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Quarterly Perspectives

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LATEST QUARTERLY PERSPECTIVES

The length and strength of expansions

Theme overview

Steady growth and rising markets: It’s a two-way street

Slow and steady (growth) wins the race

  • The expansion in the U.S. has been slow and steady, as the economy grows at 2%. While we do not expect an imminent recession, the expansion is in its later stages.
  • This healthy economic picture, along with the earnings recovery taking place, supports the market’s ability to move higher. It is very rare to see a bull market end without a recession first.
  • While both the economy and the market ebbs and flows, we know staying invested is key. Through a long-term outlook and the ability to weather short-term volatility, investors get to benefit from the power of compounding. Being in the later stages does suggest that looking for strategies to limit losses is key.
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Theme overview

Healthy normalization: Putting rising rates into historical perspective

The tightening cycle in the U.S. continues

  • The Federal Reserve (Fed) will likely continue to tighten monetary policy throughout 2017 and into 2018.
  • While this pace is still relatively slow in an historical context, it signals that the economy is strong and can handle a more normal level of interest rates.
  • As U.S. monetary policy gradually tightens, this should push bond yields higher. This rising rate environment is even more challenging, however, due to the high level of duration in U.S. bond markets.
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The Federal Reserve balance sheet


Corporate profits

Theme overview

No need to hide if there’s volatility outside

Earnings continue to look solid

  • The S&P 500 is up over 10% this year, but the largest pullback we have seen has been a mere 3%.
  • Investors have become increasingly anxious, wondering when the next pullback will occur and fearing it could evolve into a full-on bear market.
  • While a 10% pullback would not be surprising, healthy earnings growth and only slightly stretched valuations should prevent any sell-off from becoming more severe.
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Theme overview

International equities: Speeding up

Passing the baton from the U.S. to International

  • International equities have underperformed U.S. equities by over 150 percentage points since March 2009, a result of economic and earnings challenges overseas.
  • However, the future is already looking brighter for international investing. Four factors suggest that international equities’ outperformance so far this year is set to continue: more attractive valuations, acceleration in growth outside of the U.S., faster earnings growth abroad and possible currency tailwinds.
  • Investors should make sure they have enough exposure to this improving growth story overseas, especially as the U.S. is in the later innings of its own expansion.
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U.S. and international equities at inflection points

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