The Weekly Strategy Report (October 15, 2018) - J.P. Morgan Asset Management
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The Weekly Strategy Report (October 15, 2018)

In brief
  • The recent rise in yields has taken yields across the U.S. curve to attractive levels. Front end real yields have risen back above 1% and are now higher than the long end. Investors are getting paid a positive real return to not take risk. This has profound implications for risk assets.
  • We do not see the U.S. front end as an outright buy at the moment, as we acknowledge that late cycles historically last for longer and policy tightens more than was expected ex-ante.
  • Given the current stage of the cycle and valuations, duration is relatively more attractive than cash. But that trade-off is likely to change once the fiscal boost fades.
  • In multi-asset portfolios, we maintain a modest pro-risk stance but at lower levels than at the start of the year. Duration is increasingly attractive within portfolios – mainly U.S. duration.
REAL FED FUNDS (DEFLATED BY CORE PCE) VS.THE LAUBACH-WILLIAMS MEASURE OF NEUTRAL RATES (R-STAR).

EXHIBIT 1: IN USD TERMS, THE U.S. STOCK MARKET CONTINUES TO OUTPERFORM

Sources: * Forecasts for real fed funds based on four more rate hikes over the next 12 months. Bloomberg, Federal Reserve Bank of San Francisco, Datastream, J.P. Morgan Asset Management; data as of September

Weekly Strategy Report (October 15, 2018)

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