All into Account

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.
 

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

Speaker: Mislav Matejka, Head of Global Equity Strategy
The equity market rebound since October is drawing investors in. Many, who were convinced last summer that any rally should be seen as just a bear-market rally, are now nurturing increasing optimism that recession can be avoided altogether and that earnings could stay resilient. While we were looking forward to a market rebound from Q4 of last year, and believe that initially Q1 will stay robust, given what was light positioning and supportive seasonals, we do not expect that there will be a fundamental confirmation for the next leg higher, and see rally fading as we move through this quarter, with Q1 possibly marking the high for the year. The key monetary signals are sending warning signs: 1. Yield curve is staying heavily inverted. We have never escaped a recession from this point. 2. Money supply keeps moving lower in both the US and in Europe. In fact, US M1 has entered outright contraction territory, on a yoy basis, for the first time since 2006. 3. Bank lending standards have been tightening, with a sharp falloff in demand for credit, similar to what has been seen ahead of past recessions. 4. Are market expectations for Fed cutting rates in 2H going to be vindicated, especially if there is no pain in the real economy? We could indeed see a Fed pivot, but perhaps only in response to a much more problematic macro setup than the market is currently looking forward to. Historically, equities do not typically bottom before the Fed is advanced with cutting, and we never saw a low before the Fed has even stopped hiking. It might be premature to believe that recession is off the table now, when Fed will have done 500bp+ of tightening in a year, and the impact of monetary policy tended to be felt with a lag on the real economy, of as much as 1-2 years. The damage has been done, and the fallout is likely still ahead of us. US mortgage payments as a share of income doubled,  and the savings rate has gone down almost to zero. 5. Finally, even as the Fed goes on a pause after March/May, quantitative tightening will stay in the background. A year ago, a measure of “excess liquidity” – the expansion of central banks’ balance sheets relative to the growth in the nominal economy, has peaked, and started to contract for G5. In 2022, the differential was at -5%. This year, excess liquidity reduction is likely to be much more significant, at -14%. The question is whether financial markets will absorb this without any hiccups, especially after the complacency has crept in, with VIX at 20 and Bull-Bear optimistic now.
 
This podcast was recorded on 19 February 2023
This communication is provided for information purposes only. Institutional clients can view the related report at www.jpmm.com/research/content/GPS-4338331-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.
 

Speakers:Thomas Salopek, Head of Global Cross Asset Strategy
Ralph Sueppel, Managing Director of Macrosynergy 
 
This communication is provided for information purposes only. Institutional clients can view the related reports at www.jpmm.com/research/content/GPS-4332679-0, for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved. 
 
 

In this latest episode of our All into Account podcast Joyce Chang, Chair of Global Research is joined by our colleagues in Japan, Ayako Fujita, Chief Japan Economist, Tohru Sasaki, Head of Japan Macro Research, Takafumi Yamawaki, Head of Japan Fixed Income Research, Ben Shatil, Japan Senior Economist and Rie Nishihara, Head of Japan Equity Strategy, to discuss Japan’s exit from negative yields and a low inflation equilibrium, including the longer-term implications for global markets and liquidity from our recently published note J.P. Morgan Perspectives: Japan’s Big Exit: Ten Questions about Japan’s Regime Change.
Speakers:Joyce Chang, Chair of Global Research Tohru Sasaki, Head of Japan Macro ResearchAyako Fujita, Chief Japan EconomistTakafumi Yamawaki, Head of Japan Fixed Income Research Benjamin Shatil, Japan Senior EconomistRie Nishihara, Head of Japan Equity Strategy
This podcast was recorded on February 13, 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at www.jpmm.com/research/content/GPS-4320561-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.
 

Speaker: Mislav Matejka, Head of Global Equity Strategy
Big picture, we believe that the equity rally that we hoped would be driven by peaking bond yields/CPI, China reopening, and the fall in European gas prices, is unlikely to get the fundamental confirmation for the next leg higher as the year progresses. Once the positioning recovers, Q1 is in our view likely to mark the high point of the market. Given this setup, the question is why not do the traditional regional shift, out of International plays and back to the US. We do not believe that the best way to position for the upcoming risk reduction that we envisage is to favour the S&P500. We argued for a convergence trade entering 2022, out of the US and into International, and would advise to keep it, even with potential equity weakness from here. US might not be a good place to hide this time around, as Technology is moving from secular to cyclical. Despite our view of peaking bond yields from October, when we advised to close the shorts on Tech, the sector is unlikely to be a sustainable leader; it is still priced not far from all-time highs. This is not a great starting point. Further, we do not believe that Tech will be immune to any potential earnings disappointments in a downturn, in contrast to the past decade. Valuation differential remains clear, with US trading at 18x questionable earnings, compared to Eurozone and Japan at 12-13x, and FTSE100 at 11x. Eurozone is trading at a bigger discount than typical vs the US, even when adjusting for the different sector composition. On margin, China reopening and lower gas prices favour Europe, while politics could be a problem for the US this year, especially with respect to the debt ceiling. We are certainly not calling for a decoupling. Having said that, it is notable that in the 1970s there were long periods when European markets performed much better than the US, even when the US was down materially. In our regional allocation, we held OW on Europe vs US through the last 12 months, with the preference for FTSE100 within Europe. We keep this regional bias, for now, despite the 25% relative outperformance of Eurozone since September, in USD terms. There might be a time coming up to take profits on Europe vs US trade, perhaps closer to the China reopening getting more fully priced it, but we do not advocate it just yet.
This podcast was recorded on 12 February 2023.
This communication is provided for information purposes only. Institutional clients can view the related report at www.jpmm.com/research/content/GPS-4331948-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.
 

Helped by resilient fundraising and smoother valuations, the reported AUM of the universe of Alternative Investments (AI) likely ended 2022 only modestly lower from 2021 despite last year’s correction in asset prices. While the valuation gap between private and public markets remains, the gap has narrowed significantly in recent months reducing a previous headwind for private assets. New loans in the private credit market are being originated at much wider spreads, around 200bp wide of public market pricing. We thus upgrade private credit to overweight within alternatives along with hedge funds. We downgrade digital assets given the drying up of crypto VC funding.
Speakers:
Thomas Salopek, Global Cross Asset Strategy
Nikolaos Panigirtzoglou – Global Markets Strategy
Nelson Jantzen - US High Yield & Leveraged Loan Strategy
Mika Inkinen - Global Markets Strategy
Federico Manicardi - Cross-Asset Fundamental Strategy
Nishant Poddar – Global Markets Strategy
This podcast was recorded on date.
This communication is provided for information purposes only. Institutional clients can view the related report at www.jpmm.com/research/content/GPS-4325496-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2023 JPMorgan Chase & Co. All rights reserved.

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. 

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.
 

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.