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JPMorgan American Investment Trust plc | JAM
The outlook for US stocks remains constructive
1. History suggests strength leads to more strength
2. Positive economic backdrop
3. Corporate earnings paint a positive picture
Take account of the risks with an active approach
JPMorgan American Investment Trust | JAM
This is a marketing communication
The US stock market is being supported by better-than-expected company profits, a pick-up in economic growth and prospects for interest rate cuts later in the year. Nevertheless, we believe it is important to stay mindful of the risks, using an active investment approach to tap into higher quality opportunities created by the current wide dispersion in valuation and performance across sectors.
US stocks recorded a strong first quarter of 2024, with the S&P 500 index registering price gains of over 10% and 22 record highs in the three months to 31 March 20241. For investors that have so far stayed on the sidelines, many could be wondering if they have missed an attractive opportunity. Others may question if the rally is sustainable. In our view, we believe US stocks are in a sweet spot, supported by historical performance signals, a positive economic backdrop and robust corporate earnings growth.
Historical data suggests that there is no clear advantage or disadvantage of investing in US stocks at record highs relative to any other time. Since 1970, the average 12-month price return of the S&P 500 index after reaching an all-time high has been 9.1%, while the average price return from investing on all other days stands at 8.7%2.
Source: Haver Analytics, J.P. Morgan Asset Management. Data as of 06.02.2024.
The outlook for the US economy remains constructive. Despite fears of recession amid a sharp rise in interest rates and a short-lived regional banking crisis, the US economy still grew by more than 3% in the fourth quarter of 20233. Crucially, the US consumer has remained resilient, supported by record low unemployment and higher real wage growth as inflation has cooled. The wealth effect from rising asset prices, such as equities and housing, could continue to support consumer spending as wealthier consumers tend to save less and spend more. With consumption accounting for around 70% of US gross domestic product (GDP)4, a resilient consumer presents a solid foundation for continued economic growth, albeit probably at a slower pace from last year.
Source: Bureau of Labor Statistics, Federal Reserve Economic Data (FRED), J.P. Morgan Asset Management. Data as of 31.03.2024. Wage growth is calculated from the wages of private production and non-supervisory workers, seasonally adjusted. Private production and non-supervisory jobs represent just over 80% of total non-farm jobs.
Potential interest rate cuts later in the year could provide some additional tailwinds. although policymakers have recently trimmed rate cut projections for 2024 and 20255. Nevertheless, the avoidance of recession and a pick-up in economic activity, coupled with the potential for some monetary easing later this year, could present a constructive backdrop for US equities. In the 44 years since 1980, there have been 14 non-recession years when the Federal Reserve has cut interest rates at least once2. Price returns for the S&P 500 index were positive for 13 of those 14 years – or 93% of the time – with an average price gain of 15.6%2.
The S&P 500 index is expected to record earnings-per-share growth of around 11%6 this year, which represents a clear acceleration from 2023’s more muted performance. Ebbing recession risks, moderating inflation and potential interest rate cuts could buoy earnings growth and, by extension, broaden equity returns following the technology-dominated rally in 2023 on the back of optimism about generative artificial intelligence (AI). A broader and more inclusive rally that covers a meaningful share of companies beyond just the largest tech names could lead to healthier and more sustainable gains for US stocks.
Source: Compustat, FactSet, Standard & Poor’s, J.P. Morgan Asset Management. Data as of 31.03.2024. Historical EPS levels are based on annual pro-forma earnings per share. 2024F and 2025F EPS growth are based on consensus analyst estimates for each calendar year. F: Forecast. Past performance is not indicative of future returns. Forecasts/ Estimates may or may not come to pass.
While the backdrop for US equities appears constructive, investors should bear in mind the downside risks presented by a slowing global economy, a presidential election cycle, elevated geopolitical and supply chain risks, moderating but stickier inflation, and the economic impact of prolonged higher interest rates. These factors could trigger periodic bouts of volatility in the US equity market.
At the same time, not all companies are created equal, and the risks facing different sectors and industries could vary widely. Investors therefore should look to stay selective and discerning, with a focus on quality assets with sound fundamentals.
A rigorous, bottom-up, stock selection approach could be useful to separate the wheat from the chaff. Position sizing and active allocation will also matter to optimise longer-term outcomes as investment prospects can change quickly in fast-moving markets.
JAM employs a flexible, bottom-up approach to seek out high conviction growth and value ideas in a portfolio of approximately 40 stocks7. The portfolio’s value ideas are focused on quality franchises that exhibit consistent and sustainable cash flows, while growth ideas are focused on companies with robust yet underappreciated growth potential.
By combining these complementary investment styles – namely value and growth – JAM has the flexibility to seek out attractive opportunities from an expanded universe of US stocks that stretch well beyond the S&P 500 index7.
Summary Risk Indicator
The risk indicator assumes you keep the product for 5 year(s). The risk of the product may be significantly higher if held for less than the recommended holding period.
Investment objective
The Company aims to achieve capital growth from North American investments by outperformance of the Company's benchmark, the S&P500 Index, with net dividends reinvested, expressed in sterling terms. The Company emphasises capital growth rather than income and when appropriate may have exposure to smaller capitalisation companies. The Company's gearing policy is to operate within a range of 5% net cash to 20% geared in normal market conditions. Gearing may magnify gains or losses experienced by the Company.
This is a marketing communication and as such the views contained herein do not form part of an offer, nor are they to be taken as advice or a recommendation, to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the products or underlying overseas investments. Past performance and yield are not reliable indicators of current and future results. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment products, there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. Investment is subject to documentation. The Annual Reports and Financial Statements, AIFMD art. 23 Investor Disclosure Document and PRIIPs Key Information Document can be obtained in English from JPMorgan Funds Limited or at www.jpmam.co.uk/investmenttrust. This communication is issued by JPMorgan Asset Management (UK) Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.
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JPMorgan American Investment Trust plc | JAM
The outlook for US stocks remains constructive
1. History suggests strength leads to more strength
2. Positive economic backdrop
3. Corporate earnings paint a positive picture
Take account of the risks with an active approach
JPMorgan American Investment Trust | JAM
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