All into Account

Equity Strategy: Earnings Outlook - The surge in corporate pricing power to start reversing as the year progresses

Speaker: Mislav Matejka, Head of Global Equity Strategy
The consensus view over the past two years was that margins were at risk of contraction given the big spike in input costs. We disagreed. We maintained a bullish earnings view as inventories were non-existent and as consumers were flush with cash, legacy of excess savings from COVID times. This backdrop enabled corporates to use the spike in input costs as an opportunity to raise prices. Indeed, the correlation between PPIs and corporate profits has historically been strongly positive. We believe that this correlation will continue to hold, but from here in the negative direction. This is especially as corporate inventories have been rebuilt, supply chains normalized and COVID dislocations finished. In addition, there is no further extraordinary support for the top line in DM, as pent-up demand has been exhausted, and the once dramatic consumer excess savings have been eroded. One could see increased discounting and downtrading. It is notable that the intentions of corporates to raise prices have rolled over sharply in the past few months. The risk-reward is more challenging still given that US and European profit margins are at historical highs, significantly above pre-COVID levels. Earnings projections for 2023 have been cut somewhat, but consensus is still looking for upside this year, and a meaningful acceleration next year. These are at risk. The question is whether the negative impact will start already with Q4 results, or will it be delayed to later this year. PMI momentum suggests that the earnings growth rate in Q4 should have moved into negative territory, but even if companies do not disappoint for Q4, we do not believe EPS upgrades are likely in 1H.
 
This podcast was recorded on 22 January 2023
This communication is provided for information purposes only. Institutional clients can view the related report at www.jpmm.com/research/content/GPS-4313317-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.
 

China’s Re-opening

Our analysts discuss China’s re-opening, what it could mean for financial markets, and how it could impact the global economy.
 
Speakers:
Wendy Liu – Chief Asia and China Equity Strategist
Thomas Salopek – Head of Cross Asset Strategy Research
Haibin Zhu – Chief China Economist and Head of Greater China Economic Research
 
Moderator:
Samantha Azzarello – Head of Content Curation and Strategy
 
This podcast was recorded on 11 January 2023.
This communication is provided for information purposes only. Institutional clients can view the related reports at:
https://www.jpmm.com/research/content/GPS-4292090-0
https://www.jpmm.com/research/content/GPS-4300063-0
For more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.
 
 

Equity Strategy: Approaching a bridge too far for Cyclicals & Banks?

Speaker: Mislav Matejka, Head of Global Equity Strategy.
We believe that the current market rally will start fading as we move through Q1. The positive catalysts that we were highlighting from October, and which helped drive a rebound of as much as 27% for SX5E – peak in bond yields, in inflation and in USD, China reopening and more benign European gas prices – are now in the open. While January still offers favourable seasonals, and the current investor positioning is far from heavy, both of which support stocks for the time being, we believe that one should be using potential gains over the next weeks in order to reduce exposure. All Cyclicals performed very strongly, and all Defensives lagged over the past six months. In fact, Cyclicals vs Defensives unwound all the losses seen in the 1H of last year, back to highs. The market is behaving as if we were in an early cycle recovery phase, but the Fed has not even concluded hiking yet. Typically, this phase is seen only after a period of Fed cuts. We stick to our call from October that bond yields have likely peaked, and will still be flat/down in 1H, which typically helps Defensives. Also, Cyclicals appear to be pricing in the rebound in PMIs back to solid expansion territory in 1H, but our lead indicators point to more softness. Finally, earnings are likely to be challenged next. We maintained a bullish earnings view over the past two years, as the spike in PPIs was used by corporates as an opportunity to raise prices. Far from seeing a margin squeeze, profit margins improved significantly for most. This will change: we look for downside to earnings for Cyclicals, on weaker pricing. At some point in 2023, Cyclicals are likely to rally more sustainably, discounting a fundamental inflection point in PMIs and a bottoming out in earnings, along with a potentially clearer pivot by the Fed, but this is not yet, in our view.
 
This podcast was recorded on 16 January 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4307377-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

The Great Repricing: Regime change provides a boost to fixed income and future returns

In this new episode on J.P. Morgan Research’s All into Account podcast we discuss our top 10 strategic and long-term investment themes driving global markets and economies in 2023 and beyond from our recently published report “The Great Repricing: A boost to future returns”.
Joyce Chang, Chair of Global Research is joined by Bruce Kasman, Chief Economist, Jay Barry, Co-Head of US Rates Strategy, Natasha Kaneva, Head of Commodity Strategy, and Jan Loeys, Head of Long-Term Strategy, which is part of our Strategic Research team, to discuss their market views and investment outlook.
 
Speakers:
Joyce Chang, Chair of Global Research
Bruce Kasman, Chief Economist
Jay Barry, Co-Head of US Rates Strategy
Natasha Kaneva, Head of Commodity Strategy
Jan Loeys, Head of Long-term Strategy
This podcast was recorded on January 12, 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: January Chartbook

Speaker: Mislav Matejka, Head of Global Equity Strategy.
SX5E rebounded 23% during Q4, to last Friday high. Out of the key supports for the equity market, we called in October for a peak in bond yields, as we believed that the disinflation phase had already likely begun. In addition, we argued in November that China reopening was the next trade and for Europe specifically we called for natural gas prices to fall despite entering winter, as supply is ample. Now, while some of the above highlighted supports for the equity market are not by any means exhausted, a lot has repriced, and the market focus could turn to earnings, which are likely to be weaker, and that could contribute to market consolidation ahead. The peak in inflation, which we believe is very helpful to stabilize P/E multiples, will in turn end up as a negative for corporate profits, especially as earnings benefitted from strong pricing and mix post COVID-19. In addition, the recent better activity prints might not hold. Real M1, our lead indicator, is pointing to more PMI softness. Also, the disinflation path might not be smooth, and US politics, as well as the Fed, could deliver curveballs. Put together, we think the current rally will end up faded as we move through Q1. We advise taking some profits, to tactically reduce equity exposure. Big picture, we looked for regional convergence over the past year, and encouragingly Europe is now outperforming the US in both the local and common FX. Stay with this. We also keep long commodity equities on peaking USD, China reopening and low inventories. We believe that one should start fading the last six months of a Cyclical rebound, and add back to some Defensives that lagged – such as to Utilities, Healthcare and Telecoms, as bond yields, PMIs and EPS revisions are all more likely to be lower, than higher, in 1H. While at some point in 2023 Cyclicals should enjoy sustained bottoming out in PMIs and in EPS revisions, their recent rally could end up looking premature.
 
This podcast was recorded on 09 January 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4301171-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

2023 Cross-Asset Outlook Call

Speakers & Moderators:Marko Kolanovic, PhD, Stephen Dulake, Dubravko Lakos-Bujas, Luis Oganes, Thomas Salopek, Jay Barry, Arindam Sandilya, Michael Hanson, Natasha Kaneva, Mislav Matejka, CFA, Fabio Bassi, Joyce Chang
 
This podcast was recorded on December 09 2022.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4281691-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.

Cyber – The new frontline of geopolitics

In this episode of All into Account, Joyce Chang, Chair of Global Research and Amy Ho, Strategic Research welcomes J.P. Morgan’s Pat Opet, Global Chief Information Security Officer, Doug Anmuth, Head of U.S. Internet Equity Research and Haibin Zhu, Chief China Economist to discuss the impact of the Russia-Ukraine war on cyber policy, China’s continuing cyber rise, current policy responses and market implications. Cyber competition and geopolitical tensions have become inextricably linked with nation state cyberattacks on the rise and internet freedom on the decline. We assume an ongoing, constant state of cyber aggression as the new normal and do not see the introduction of a coherent cyber deterrence framework in the short term, while the cybersecurity threat is set to grow in intensity and scale for the foreseeable future.
Speakers:
Joyce Chang, Chair of Global Research
Patrick Opet, Global Chief Information Security Officer
Doug Anmuth, Head of U.S. Internet Equity Research
Haibin Zhu, Chief China Economist
Amy Ho, Strategic Research
 
This podcast was recorded on 13 December 2022.
This communication is provided for information purposes only. For more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.

ESG in the USA: The Disunited States

In this episode we discuss ESG in the USA which focuses on the growing ideological divide on ESG at the state level and Midterm election implications, the impact of the Inflation Reduction Act on US climate policy and recent trends in ESG investing in a challenging year. While the Midterm election produced barely a red ripple, opposition to ESG initiatives is set to increase in the 118th Congress, which will exacerbate the growing divide on ESG in the US.
Speakers:Joyce Chang, Chair of Global Research Stella Y. Xu, Strategic ResearchKamal Tamboli, Equity Strategy and Global Quantitative ResearchNathaniel Rosenbaum, US High Grade StrategyKhuram Chaudhry, Global Quantitative Strategy
This podcast was recorded on 6 December 2022.
This communication is provided for information purposes only. Please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.

Equity Strategy: Europe and Cross-Regional 2023 Outlook: The International vs US convergence to continue

Speaker: Mislav Matejka, Head of Global Equity Strategy.
Our base case for next year is a recession in Europe and the US, we keep our call for 10% European EPS contraction in 2023. On the positive side, we believe that the rise in bond yields, rise in central bank rates relative to where futures already are, the surge in inflation and the spike in the USD are all likely coming to an end. In addition, as we move through 2023, we will likely see the bottoming out in PMI momentum, as well as a trough in EPS revisions, along with more visible China reopening. These catalysts are likely to ensure that the equity performance, which stands to be pressured by the earnings and activity reset over the coming months, firms up as we move through the second half of 2023. European forward P/Es went from 16x a year ago to 9-11x at the recent low; the P/E compression is unlikely to continue, especially as our rates call is for lower Europe yields from here. Our earnings downside of 10% is smaller than the typical 20-40% seen in past downturns, given better topline, pricing, FX impact, and already enacted cuts. Consequently, we expect higher equity levels at year end than what could transpire in the interim, and net-net have Dec ‘23 index targets above current spot prices. Regionally, S&P500 risk-reward remains relatively unattractive, and we keep our call for convergence, out of the US and into International. We expect this to work in 2023 in USD terms as well, and not just in local currency as was the case this year. Within International markets, UK was our top pick for this year, and we keep our OW on FTSE100 in DM, and a pair trade of OW FTSE100 vs UW FTSE250. At a sector/style level, as we move through the year Cyclicals are likely to anticipate bottoming out in activity, perhaps some time in Q2. In the interim, while the earnings get reset and as PMIs decelerate further, we continue to stay away from the key Cyclicals such as Industrials, Chemicals, Construction, as well as from consumer plays – Autos and Retail. Within Defensives, we keep OW Telecoms, and add to Healthcare (UW to N). The sector did not do all that well in 2022, and could be a good compromise entering 2023. We also add to Utilities (N to OW), where SX6P performed in line with the overall market this year, but will likely have superior EPS growth in 2023, and benefit from peaking yields. Banks (OW to N) have outperformed the broader market this year by 700bp, and we take some profits, on lower yields and continued inversion of the yield curve ahead. We keep long commodity equities for now, despite an already strong run in 2022. Tech could tactically continue to stabilize if our call of peaking yields gains further traction, but it is unlikely to be a sustained leader – we keep our long-term OW Value vs Growth style stance.
 
This podcast was recorded on 30 November 2022.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4266987-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.

All into Account: ‘The impact of zero day options ’ with Peng Cheng, Head of Big Data & AI strategies

Peng joins us to discuss zero day options: why they’ve become popular, who’s using them, and what impact they are having on markets.
 
Speakers: Thomas Salopek and Peng Cheng
 
This podcast was recorded on 22 November 2022.
This communication is provided for information purposes only. Institutional clients can view the related report at:
https://www.jpmm.com/research/content/GPS-4265817-0.pdf
For more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2022 JPMorgan Chase & Co. All rights reserved.