Quarterly Perspectives - J.P. Morgan Asset Management

Quarterly Perspectives



The length and strength of expansions

Theme overview

U.S. Economy: shifting from summer to fall

Long summers and short winters

  • Recent data suggest the growth momentum seen in the second and third quarters of 2018 may fade into the end of the year. This should slow year-over-year growth in the U.S. to a still solid 2.5% pace in the first half of 2019.
  • However, we are likely transitioning from a particularly hot summer to a more temperate autumn. Economic growth is expected to moderate to a 2% pace in 2019.
  • Current late-cycle characteristics: a lack of demand due to low unemployment, rising wages, higher interest rates and firming inflation do make the economy more vulnerable to a recession. However, we do not believe winter is on the horizon.

Theme overview

Fixed income: Flexibility in a rising rate environment

The Fed will continue to normalize monetary policy

  • The Federal Reserve (Fed) should continue to tighten monetary policy in the first half of 2019.
  • Policy normalization will be achieved through two mechanisms: balance sheet reduction and interest rate hikes. Together, these mechanisms make for an unprecedented environment for fixed income investors.
  • As U.S. monetary policy continues to tighten, bond prices should fall further, pushing yields higher, and making fixed income investing even more challenging. Moving forward, flexibility in fixed income portfolios is critical to success.

The Fed and interest rates

Returns and valuations by style

Theme overview

U.S. equities: Preparing for a post-tax reform world

Profit growth will slow, but not stop, in 2019

  • The strong U.S. economic and profit growth seen in 2018 will slow in 2019 due to mild fiscal drag and the fading impact of tax reform.
  • As earnings growth returns to more normal levels, a stronger U.S. dollar, unresolved trade tensions and margin pressures all represent downside risks.
  • 2019 will likely be another volatile year for equity markets; as a result, investors should look to dampen volatility by striking a more balanced total return profile between equity income and capital appreciation.

Theme overview

International equities: Will sentiment turn in 2019?

2018: A year to forget

  • In 2017, international equities outperformed U.S. equities and investors had high expectations for global assets to continue their momentum into the next year.
  • However, investors were left disappointed in 2018 with most regions outside of the U.S. delivering negative returns. These were a result of a lack of confidence from investors due to a number of global concerns.
  • Despite negative sentiment, international equities still present solid fundamentals. Overall, we believe there are still structural and cyclical reasons why international equities deserve a place in a portfolio.

Emerging markets

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