The Weekly Strategy Report (February 18, 2019)
- The worst December for the S&P 500 since 1931 was followed by the best January since 1987. And investors who were probably too cautious in December may be a bit too sanguine now.
- Trend-like growth is no bad thing for the U.S. economy. But the slower pace of growth in 2019 creates headwinds for corporate earnings, in turn limiting equity upside.
- Easier financial conditions in the U.S. may lend support to asset prices in China and other emerging markets, particularly if the U.S. dollar weakens in 2019. However, high inventory levels and continued weakness in capex may keep data - and asset prices - under pressure. European economic data have been persistently soft, yet forecasts of 2019 corporate earnings have barely budged.
- In our view, this is not a year for taking large outright equity positions. Within equities, our portfolios are overweight the U.S. relative to Europe. In late cycle, with the Federal Reserve on pause, we see a good argument for a sizeable allocation to duration within a balanced portfolio.
EXHIBIT 1: EURO-AREA MANUFACTURING PMI AND EUROSTOXX EXPECTED EARNINGS PER SHARE GROWTH
Source: Datastream, Haver, J.P. Morgan Asset Management; data as of February 15, 2019.
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