On the Minds of Investors
Drawing on the depth and breadth of their market and economic expertise, our global macro strategists offer insight into today's big investment themes to enable more confident portfolio decisions.
You asked, we answer. On the Minds of Investors tackles the big questions we hear in our conversations with clients – it’s our latest thinking on the issues that matter to you.
Although ultimately all of this may not pass in final legislation, it represents significant and comprehensive efforts by the U.S. to uphold its commitment to reduce carbon emissions and improve underserved communities.
2020 was an incredible year in the capital markets. However, in the wake of very strong performance for both stocks and bonds over the past 12-months, as well as the past decade, most traditional assets are looking expensive.
Inflation has been a hot topic amongst investors. Globally, inflation is expected to rise this year from 2020’s low levels. This reflation, a sign that the economy is operating above potential, should lead to strong earnings growth as well
Although we are not inclined to chase recent performance, it seems reasonable to expect that a more balanced approach to equity markets could help investors navigate what remains a very uncertain world.
Later this year, we expect the Fed to announce plans to taper its bond purchases, but EM is better positioned should a surge in real yields occur. In 2013, concerns centered on EM countries that had external vulnerabilities (such as large current account deficits), which left them particularly exposed to capital outflows.
For better or for worse, banks are required to meet various liquidity and leverage requirements. One ratio that measures a bank’s ability to absorb losses is the Supplementary Leverage Ratio (SLR). The SLR formula measures tier 1 capital, which consists mostly of common and preferred stock, as a percent of total leverage exposure.
Despite many other measures to help slow the spread of COVID-19, there is only one that can end the pandemic: broad global vaccination.
The Federal Reserve has made it clear that they are laser-focused on returning to full employment. One can only wonder if they will be looking for a durable rise in the overall participation rate, or whether they will take a more granular view and seek more equal progress across the gender spectrum.
The remainder of 2021 should see an acceleration in economic activity, rising inflation, and higher interest rates. In general, this dynamic should support the outperformance of value relative to growth, with attractive relative valuations acting as an additional tailwind for value outperformance.
On March 5th, China began its most important annual political gatherings: the National People’s Congress and Chinese People’s Political Consultative Conference. These events highlight the central government’s priorities for the year ahead, with 2021 also a year with a new Five Year Plan (FYP).
The March 4th OPEC+ meeting passed with more fanfare than is typically associated with the organization’s biannual summit. As is normal, OPEC countries, led by Saudi Arabia, met with key non-member states to discuss output changes.
The pandemic has presented many challenges for working parents— simultaneously managing full-time jobs, supervising children’s remote learning, and tackling household chores, with fewer options for outside assistance.
Given the modest back-up in yields over the last several months, many investors are wondering if, and how, the role of fixed income in a portfolio might change moving forward.
Comparing the recoveries of the global financial crisis (GFC) and the pandemic recession is like comparing the tortoise and the hare: the aftermath of the former was slow and steady, while the latter should experience a burst of speed ahead.
Among the many considerations the Federal Reserve has to take in managing monetary policy, the behavior of the Treasury Department can be one of the more challenging. The Treasury Department holds its cash on deposit in the Treasury General Account at the Fed.
Most investors believe that the reflation trade will define markets in 2021. However, more and more clients are asking us what could undermine this narrative and precipitate a market correction.
A key behavioral misstep investors should always avoid is trying to time the market, and 2020 showed just how detrimental timing the market could be.
Investors should always look forward: a new global economic cycle is beginning in which international can take the baton from the U.S.
The financial stress of 2020 forced many people to tap retirement savings. Explore how emergency reserve funds could have protected retirement strategies.
Following several consecutive announcements of vaccine candidate success in November 2020, markets began pricing in an end to the COVID-19 pandemic.
Markets saw retail investors pile into highly-shorted, small cap equities in an effort to push back on the institutional investment community
In the end, were there any V-shaped recoveries from the COVID recession? There is only one example around the world: China.
Most investors are familiar with the return challenges they may face in the years to come. Elevated equity market valuations and historically low interest rates have led us to forecast that a 60/40 portfolio of global equities and high quality U.S. fixed income will return 4.2% annually over the next 10-15 years.
Inauguration day starts the clock on the first 100 days of a new administration, a symbolic benchmark period to measure early success. During the first 100 days, we anticipate another fiscal package, a pivot on foreign policy, trade and regulation, and a preview of future recovery spending.
Treasury yields have climbed above 1% and investors are asking how much higher Treasury yields could climb in 2021.
With U.S. federal debt at 100.1% of GDP, the highest since World War II and rising, investors wonder what the breaking point could be.
In the first week of January, two Democratic challengers defeated Republican incumbents in the state of Georgia’s senatorial race, bringing an end to a hotly contested runoff election and solidifying the Democratic hold of both chambers of Congress and the White House.
2020 ended with a depreciation of the U.S. dollar, as 2021 begins, investors wonder: will the U.S. dollar continue to fall?
2020 is a year that nobody will forget, characterized by the rapid spread of COVID-19, an aggressive policy response, and over the past few weeks, the distribution of vaccines that many hope will bring an end to the pandemic in 2021.
Coming into the final quarter of 2020, we expected that U.S. economic activity would slow from the torrid pace seen during the third quarter.
2020 will be remembered as the year of the pandemic, while 2021 promises to be the year of the vaccine.
Rapid evolution of strategies available under the sustainable investing umbrella has subjected SI perceptions to anchoring bias.
Bitcoin and other cryptocurrencies went into hibernation for a number of years. In 2020, however, cryptocurrencies have come roaring back.
Investors received positive news about the trials of three COVID-19 vaccines, giving them the freedom to look ahead at the broadening of the global recovery
Last week, researchers at the Atlanta Federal Reserve made waves when they released an updated “nowcast” for 4Q 2020 GDP growth.
In a somewhat surprising move, US Treasury Secretary Mnuchin announced that the PMCCF, SMCCF, MLF, MSLP and TALF will expire at the end of the year and that unused funds be returned to the Treasury.
For investors that can stomach potential risks, small cap stocks may offer opportunities for meaningful upside, particularly as the economic recovery strengthens in 2021.
The holiday shopping season is upon us again, but with economic hardship caused by the ongoing pandemic, there is some concern as to whether this retail season will be merry and bright.
Although rates have moved higher during the past few weeks, investors are still struggling to generate income without increasing portfolio volatility. More and more, however, alternative investments are providing a solution.
In a recent post, we argued that the main way the U.S. election had been impacting international markets was through the U.S. dollar, this continued after Election Day, with a significant move down in the dollar of 1.4% in the three days after the election was held.
In the midst of the busiest political week of the year and with the outcome of the presidential election still uncertain, the Federal Open Market Committee (FOMC) did its best to fly under the radar at its November meeting.
The 3Q 2020 GDP print revealed the full strength of the U.S. economic rebound in the aftermath of one of the worst recessions in living memory.
After a sharp decline in economic activity during the first half of the year, the U.S. economy bounced back strongly in the third quarter.
Over the last decade, there have been many trends in market leadership, such as large cap outperformance over small cap equities, growth over value equities, and U.S. over international equities.
All eyes have been on the upcoming U.S. election. Its twists and turns have not only been affecting domestic markets, but also international markets, especially via the U.S. dollar.
Over the last four years, the frequent refrain about election polling is the polls were so wrong in 2016. But just how far off were the polls?
As we think about the trajectory of the energy industry going forward, it is evolving in more ways than one.
Discover the benefits of lump sum investing during the current low-interest rate regime, and its consistent outperformance of dollar cost averaging.
For those investors feeling uneasy about markets, a DCA approach can help get those clients gradually get invested, says Jackson.
Many investors find this disconnect between the equity market and the economy perplexing and are constantly asking us: is it justified?
As we approach Election Day, investors look to best position their portfolios for the next administration.
In recent months, the prospects of higher inflation has become front of mind for many investors.
As we highlight in our 3Q20 Guide to Alternatives, core real assets like real estate and infrastructure can provide both diversification and income, while certain types of hedge fund strategies can zig when the stock market zags.
After the dramatic market declines in March, many investors expected markets would continue to fall.
The rebound from the late-March lows capped the shortest bear market in history and marked the fastest round trip back to all-time highs.
With the presidential election just under two months away, investors are considering how a change in fiscal policies may impact the various sleeves of their overall investment portfolio.
After a strong run, the end of last week saw U.S. equity markets come under pressure.
As the economy & markets continued to grind higher, investors entered into 2020 with prominent portfolio overweight’s into U.S. and Growth oriented equities.
Fortunately, like the experience in the U.S., this second increase in cases is not being accompanied by the same rise in fatalities as the first.
The Federal Open Market Committee officially announced an update to its Statement on Longer-Run Goals and Monetary Policy Strategy.
While markets are likely to experience volatility in the lead up to and the aftermath of the election, ultimately, it’s policy, not politics, that matter most.
Loss aversion refers is the preference to avoid losing compared to gaining an equivalent amount.
Last week, we learned that the unemployment rate fell to 10.2% in July.
Last week, we learned that the unemployment rate fell to 10.2% in July.
This paper, written by Gabriela Santos, discusses the outlook for U.S.-China tensions amidst COVID-19 and the upcoming election season.
We revisit asset allocation views as the global economy appears to be in the early innings of recovery, but stares down the limitations to growth in a pre-vaccine world.
Last week’s GDP report showed that the U.S. economy contracted at a real, annualized rate of -32.9% in 2Q20.
The U.S. economy contracted at its fastest pace on record in the second quarter, reflecting the nationwide lockdown and halt in economic activity.
Coming into 2020 – against a backdrop of steady and stable economic growth, along with a positive earnings outlook – many investors were worried about the market highs reached over the last few years.
Over the past ten years, European equities have underperformed the U.S. by 174% pts in U.S. dollar terms.
The Business Cycle Dating Committee marked the peak month of the previous expansion in February 2020, officially marking an end to the longest expansion on record.
China’s imposition of a strict quarantine in response to the COVID-19 pandemic plunged its economy into a deep contraction in the first quarter of 2020, -6.8% year-over-year, its first negative GDP print in over 40 years.
The dramatic increase in federal debt and the expansion of monetary policy has many investors wondering if a surge in inflation is on the horizon.
May and June saw economic activity improve relative to the April lows, and we expect that economic growth will be positive in the back half of the year.
After crushing the curve in the U.S., cases of COVID-19 have begun to rise rapidly again, with the resurgence occurring in new hotspots.
Due to COVID-19 and the discussions around social issues and climate change, Sustainable Investing (SI) is more relevant today than ever before.
The past few weeks have seen COVID-19 case growth accelerate in parts of the United States, with the total number of confirmed cases now well above 2.5 million.
Since the start of the year, the U.S. dollar has appreciated by roughly 1%, continuing a near-decade long trend that was only briefly interrupted in 2017.
One of the best trades to put on in the aftermath of the financial crisis was going long high yield. Spreads blew out to nearly 18% in November 2008, implying a default rate of almost 30%. Looking back, this is far from what actually materialized, as default rates on U.S. high yield peaked at a level of 11% in November of the following year. With the Federal Reserve (Fed) becoming increasingly active in credit markets, we have been getting more and more questions on the outlook for high yield; the bottom line is that while valuations are not terribly compelling, the near-term path for credit spreads may be tighter.
Over the past 15 years, investors have been frustrated with the performance of European equities.
At the end of last week, it looked like the equity market pullback that everyone had been expecting was finally beginning to materialize.
The Federal Open Market Committee (FOMC) met this week and provided investors with a fresh set of economic and interest rate projections after a six month hiatus.
While fundamentals– valuations, earnings and economic growth – dominate in the long run, the short run is a different matter.
Earlier this week, the Department of Labor (DOL) announced that defined contribution (DC) plan sponsors can begin to include private equity strategies in diversified investment options like target date funds (TDFs) or balanced funds.
Investors have had to process a torrent of information and wild swings in sentiment so far this year.
The S&P 500 has marched steadily higher from its March 23rd low against a backdrop of investor skepticism. In previous posts, we have discussed how this rally is being driven by three things.
The balance sheet of the U.S. Federal Reserve (Fed) has increased by 2.9 trillion USD since the start of March, meaning that in just over eleven weeks it has grown more than it did in the five years following the Financial Crisis.
Global governments have been swift and bold in supporting their economies, building a bridge to get consumers, small businesses and corporates over the present abyss to the other side. Given the unknown breadth and depth of the abyss, more stimulus may be required.
Year-to-date, emerging market (EM) equities are down -17.6%, as a combination of the COVID-19 recession and the oil price shock has led to downward revisions to earnings expectations, as well as weaker currencies relative to the U.S. dollar.
Ultimately, the Fed’s next step will be dictated by the pathway of the virus, says Dryden.
In the aftermath of the global financial crisis (GFC), investors have embraced equity markets as a source of income. With the COVID-induced lockdown pushing policy rates back to the zero-bound and government bond yields near all-time lows, this trend has since gained additional momentum.
During the first three weeks of March, investors stampeded out of riskier markets and rushed to safe assets. In the process, 100 billion USD flowed out of emerging market (EM) stocks and bonds –more than three times the outflows seen during each of the previous three risk-off periods.
This edition of On the Minds of Investors comes from, Katherine Roy, our Chief Retirement Strategist here at J.P. Morgan Asset Management. Her team oversees The Guide to Retirement (GTR), which is a best-in-class resource for breaking down and simplifying complex retirement issues like Social Security and Medicare.
Nearly half of S&P 500 companies have reported 1Q20 earnings, and our current estimate is for a -20% decline relative to a year prior. Against this backdrop, however, equity markets have continued trending higher.
Global markets have roiled in the face of COVID-19 and social distancing, and many investors are looking to “pick up the pieces,” eagerly hunting for the next big opportunity.
While many changes are likely to emerge, one clear trend, with far-reaching macro and market implications, is the increase in leverage, says Azzarello.
Earlier this week, oil prices turned negative for the first time in history, with WTI trading as low as -$37 a barrel.
Over the past two months investors have digested the COVID-19 shock: the fast spread of the virus around the world, the social distancing measures implemented and the resulting economic and earnings recession.
1Q20 earnings season will provide an important first look at how the ongoing pause in global activity is impacting corporate earnings.
Ultimately, how high the unemployment rate gets is dependent on one key question: will American small business fire its workers, says Manley.
Initial claims for unemployment insurance surged to the highest level ever: 3,283,000, spiking from a slightly revised 282,000 last week.
This paper, written by Dr. David Kelly, reviews the U.S> relief bill and its investment implications.
The U.S. Federal Reserve (Fed) has pulled out its alphabet bazooka in an effort to ensure sufficient liquidity and the smooth functioning of financial markets, while also providing credit to businesses that are affected by the spread of COVID-19 and the stall in global economic activity.
As economists continue to revise down their 2020 GDP estimates, a lot of clients have been asking us about the potential impact on earnings.
This past Sunday, the U.S. Federal Reserve (Fed) fired a last desperate salvo in an attempt to stabilize financial conditions, the second emergency inter-meeting cut in two weeks.
Coming into this year, we expected an improvement in global economic growth, as 2019’s policy uncertainty clouds dissipated.
The COVID-19 crisis confirms, once again, the value of a diversified portfolio, says David Kelly.
It is important to avoid trying to predict the future; rather, clients are best served by monitoring the present situation and maintaining composure.
Even with this Fed action, there will likely be calls for fiscal action to support to businesses suffering from the response to virus fears, says David Kelly.
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