UW Value next, does UK stay OW?

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy
 
UK equities have performed well last year, the best DM region, outright up in local currency, and beating the US by 12% in USD terms. The question is whether one should remain positive on UK stocks this year, especially in light of potentially weaker performance of Value style from here. After being bullish Value last year, our call is that Value style will not outperform Growth this year. So far ytd, MSCI Value over Growth is at 0% in Europe and -11% in the US. While Value style tailwind might not be there anymore, and possibly even China & commodities support could peter out by mid-year, we think there are other positives for UK stocks. These are primarily defensive plays, with lower than 1 beta to global equity direction, and lower than 1 beta to global PMIs movement. If Q1 proves to be the peak of the equity market for this year, as we believe, post the strong rally from October that we enjoyed, the UK could be a relative outperformer. The UK is the highest dividend yielding of the DMs, with 4.2% yield, and fully covered this time around, with payout ratios 10-15% below typical. We think there is a good chance that in 2H US 10-year bond yields move back lower, potentially aggressively lower, with further record yield curve inversion, which could make dividend yield pickup strategy very attractive. Also, the UK market still looks exceptionally cheap, at 10x forward EPS, in contrast to US at 18x - continuing to offer record discount. FX could stay a tailwind, where UKX derives 70% of topline from abroad. We have been OW UK in a regional portfolio since Nov ’21, after 6 years of a bearish stance. The UK was our top regional pick in 2022, and we stay OW for this year, in a relative context. In particular, we think FTSE100 still looks better than S&P500. Within UK, we keep our long FTSE100 vs FTSE250 trade, which we opened in Nov ’21. Certain domestic plays have seen a good relief bounce, but in general we think that the UK consumer is likely to struggle given the delayed impact of rising interest rates. House prices are at risk of softening, housing affordability has deteriorated rapidly and consumers have likely burned through the COVID excess savings. In terms of sectoral tilts, Defensives have lagged so far ytd. UK has a greater share of these than Eurozone/US, at 40%, and has been at a disadvantage. While we have been short Staples, Real Estate, and only Neutral Healthcare, we do think that Defensives are set to start performing much better, which will then become a tailwind for the UK market.
This podcast was recorded on 12 March '23
This communication is provided for information purposes only. Institutional clients can view the related report at www.jpmm.com/research/content/GPS-4357060-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

Equity Strategy: March Chartbook

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy
We stay OW International markets vs the US, even as Q1 likely marks the peak overall; Keep unwinding longs in Value vs Growth factor; We are still UW Staples, UW Real Estate and Neutral Healthcare, but the big Cyclical rally is set to run out of steam
Divergences keep building, on one hand between robust equity prices and falling earnings, where Q4 reporting season has not delivered a typical upswing, for the first time, and on the other hand between elevated P/E multiples and rising bond yields. These are likely to contribute to our view that stocks’ highs are in Q1, and will weaken thereafter. The light positioning and the overly bearish sentiment that we were counting on to keep lifting markets in the early part of this year are no longer the case. Positioning has largely normalized, and sentiment is far from negative now, it is hopeful in fact – recession is not a base case anymore for most. Our core view is that the current activity upswing is unlikely to develop into a fully fledged acceleration in 2H. After all, the impact of the policy tightening works with a lag, and central banks are far from even pausing, let alone pivoting. Big picture, we looked for regional convergence over the past year, and encouragingly International markets have done better than the US, with Europe in particular outperforming, in both the local and common FX. We continue to believe that International equities will be trading better than the US, even if, as we suspect, equities do not hold on to the rally seen over the past months. Our key positioning over the past year was to be long Value vs Growth, but we have entered this year Neutral on the Value/Growth trade, advising in October to close the shorts in Tech, and we think the next trade will likely be to go outright UW Value. Sectorwise, we are still outright UW Staples and Real Estate, and only Neutral Healthcare in our portfolio, but look to use the last 6-8 months strong Cyclicals run to reduce the beta of the portfolio as Q1 winds down.
 
This podcast was recorded on 05/03/23
This communication is provided for information purposes only. Institutional clients can view the related report at www.jpmm.com/research/content//GPS-4351097-0.pdf for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.
 

Equity Strategy: Value vs Growth run has stalled this year; The next trade is likely to go outright UW Value

Speaker: Mislav Matejka, Head of Global Equity Strategy
After a very strong factor differential last year, where MSCI US Value beat MSCI US Growth by as much as 30%, and by 25% in Europe, our call entering 2023 was that Value over Growth spread will be much lower this year. This is partly driven by our view from October that inflation has peaked, and that bond yields in the US are set to stall/move lower, in particular in 2H of this year. The relative Value vs Growth factor performance is sensitive to bond yields movement. Further, we see the risk of a rollover in activity momentum into mid year. Eurozone CESI has moved from -100 last summer to +100 last month, and is likely peaking out again. Even if activity does not show a clear slowing, the setup for Value style might not be all that great going forward. In the case that activity stays resilient, and inflation consequently proves sticky, central banks are then unlikely to go on a pause/pivot, and could keep hiking. This would mean that yield curve stays inverted, and perhaps gets even more extreme. Value factor needs steepening yield curve to work. Our core view is that in 2H market will be moving back to the recession trade, but even in the opposite scenario, Value might not be the best place to be. We have moved from OW Value vs Growth stance in 2022, to the Neutral stance at present, as we advised closing shorts on Tech in Q4. Probably the next move, in 1-2 months, will be to go outright UW Value vs Growth. Of note, Japan likely stands out as the odd one out, where the bond yields adjustment is more delayed, due to YCC. Longer term, value is still in Value style, so this should be seen as a tactical, 6-12 months call. Big picture, at the overall market level, we continue to believe that Q1 will mark the high point for the index levels this year, as the fundamental uplift does not come in Q2/Q3, post the relief in activity that is seen in Q1. This suggests that one should be turning more defensive as we move to quarter end.
This podcast was recorded on 26 February 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at www.jpmm.com/research/content/GPS-4344429-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.
 

Why EM will hop ahead of DM in the year of the rabbit?

J.P. Morgan Speakers:
Dubravko Lakos-Bujas - Chief Global Equity StrategistMislav Matejka - Head of Global Equity StrategyPedro Martins Junior, CFA - Emerging Markets Equity StrategyPodcast recorded on Thursday, February 23 @ 8:30am ET / 13:30 UK