Eye on the Market Outlook 2017

True Believers

by Michael Cembalest
Chairman of Market and Investment Strategy
J.P. Morgan Asset Management

Two groups of true believers are driving changes in the developed world. The first: single-minded central bankers who spent trillions of dollars pushing government bond yields close to zero (and below). While this unprecedented monetary experiment helped owners of stocks and real estate, its regressive nature did little to satisfy the second group: voters who are disenfranchised by globalization and automation, and who are on the march. What next? The fiscal experiments now begin (again). Prepare for another single-digit portfolio return year in 2017.

Eye on the Market: Outlook 2017
(Full Publication)
 

Executive Summary & Analysis by Region

Read   EOTM Outlook 2017: Executive Summary
  • Political upheavals and unorthodox central bank actions persist, but it looks like more of the same in 2017: single-digit returns on diversified investment portfolios as the global economic expansion bumps along for another year.
Read   United States: What will Trumpism look like in practice?
  • A modest growth boost from corporate tax cuts and deregulation, as Trump is only able to deliver on parts of his proposed agenda; tighter labor markets, a stronger dollar and higher interest rates cool things off in the latter half of the year.
Read   Europe: Modest recovery, underperforming corporate sector and a heavy political calendar
  • Ignore the politics for now, it’s the growth dynamics that constrain upside for investors; Europe should muddle along at 2% growth for another year, but is fundamentally changed compared to its pre-crisis self.
Read   Japan: Delusions of inflationary grandeur
  • Much ado about nothing: Abenomics is not delivering the goods. Japanese equities remain a one-trick pony linked to the fortunes of the Yen.
Read   China: Stabilization, courtesy of coordinated stimulus
  • After a blizzard of stimulus from multiple sources in 2015, China stabilized last year after consecutive years of weakening data. Markets are getting closer to pricing in the realities and constraints China now faces.
Read   Emerging markets ex-China: Recovering from balance of payment adjustments
  • Concerns about a rising dollar and protectionism are justified, but the sensitivity to a rising dollar has declined sharply since 2010 through restructuring and capital spending adjustments; buy on weakness in 2017.

Special Topics

Michael discusses the improving prospects for active management, the value of tax-aware investing, prudent use of leverage, and more.

Leverage
What amount of leverage can survive a world of volatile markets? Now that the window for low-cost borrowing may be closing, we look at history and the future.

Active Management
The end of “peak central bank intervention” may reduce distortions and help active managers.

LNG
Rising U.S. natural gas prices due to large-scale U.S. LNG exports? Unlikely on both counts. What Dept. of Energy LNG export approvals mean, and what they don’t.

Tax Efficient Investing
How to simultaneously employ tax loss harvesting and generate market returns.

Infrastructure
US infrastructure is dominated by municipal and Federal entities rather than by public-private partnerships. Why do PPPs get so much grief, and when should investors participate?

Clean Coal/CCS
The biggest problem with “clean coal”: scope. Infrastructure required to make carbon capture and storage a meaningful contributor is vastly underestimated.

Internet-based Business Models
How helpful have user growth metrics been in assessing new internet-based business models? Not very.

Commodity Prices
Markets are looking past inventory gluts given huge declines in capex; remembering the commodity surge of the 1970s and Richard Nixon.

Additional Insights

Private Bank Outlook 2017

Extended Recovery, Resilient Markets

Additional Insights

Private Bank Outlook 2017

Extended Recovery, Resilient Markets

IMPORTANT INFORMATION

Purpose of This Material

This material is for information purposes only.

The views, opinions, estimates and strategies expressed herein constitute Michael Cembalest’s judgment based on current market conditions and are subject to change without notice, and may differ from those expressed by other areas of J.P. Morgan. This information in no way constitutes J.P. Morgan Research and should not be treated as such. Any projected results and risks are based solely on hypothetical examples cited, and actual results and risks will vary depending on specific circumstances. We believe certain information contained in this material to be reliable but do not warrant its accuracy or completeness. We do not make any representation or warranty with regard to any computations, graphs, tables, diagrams or commentary in this material, which are provided for illustration/reference purposes only. Investors may get back less than they invested, and past performance is not a reliable indicator of future results. It is not possible to invest directly in an index. Forward looking, statements should not be considered as guarantees or predictions of future events.

Confidentiality

This material is confidential and intended for your personal use. It should not be circulated to or used by any other person, or duplicated for non-personal use, without our permission.

Regulatory Status

In the United States, Bank products and services, including certain discretionary investment management products and services, are offered by JPMorgan Chase Bank, N.A. and its affiliates. Securities products and services are offered in the U.S. by J.P. Morgan Securities LLC, an affiliate of JPMCB, and outside of the U.S. by other global affiliates. J.P. Morgan Securities LLC, member FINRA and SIPC.

INVESTMENT PRODUCTS ARE: NOT FDIC INSURED • NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, JPMORGAN CHASE BANK, N.A. OR ANY OF ITS AFFILIATES • SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED

In the United Kingdom, this material is issued by J.P. Morgan International Bank Limited (JPMIB) with the registered office located at 25 Bank Street, Canary Wharf, London E14 5JP, registered in England No. 03838766. JPMIB is authorized by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. In addition, this material may be distributed by: JPMorgan Chase Bank, N.A. (“JPMCB”), Paris branch, which is regulated by the French banking authorities Autorité de Contrôle Prudentiel et de Résolution and Autorité des Marchés Financiers; J.P. Morgan (Suisse) SA, regulated by the Swiss Financial Market Supervisory Authority; JPMCB Dubai branch, regulated by the Dubai Financial Services Authority; and JPMCB Bahrain branch, licensed as a conventional wholesale bank by the Central Bank of Bahrain (for professional clients only).

In Hong Kong, this material is distributed by JPMCB, Hong Kong branch. JPMCB, Hong Kong branch is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission of Hong Kong. In Hong Kong, we will cease to use your personal data for our marketing purposes without charge if you so request. In Singapore, this material is distributed by JPMCB, Singapore branch. JPMCB, Singapore branch is regulated by the Monetary Authority of Singapore. Dealing and advisory services and discretionary investment management services are provided to you by JPMCB, Hong Kong/Singapore branch (as notified to you). Banking and custody services are provided to you by JPMIB and/or JPMCB Singapore Branch. The contents of this document have not been reviewed by any regulatory authority in Hong Kong, Singapore or any other jurisdictions. You are advised to exercise caution in relation to this document. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice.

With respect to countries in Latin America, the distribution of this material may be restricted in certain jurisdictions. Receipt of this material does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation.

Risks, Considerations and Additional information

There may be different or additional factors that are not reflected in this material, but which may impact on a client’s portfolio or investment decision. The information contained in this material is intended as general market commentary and should not be relied upon in isolation for the purpose of making an investment decision. Nothing in this document shall be construed as giving rise to any duty of care owed to, or advisory relationship with, you or any third party. Nothing in this document is intended to constitute a representation that any investment strategy or product is suitable for you. You should consider carefully whether any products and strategies discussed are suitable for your needs, and to obtain additional information prior to making an investment decision. Nothing in this document shall be regarded as an offer, solicitation, recommendation or advice (whether financial, accounting, legal, tax or other) given by J.P. Morgan and/or its officers or employees, irrespective of whether or not such communication was given at your request.

J.P. Morgan and its affiliates and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transactions. Contact your J.P. Morgan representative for additional information concerning your personal investment goals. You should be aware of the general and specific risks relevant to the matters discussed in the material. You should independently, without any reliance on J.P. Morgan, make your own judgment and decision with respect to any investment referenced in this material.

J.P. Morgan may hold a position for itself or our other clients that may not be consistent with the information, opinions, estimates, investment strategies or views expressed in this document.

JPMorgan Chase & Co. or its affiliates may hold a position or act as market maker in the financial instruments of any issuer discussed herein or act as an underwriter, placement agent, advisor or lender to such issuer.

References in this report to “J.P. Morgan” are to JPMorgan Chase & Co., its subsidiaries and affiliates worldwide. “J.P. Morgan Private Bank” is the marketing name for the private banking business conducted by J.P. Morgan.

If you have any questions or no longer wish to receive these communications, please contact your usual J.P. Morgan representative.

© 2017 JPMorgan Chase & Co. All rights reserved.