All into Account

All into Account: ‘How and when does the Equity market rally end?’ with Mislav Matejka, Head of Global Equities Research, and Jason Hunter, Head of Technical Research

The stock rally that started in the Fall of 2022 benefited from very low positioning and peak bearishness. Now positioning is no longer stretched and sentiment assumes a relatively pain-free soft landing. The rates moves are already well priced into stocks, and with the VIX at ~18 indicating complacency, stocks can be prone to a stress event this quarter, with weak earnings and geopolitics possible drivers. 
 
Speakers Thomas Salopek, Head of Global Cross Asset Strategy Mislav Matejka, Head of Global Equities Strategy Jason Hunter, Head of Technical Strategy This podcast was recorded on Jan. 7, 20232. This communication is provided for information purposes only. Institutional clients can view the related reports at www.jpmm.com/resehttps://www.jpmm.com/research/content/GPS-4325942-0, https://www.jpmm.com/research/content/GPS-4325446-0.pdf, and https://www.jpmm.com/research/content/GPS-4325211-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved. 

Equity Strategy: February Chartbook

Speaker: Mislav Matejka, Head of Global Equity Strategy
Some of the equity market supports that we were highlighting in Q4 – peaking bond yields, China reopening, lower European gas prices – are not exhausted, but a lot has repriced. SX5E is up 30% off the lows, and MSCI China up 55%. We argued that supportive seasonals at the start of the year and light positioning would still be helping as we move through Q1, but positioning is quickly normalizing. Sentiment was very downbeat 6 months ago; now investors are more comfortable chasing the market, with a bounce back towards neutral in Bull-Bear indicator, stretched RSIs, rebound in HF betas and a fall in Put/Call ratios. Crucially, we think the fundamental confirmation for the next leg of the rally will end up lacking, consequently Q1 will likely mark a high-water mark for the market. The cushion of consumer excess savings has been eroded, and money supply in the US and Europe keeps contracting. We held a view over the past two years that corporate earnings would be resilient, but this might start changing. Profit margins are at a record, currently much higher than pre-COVID-19, and pricing power is likely to deteriorate from here. Q1 results are coming out mixed, to date, with a sharply reduced proportion of beats, and the typical upward revisions that one sees as we move through reporting season so far are missing. Apart from likely renewed deterioration in fundamentals in 2H, potential curveballs could come from US politics, among other, as the market is now becoming complacent given that VIX is near the low of the range, at only 18x. International markets continue to screen as much more interesting than the US: stay long Europe vs SPX, keep OW FTSE100 and keep OW MSCI China. We were bullish Value vs Growth style last year, but this year look for stalling in Value, especially if our October call for peaking US yields keeps tracking. Finally, use the remaining Q1 rally to cut beta of a portfolio.
This podcast was recorded on 05 February 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at www.jpmm.com/research/content/GPS-4325446-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.
 

All into Account: ‘EM Fixed Income & Currencies: Has positioning run too far?’ with Saad Siddiqui, Global EM Strategist, and Anezka Christovova, Head of EMEA Local Markets Strategy

EM fixed income assets have continued to rally, but in the near term risk appetite has probably gone a little too far. Our EM FX Risk Appetite Index shows overbought conditions in EM FX, and EM sovereign positions are now firmly OW according to our Client Survey. There are fewer signs that EM rates markets are overly positioned, so we continue to be bullish local bonds.
 
 
This podcast was recorded on January 30, 2023.This communication is provided for information purposes only. Institutional clients can view the related reports at  www.jpmm.com/resehttps://www.jpmm.com/research/content/GPS-4317702-0, https://www.jpmm.com/research/content/GPS-4319230-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

Equity Strategy: Capex will be dependent on earnings delivery and on credit availability

Speaker: Mislav Matejka, Head of Global Equity Strategy
The main catalysts that we were looking for to drive an equity market recovery are being worked through. Entering Q4 of last year, we called for the peak in bond yields, China reopening to be the first next trade to position for, and finally for European gas prices to move lower as we enter winter, given ample supply. Our stance is that, in Q1, initially the market will keep moving higher, given good seasonals, light positioning and re-risking drive, but also that ultimately one should end up fading this upmove. Q1 will, in our view, likely mark a turning point, as the fundamental confirmation for the next leg higher might not come, and instead stocks could hit an air pocket of weaker earnings and activity as we move through Q2 and Q3. Beyond the still sharply decelerating money supply in the US and in Europe, inverted yield curve, no Fed pivot in sight and the continuing QT in the background, we believe that what was a very resilient corporate profits backdrop over the past two years will start to turn lower, as the pricing power reverses. What does that mean for capex? We see all three key drivers of capex deteriorating. Corporate earnings historically had a very strong leading correlation with capex plans. Second, Banks’ lending standards have been tightening of late, and the availability of credit has a clear relationship with capex spend. Finally, utilisation rates could weaken again as the year progresses, which also impacts capex. These three hold both for the US and for Europe. Capital Goods stocks have been the beneficiaries of the current rally, now back to price relative highs. They have never really had much of an earnings and topline reset, such as would be seen in past downturns. Their EBIT margins are at record highs, and their P/E relatives are also at record. We think Capital Goods will be one of the sectors that will start to face a more challenging backdrop as we move through the year, as the current rally that we were looking forward to peters out.
 
This podcast was recorded on 30 January 2023
This communication is provided for information purposes only. Institutional clients can view the related report at www.jpmm.com/research/content/GPS-4318863-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.
 

All into Account: ‘Unveiling our 3-5y Capital Markets Assumptions process’ with Tom Salopek & Federico Manicardi

Speakers:
Thomas Salopek, Head of Global Cross Asset Strategy
Federico Manicardi, Cross Asset Strategist
 
This podcast was recorded on 25 January 2023.
This communication is provided for information purposes only. Institutional clients can view the related report https://www.jpmm.com/research/content/GPS-4286579-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

Equity Strategy: Earnings Outlook - 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.