Quarterly Perspectives - J.P. Morgan Asset Management

Quarterly Perspectives



Economic growth and the composition of GDP

Theme overview

Wind at your back: later cycle acceleration with a fiscal gust

Not too late to participate: Investing amid later cycle tailwinds

  • The 2nd and 3rd quarters of 2017 showed U.S. GDP growth above 3% q/q annualized. That momentum looks like it will carry through the end of the year and into 2018.
  • With the passage of tax reform, we anticipate fiscal stimulus to boost growth through 2018 on the back of lower corporate and individual tax rates.
  • Even though the economic expansion and bull market are likely in later stages, getting invested remains important as there are still investment opportunities and cash yields remain historically low.

Theme overview

Fixed income: Flexibility in a rising rate environment

The Fed will continue to normalize monetary policy

  • The Federal Reserve (Fed) will likely continue to tighten monetary policy throughout 2018 and into 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 tightens, bond prices should fall, pushing yields higher, and making fixed income investing even more challenging. In 2018, flexibility in fixed income portfolios will be critical to success.

The Fed and interest rates

Corporate profits

Theme overview

What to watch in equity markets: Earnings and rates

Earnings should normalize, but have upside risk

  • Strong profit growth has propelled equity markets throughout 2017, as the headwinds from the U.S. dollar and energy sector have dissipated and begun to look more like tailwinds.
  • Earnings growth will likely normalize next year as comparisons become more challenging, but corporate tax reform provides an upside risk.
  • While rising rates could lead to some volatility, the risk of an inflection point in equity markets due to rising rates is still far off.

Theme overview

International equities: Still taking off

Finally a better staffed plane

  • 2017 was a year of solid global economic growth, with the strength in international economies leading to international equity outperformance relative to the U.S.
  • With both economic and earnings growth set to accelerate further in 2018, valuations still attractive relative to the U.S. and currencies stable to appreciating relative to the U.S. dollar, 2018 looks to be another year in which international equities continue to climb.
  • Investors should ensure they have exposure to this improving international story, especially as we enter the later stages of the U.S. economic cycle.

Manufacturing momentum

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