Quarterly Perspectives - J.P. Morgan Asset Management

Quarterly Perspectives



Economic growth and the composition of GDP

Theme overview

Economy in 2020: Stable growth with political noise

A soft landing to 2.0% growth

  • The U.S. economy has successfully engineered a soft landing to 2.0% growth and will likely sustain this pace through 2020 and avoid recession.
  • The U.S. consumer will likely continue to provide support to growth next year given steady payroll gains and rising real wages. Elsewhere, housing activity is likely to pick up somewhat and investment spending should normalize due to easing trade tensions and steady profit growth.
  • In a presidential election year, politics are likely to remain a focal point for investors. Importantly, however, investors should not allow their political affiliations to dictate their investment decisions.

Theme overview

Fixed income: Low and stable rates

The Federal Reserve is back on pause

  • The Federal Reserve (Fed) has concluded its mid-cycle adjustment and appears set to be on pause for 2020. The bar for an interest rate adjustment in either direction is high, particularly in an election year.
  • Fixed income investors benefited from falling yields in 2019, but with greater rate stability expected from the Fed, investors will not have that same tailwind in 2020.
  • Low and stable yields will continue to make the hunt for yield challenging.

The Fed and interest rates

S&P 500 valuation measures

Theme overview

U.S. equities: Earnings hold the key

Little room for valuations to run higher

  • Sentiment has ebbed and flowed on the back of trade-related headlines, and the uncertainty caused by this dynamic has weighed on growth; this backdrop seems set to persist, and we expect continued volatility in equity markets.
  • With P/E ratios above their long-run average and the 2020 election in view, equity valuations are likely capped, leaving earnings growth as the main driver of any further appreciation in equity markets.
  • Late cycle dynamics combined with elevated uncertainty increases the need for investors to dampen volatility; this can be done by creating a more balanced total return profile between shareholder yield and capital appreciation.

Theme overview

International equities: Hard to ignore in 2020

From global deceleration to stabilization

  • In the fourth quarter of 2019, investors saw a number of risk factors take a backseat, easing pressures on business and investor sentiment.
  • In particular, global economic data began to stabilize and the trade dispute between the U.S. and China showed signs of improvement. However, a full resolution seems unlikely in the near future.
  • While trade tensions have not been resolved, further escalation has become less likely and we should see a stabilization of global growth in 2020. With prospects of stronger earnings and below average valuations, we continue to believe that international stocks deserve a place in portfolios.

Global economic growth

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