All into Account

Equity Strategy: Equity P/E multiples in historical context - earnings vs bond yield spread is now below 2007 levels

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy
The bulk of the equity performance so far this year, and indeed in the past 18 months, was driven by multiple expansion. Globally, 12m forward earnings are up only 7% from the lows, in contrast to nearly 30% P/E upmove. 2024 EPS projections are again down small in the US ytd, and are more meaningfully lower in Europe. At the same time, bond yields are higher, squeezing ERPs. Global earnings yield vs bond yield differential has been moving lower, to be now below 2007 levels. Central banks are set to deliver some cuts in 2H, but in order to justify current equity valuations, we believe that we will need to see at least some earnings acceleration, as well. Ultimately, equity valuations will end up responding to earnings momentum trends, as there is a clear historical correlation between P/E multiples and earnings revisions. IBES is projecting a sequential pickup in earnings growth between 2023 and 2026, but our concern is that profit growth could underwhelm. If the earnings acceleration fails to materialize, this could act as a constraint, in particular for Cyclical sectors, which are currently trading at price and P/E relative highs vs Defensives. Regionally, China equities showed no rerating over the past 18 months, still trading around 9x forward, which is at absolute and relative lows. Eurozone trailing buybacks yield is at present quite close to US. At the same time, Eurozone dividend yield at 3.0% is much higher than US at 1.3%, and bond yields are meaningfully lower – with these three together resulting in a much better total equity yield vs bond yield for Eurozone equities than for the US, of 240bp – we closed US vs Eurozone OW last week.
 
This podcast was recorded on 25 March 2024.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4651219-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures.
© 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.

All into Account: The state of global gender balance 2024

In this podcast Joyce Chang, Chair of Global Research is joined by Sam Saperstein, Head of Women on The Move across the entire JPMorgan Chase platform to discuss the work J.P. Morgan Chase is doing on expanding women-owned businesses, bridging the funding gap for women founders and how we are promoting women and girls’ financial health.
Speakers
Joyce Chang, Chair of Global ResearchSamantha Saperstein, Managing Director and Global Head of Women on the Move, JPMorgan Chase Co
 
Please see our annual J.P. Morgan Perspectives: Global state of gender balance in 2024: Post-pandemic gains, but far from parity report, where we explore the progress towards achieving gender balance and assess the challenges facing women in 2024.
 
This was recorded on March 20, 2024.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4645664-0  for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party. 
 

Equity Strategy: Closing the OW US vs Eurozone trade

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy
We have cut Eurozone to UW vs the US in early May of 2023, and had a preference for the US since. We are now closing the US over Eurozone OW, for the following reasons: 1. Eurozone has lagged in the past few quarters, losing 14% relative since May, and had relative outflows - in 41 out of the past 52 wks. At 13.3x forward, it is trading cheap vs the US, which is now on 21x. Even if one were to look at sector neutral P/E rating of Eurozone vs the US, it is trading the cheapest vs any time pre COVID. 2. We had a preference for Growth over Value style through 2023 and again this year. Even as we stay with this tilt, we note that Growth style has already performed exceptionally well, it is trading stretched and is at risk of a reversal. Of course, within Europe there is also an increasing risk of MOMO unwind, but the magnitude of the potential impact would always be greater for the US market. 3. In terms of activity momentum, Eurozone had a clear weakening through last year and especially relative to the US. The relative growth disappointments of the region might have peaked, as seen in improving relative CESIs. 4. While ECB typically takes its cue from the Fed, there is a chance that it moves ahead of the US this time around. 5. We have been cautious on China over the past year from a global allocation perspective, but have a tactically more positive China call, and if this continues tracking, it could indirectly help Eurozone. We are neutralizing the US vs Eurozone preference, but not reversing. This is because the potential for a market drawdown is elevated, with Goldilocks fully in the price. The risks are on both sides of this narrow path: either to growth disappointing, as seen in latest weak retail sales and US small business confidence, and also from inflation potentially staying too hot, as seen in the US 1-year inflation swaps approaching October highs. What is attractive in Euro Area? We note that every single Eurozone level 1 sector is trading at a greater than historical discount vs the US.
 
This podcast was recorded on 17 March 2024.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4651487-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures.
© 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.

All into Account: ‘Market views on CPI, Megacaps vs Equal Weight S&P, PMI dislocations vs asset classes’ with Jason Hunter, Head of Technical Strategy

A slightly warmish CPI hasn’t moved the needle for us, so we stick with our current view on duration. Despite recently turning neutral on US duration, slowing growth and inflation should produce DM gov’t bond return of ~6.5% assuming our yield targets are realized. Upside risk for growth and inflation may continue to eat in to rate cutting plans. With the Magnificent 7 facing jitters and Equal Weight S&P at highs, we are skeptical of the breadth improvement as megacaps are still leading with the laggards dragged along for the ride. As for PMI dislocations vs risk assets, we acknowledge the improvement on the growth trajectory closing some of the gap, but historically, in the event of a 2 standard deviation gap, stocks have had to make more of the adjustment.
 
Speakers:
Thomas Salopek, Head of Global Cross Asset Strategy
Jason Hunter, Head of Technical Strategy
 
This podcast was recorded on 12 March 2024. This communication is provided for information purposes only. Institutional clients can view the related reports at https://www.jpmm.com/research/content/GPS-4642559-0 and https://www.jpmm.com/research/content/GPS-4647814-0. For more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2024 JPMorgan Chase & Co. All rights reserved
 

Equity Strategy: Where is overvaluation? Not in Mag-7, at least not relatively… it is Cyclicals that appear stretched

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy
We favoured Growth over Value style through last year, and again so far ytd, arguing that the Nov-Dec Value rally – such as an outperformance of BKX and of small caps seen at the time – was unlikely to last. There is a clear concern over how sustainable the Mag -7 run is, but we note that this group of stocks is not trading increasingly more expensive, at least not in relative terms. In fact, Mag-7 stocks appear cheaper at present vs the rest of the market than they were trading on average in the past five years. Admittedly, in absolute terms, there appears to be an excess, and Mag-7 could see earnings disappointments as well, proving to be more cyclical. More broadly, Growth style is also supported by the continued better earnings delivery vs Value, and this is the reason we keep the Growth style preference. Where valuations are becoming stretched is in Cyclical sector groups, with European Cyclicals trading at more than one standard deviation expensive vs Defensives. Cyclicals in general are at price relative highs vs Defensives, as high as in ’09-’10, when the synchronized global recovery did materialize. Such an acceleration might be the wrong template this time around. The link between Cyclicals/Defensives earnings and indicators such as IFO remains strong, with IFO leading, and it suggests that Cyclicals earnings are set to soften over the next few quarters, in contrast to the consensus calling for an acceleration. In addition, bond yields are set to inflect lower again, we called in March Chartbook last week for a return to the long duration trade, and this could take out some relative support from Cyclicals.
This podcast was recorded on 10 March 2024.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4644737-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures.
© 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.

Equity Strategy: March Chartbook

Speaker: Mislav Matejka, CFA - Head of Global Equity Strategy
So far ytd, US and Japan are ahead of other markets, Growth is outperforming Value and large caps are again beating small in all key regions. We continue to believe that this, ultimately unhealthy, high concentration and narrow leadership is set to stay for a while longer. To buy Value and International stocks one needs to see a reflationary backdrop, in our view, but we could have the opposite. In terms of bond yields, we argued last October to go long duration, but also in January to look for a tactical bounce back in bond yields, as Fed easing became overdiscounted in markets. We now think that the counter-rally in yields might be running out of steam, and would advocate to go long duration again. The move back higher in Fed futures might be getting done – they roundtripped back to October levels, and activity momentum could soften from here. The question is, why didn’t equities weaken as US 10-year yields backed up 50bp during Jan-Feb? We think that this is because investors assumed that the yield upmove is reflective of economic acceleration, but we note that earnings projections for 2024 are not reacting positively – they keep coming down in most sectors. If the growth acceleration does not come through, this could act as a headwind. Overall, we keep OW Growth vs Value, US vs Europe, and still see Japan as top regional pick – we look for these to continue tracking.
 
This podcast was recorded on 04 March 2024.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4642382-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures.
© 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.

Equity Strategy: Three key drivers of to date resilient corporate profitability to turn weaker

Speaker: Mislav Matejka, CFA - Head of Global Equity Strategy
Bulls are to a good extent basing their constructive market call on the premise that corporate profits are set to accelerate, supported by the bottoming out in activity indicators that is now in progress. However, the earnings reality might turn out to be the opposite as we move through the year. In aggregate, corporate profit margins are elevated in a historical context, and appear to be peaking out. The historical pattern where profit margins always start to move lower ahead of the next economic downturn is clear. We see three sources of downside to profit margins from here: 1) Many corporates benefitted from the unique feature of this cycle: as interest rates increased 300bp+, the net interest expense came down. That could be explained by companies locking in low cost of financing through extending the duration of their debt, and also through many corporates seeing an improving return on their cash balances. This development is set to normalize. Separately, the basket of stocks with high refinancing needs is losing 20% vs SXXP over a year ago - JPDEHFCL, and our basket of cash rich companies is ahead by 14% - JPDEHFCW. We think this outperformance will continue through 1H. 2) Topline was exceptionally strong post COVID for many corporates, and pricing power was high. As nominal GDP growth rates fade, margins could weaken. 3) If the economy slows, partly because the supports that it enjoyed last year do not repeat, such as fiscal stimulus, ULCs could pick up. Profit margin proxy, corporate deflator minus ULCs, could turn into more of a headwind. Putting the above three together, one might end up with a disappointing profits outcome even without seeing an outright recession, and we note that 2024 EPS projections keep coming down in key regions. It is interesting to note that for S&P500 all the profit growth in the past few quarters was due to Magnificent 7, and this is one of the reasons why we remain OW Growth vs Value.  Ex these stocks, EPS growth for the remaining S&P500 constituents is outright negative.
 
This podcast was recorded on 26 February 2024.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4633138-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures.
© 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.

Cross Asset Strategy: ‘Bond backup provides good entry for long duration trades’ with Jay Barry, Co-Head of US Rates Strategy and Jason Hunter, Head of Technical Strategy

Yields have move up sharply since the mid-January trough on the back of strong growth and inflation data, although we feel the market may have gone too far, providing an entry point to get long duration, especially now that positioning has neutralized.  Jay and Jason join today to discuss the fundamental and technical picture for US Fixed Income.
Speakers:Thomas Salopek, Global Cross Asset StrategyJay Barry, Co-Head of US Rates StrategyJason Hunter, Head of Technical Strategy
This podcast was recorded on 22 February 2024.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4625977-0, https://www.jpmm.com/research/content/GPS-4630257-0, https://www.jpmm.com/research/content/GPS-4624689-0, for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.

Equity Strategy - Reiterate the UW on Banks

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy
One of the sector calls where we face the most pushback from investors is our UW on Banks, entered in Q4. Until Q4, Banks had outperformed for three years in a row, driven by better EPS momentum and ultimately by rising bond yields. We have downgraded the sector as we think this phase is over. US 10-year moved from 0.5% in 2020 to 5% last October, the point at which we argued that bond yields have likely peaked. This is even as we tactically think that short-term bond yields are likely to consolidate, and be somewhat higher. Central banks will be cutting rates this year, which will directly reduce the earnings power of the sector. Second, the pressure could arise from the peaking out in relative EPS growth of the sector. The stalling in Banks’ relative EPS momentum could be enough for the sector to stop working. We note that the EPS revisions of European Banks have just recently entered negative territory.  In addition, the net interest income for Banks could weaken, from elevated levels, and deposit betas could increase. Banks meaningfully increased capital return to shareholders, but this could be as good as it gets. Finally, Banks are still a high-beta play on economic momentum and on credit spreads, where the current, rather optimistic, outlook that is priced in the markets might not last. Notably, the commercial real estate remains an overhang for the sector. Regionally, our top pick is Japan, and we still like Japanese Banks vs US and European ones, a call started last April. The Japanese rates cycle remains disconnected from the US and Europe, and it could be moving in the opposite direction this year. Big picture, we keep our view of OW Growth vs Value and preference for US vs International, in effect fading the Nov-Dec market broadening rally. So far ytd, US, Growth and large caps are strongly outperforming International, Value and small caps,  in all regions, and our UW on Banks fits this dynamic.
This podcast was recorded on 18 February 2024.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4622395-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures.
© 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.

Equity Strategy: Japan stays key OW in regional allocation; In a European context, one should consider UK

Speaker: Mislav Matejka, CFA - Head of Global Equity Strategy
From a global equity perspective, we had upgraded Japan to OW in Dec ’22. While we still think that USD is likely to be stronger from here, it might not be crucial to hedge JPY anymore, as the interest rate differential between the US and Japan looks set to start converging this year. For the continued bullish view on Japan, we reiterate: First, TSE reform is set to lead to improved corporate profitability and greater shareholder returns, given that more than half of Japanese stocks are still trading net cash, and 40% are trading below tangible book. Second, even though it feels as though Japan is a consensus overweight, we think that flows are still at an early stage. Foreigners bought 5trn Yen of Japanese stocks in 2023, which compares to 35trn Yen during the Koizumi era and 25trn Yen during Abenomics, the last two times when Japanese stocks moved up more than 100%. Third, there is a case to be made for some reflation in Japan, through house price appreciation and positive wage growth for Japanese consumers, and lastly, Japan is the only large DM market with dividend yield above bond yield, vs historical. In a European context, after outperforming strongly in 2022, the only large DM market up in that year, the UK lagged significantly in 2023. This has left UK at record cheap, even ex US. UK has the highest dividend yield out of all markets, at 4.3% yield, vs 2.0% for MSCI World. With the central bank cutting cycle about to commence, dividend strategies might come into the spotlight. The UK is a commodity-heavy market, and both Materials and Energy lagged last year, dragging the index down. If commodities find a floor, especially as the FCF yields of both Mining and Energy are very high at present, this could help. China outlook could play a role, too. We held a cautious fundamental view on the China market for a while, but recognize that it is heavily underowned and cheap post the big selloff: MSCI China lost 30% in a year. If China sees short squeezes, that could indirectly benefit the UK.
 
This podcast was recorded on 12 February 2024.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4622327-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures.
© 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.