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Multi-Asset Solutions Weekly Strategy Report

As a greater share of corporate profits is generated from non-domestic sources, the performance of an equity market, relative to the global benchmark, can be dominated by movements in the country’s currency. The euro has strengthened since mid-April and the typically negative correlation between euro area equity’s relative performance and the euro has reasserted itself.
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Weekly Market Recap

A one-page snapshot of market performance, statistics and trends.

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The 4 percent growth club

By GFICC Investors
Economic fundamentals remain robust, with solid growth across G10 economies. Yet markets seem reluctant to price in higher yields. Could we see a hawkish surprise as markets misprice central banks?
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Looking to buy on dips

By Pierre-Yves Bareau
EM countries and companies have become more resilient to external and internal shocks and we therefore see market dips and corrections as potential opportunities to buy.
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Goldilocks and the three risks

By George Iwanicki
Emerging markets are in the early phase of their recovery cycle. When comparing cycle-adjusted P/E multiples, emerging market equity ranks as the cheapest segment of the global equity market.
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3Q 2017 Guide to the Markets and Quarterly Perspectives

Introducing our third quarter 2017 Guide to the Markets and Quarterly Perspectives. A comprehensive array of market and economic trends illustrated with clear and compelling charts.
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Global Fixed Income Views 3Q 2017

By Bob Michele

Everything’s a proxy for QE - we favor European bank capital (Alternative Tier 1), leveraged loans, U.S. high yield bonds and emerging market local currency bonds.

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Global Equity Views 3Q 2017

By Paul Quinsee
Equity investing:  A time for careful diversification - Strong first quarter earnings results affirm our view of a synchronized global recovery in profitability. We see a supportive environment for equity investing, particularly for emerging market and European equities, where valuations are less stretched.
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Global Asset Allocation Views 3Q 2017

By John Bilton

Asset allocation for a world of trend-like growth - As broad-based growth and favorable financial conditions combine to create a supportive backdrop for risky assets, we remain overweight equities, acknowledge the full valuations of U.S. stocks while keeping a small overweight, downgrade credit from overweight to neutral, and underweight duration.

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What if May falls in June?

By Michael Bell
The market is currently assuming that the Conservatives will win a large majority and eventually deliver a relatively hard Brexit, but that the election will make it easier for them to agree to a transitional arrangement, prolonging single market access for two or three more years after March 2019.
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Asian exports: Building momentum

By Tai Hui
Tai Hui, Chief Market Strategist Asia, examines the recent upturn in Asian exports and considers what this recovery implies for corporate profits and investing in Asian equities.
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Investing in Emerging Markets: Why EM and which EM?

By Gabriela Santos
Gabriela Santos discusses the improving Emerging Market conditions and how investors should consider whether they have appropriate exposure to this EM rebound.
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Macron conquers, but France remains deeply divided

By Vincent Juvyns, Stephanie Flanders
Vincent Juvyns, Global Market Strategist, gives us the latest update on the French Presidential Elections and impact this has on investors.
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Emerging Market Debt Q2 2017: Reflation takes root

By Pierre-Yves Bareau, Derek Traynor
Given the risks posed by protectionism, we are more cautious on open economies and those more dependent on external funding. Overall, we have shifted our focus from market beta to carry this quarter, coming off of solid first quarter performance, tighter valuations and the little market premium attached to the risks we have identified. We place an emphasis on short-end names and those idiosyncratic stories that we identify as having positive event skew.
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Inflation's next phase

By Michael Hood, Benjamin Mandel
For investors, the recovery of inflation and inflation risk premia, against the backdrop of anchored inflation expectations, imply a supportive environment for risk assets. Our outlook suggests continued upward pressure on the market pricing of inflation, manifesting in higher bond yields and a widening spread between nominal and inflation-protected bonds.
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Taking down the spinnaker

By Dr. David Kelly
It is time to adopt a more diversified and thoughtful approach that recognizes the importance of valuations and relies less on that most naïve of all assumptions - the prospect of wisdom from Washington.
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A better opportunity in Europe

By Dr. David Kelly
While U.S. equities still look less expensive than Treasuries and cash, they are not as attractive as they once were. Investors looking for stronger long-term returns may find a better opportunity in European stocks.
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The European political project at a crossroads?

By Vincent Juvyns, Tilmann Galler, Maria Paola Toschi
Twenty-five years after the signing of the Maastricht treaty, the European political landscape is more fragmented and polarised than ever, in a year when key member states are facing general elections.
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Pro growth or pro tection

By Dr. David Kelly
For investors, the choice Washington makes on trade will send a strong signal on whether 2017 is a year to continue to favor risk assets or take a more defensive stance.
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No Brexit plan - but a clearer destination

By Stephanie Flanders
Theresa May has given much more detail than previously on what the UK’s negotiating objectives will be when it starts on the road out of the European Union (EU).
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Entering the reflation era

By Pierre-Yves Bareau
We are entering a new investment paradigm: the era of "lower for longer" and "search for yield" has now been replaced by an era shaped by higher growth, inflation and rates.
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The kindness of strangers

In the middle of December, it appears that U.S. stocks are going to outperform international stocks in both emerging markets and other developed countries for the fourth year in a row, at least when measured in U.S. dollars. Investors are always warned that past performance is not indicative of future returns. However, judging by the behavior of markets in recent weeks, this warning is falling on deaf ears, as U.S. stocks and the U.S. dollar have surged ahead since the election. In short, it seems that global equity markets are pricing in everything that could go right in the U.S. and everything that could go wrong overseas.
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The investment outlook for 2017: Economic warming and political warnings

By Dr. David Kelly, David Lebovitz, Gabriela Santos

The global economy appears to be strengthening as it enters 2017, but threats to continued growth are becoming clear. Explore our 2017 investment outlook.
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The long-term investment implications of the U.S. election

While the near-term reaction to Donald Trump’s victory has been to boost U.S. stocks relative to fixed income and EM investments, the long-term impact of a Trump presidency is a lot less certain. For long-term investors, it is best not to overreact to a significant political surprise but rather to maintain a balanced portfolio shaped by current valuations and longer-term market trends.
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Rising inflation: Options to help protect your portfolio

Inflation rates are set to rise across the developed world. This raises the bar for investment managers as clients require better returns just to stand still.
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U.S. elections: A populist victory

In the long-run, investors would do well to make sure that they are well diversified outside of U.S. stocks and bonds and that they have sufficient exposure to alternatives and international securities.
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By Dr. David Kelly

American people have now suffered through their own marathon…a thoroughly dispiriting election campaign, dominated by insults and scandal rather than any serious discussion of the issues that are supposed to divide Republicans and Democrats. From an investment perspective, it has been a perpetual distraction and the two weeks left in the campaign feel a bit like the last two miles of a marathon. However, for investors, it is important to think past the finish line and consider the investment environment after the election.

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Latin America: A Turning of the tide

By Gabriela Santos

This bulletin explores how nascent but encouraging political changes in the region may present opportunities for investors.

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An election of extremes–but a government of moderation

In the midst of a unique U.S. election season, this bulletin filters through the noise and explains how long-term investors should view the 2016 election.
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Living on borrowed time: Understanding global debt and what it means for investing

By Samantha Azzarello, Gabriela Santos, Hannah Anderson

Global debt trends are important to understand. Are currently elevated debt levels healthy, supporting growth, or are they creating a drag—even a potential solvency crisis on the horizon? Explore how we consider debt dynamics in developed and emerging markets, and how investors can take action.

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Principles for long-term investing

Using select slides from the Guide to the Markets, J.P. Morgan Funds shares key principles for successful, long-term investing.
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Brexit: What investors should consider

This bulletin, written by Stephanie Flanders, examines the investment implications of a potential Brexit from the EU.

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China's bond and equity market: Inclusion a new hope?

By Ian Hui
Reform measures opening up Chinese markets to overseas investors have driven speculation that they will soon be included in major benchmark indices.
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1Q16 earnings update: Beating estimates, but not yet growing

By David Lebovitz

Following the 2015 decline, companies beat earnings estimates but missed revenue estimates. We believe earnings growth is in the process of bottoming and should gradually recover over the remainder of this year.

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The future of monetary policy

By Stephanie Flanders, Michael Albrecht, Benjamin Mandel
  • In the aftermath of the first Federal Reserve (Fed) rate hike in nearly a decade, attention has briskly shifted to the future. What’s next for policy interest rates? How will central banks deal with their extraordinarily large balance sheets? In this paper, we take an even longer view. What does developed market monetary policy look like in future cycles, and what does it imply for markets?
  • Even as central banks experiment with mildly negative interest rates, we believe that balance sheet policies similar to quantitative easing will remain a regular feature of the landscape. Born of necessity when policy rates hit their zero lower bound, quantitative easing emerged to repair markets and ease financial conditions.
  • The process of experimentation with “unconventional” policy will continue so long as central banks face the limit of a lower bound on policy rates. One idea that has gained traction is the direct monetization of fiscal stimulus by central banks (i.e., helicopter money). Such policies need to balance the exigency of economic stimulus with the inherent risks, but it is fair to say that they are less unconventional now than they used to be.
  • More active balance sheet policy and muted variation in policy rates imply that yield curve steepening and flattening in subsequent cycles will be more moderate. The inversion of the curve that historically preceded recessions may not arise and, if it does, may not send the same signal in future cycles.
  • All of these developments are a mixed blessing for multi-asset investors. On one hand, central banks are finding ever more diverse and creative solutions to achieve their mandates. On the other, it suggests that the warning bell coming from the yield curve will be less informative than it used to be about the most worrisome of risk-off outcomes—when the economy tilts into recession. In our view, variations in quantitative easing among central banks will define the degree of monetary policy divergence in the coming years.
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Time to revisit emerging markets

By Pierre-Yves Bareau

In our base case scenario of muddle-through growth, with a gradual recovery of EM growth alpha and moderately tighter financial conditions, we prefer to base our core exposures on higher quality credit names with stronger balance sheets and fiscally prudent positions. This reflects our more cautious longer-term view, given the still- considerable downside structural risks from commodities, China and U.S. monetary policy normalisation. For the second quarter, however, the prospect of lower market volatility and a cyclical stabilisation leads us to favour tactical positions in idiosyncratic high yield stories.

From a sector perspective, we remain constructive on duration, as the challenging growth backdrop, global easing bias, currency stability and generally moderate inflation dynamics should continue to support local currency rates. While yields have rallied this past quarter, we still believe there is further room for compression.

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Four E’s and an F

By Dr. David Kelly
This bulletin, written by Dr. David Kelly, examines the economy, earnings, energy, elections and the Federal Reserve.
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A transition with Chinese characteristics

By Gabriela Santos
This bulletin, written by Gabriela Santos and Hannah Anderson, examines the impact of China's slowing economy on developed and emerging markets.
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Warped expectations

This bulletin, written by Dr. David Kelly, examines the impact of weak Chinese markets on the U.S. economy in early 2016.
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A brighter outlook for 2016

2016 should be a year when good advice and active management are particularly valuable. The global economy is growing gradually, fixed income is generally expensive and global equities look fairly valued.
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Skirting the hard landing

By George Iwanicki

While we do not believe an EM crisis is under way or inevitable, we believe emerging markets equities are still range-bound, constrained by the triumvirate of headwinds. Valuations are not sufficiently cheap to prompt a tactical "buy today" mentality. However, they are cheap enough (including consideration of the EM currency de-rating) to encourage investors to be setting valuation or fundamental "guideposts" to add to the asset class rather than run from it because of the news flow and worries that have overtaken investors.

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A brave new world: the deep de-carbonization of electricity grids

By Michael Cembalest
Previously we analyzed the individual components of the electricity grid: coal, nuclear, natural gas, wind, solar and energy storage. This year, we look at how everything fits together in a stytem dominated by renewable engergy, with a focus on cost and CO2 emissions. The importance of understanding such systems is amplified by President Obama's "Clean Power Plan", a by-product of which will likely be greater use of renewable energy for electricity generation.
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Dr. Kelly's Commentary: The North Star of the Economy

By Dr. David Kelly
This commentary, written by Dr. David Kelly, discusses how the unemployment rate affects the length of economic expansions.
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Dr. Kelly's Commentary: Deflation delusions  

By Dr. David Kelly
This bulletin, written by Dr. David Kelly, addresses the impact that deflationary fears have had on the Fed's decision to postpone rate hikes.
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Avoiding the stagnation equilibrium

By Dr. David Kelly
At their September meeting, the Federal Reserve decided, for the 54th consecutive time, to leave short-term interest rates unchanged at a near-zero level. While only one voting member of the Federal Open Market Committee (FOMC) dissented, the Fed’s action, or rather inaction, was hotly debated.

Those advocating an immediate hike argued that the economy had progressed far beyond the emergency conditions that had led to the imposition of a zero interest rate policy in the first place and that the Fed was already dangerously “behind the curve.” Those lobbying for further delay pointed to a lack of wage inflation and signs of weakness in the global economy.

However, frustratingly, we believe this argument, like all monetary policy debates in recent years, has been waged on a false premise, namely that increasing short-term interest rates, even from these extraordinarily low levels, would hurt aggregate demand. We believe that the opposite is true. The real-world relationship between interest rates and aggregate demand is non-linear and an examination of the transmission mechanisms suggest that the first few rate hikes, far from depressing aggregate demand, would actually boost it.
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The Millennials - Executive Summary

By Michael Cembalest, Katherine Roy

The millennial generation (individuals born between 1982 and 2000) is the subject of intense scrutiny: their likes and dislikes, social media inclinations and digital footprints, fashion sense, dining habits, reproductive trends, political and religious views, workplace objectives, etc. This year, millennials will overtake the baby boomers as the largest living generation in the United States, so there are plenty of reasons to study them. This is the abbreviated version of the study.

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The Millennials

By Michael Cembalest, Katherine Roy
The millennial generation (individuals born between 1982 and 2000) is the subject of intense scrutiny: their likes and dislikes, social media inclinations and digital footprints, fashion sense, dining habits, reproductive trends, political and religious views, workplace objectives, etc. This year, millennials will overtake the baby boomers as the largest living generation in the United States, so there are plenty of reasons to study them.
Our focus here is not on smartphone usage or cultural preferences, but on how millennials will manage their finances and maintain their financial independence throughout their working years and through retirement. Our analysis is presented in the form of a proposal for a web-based show (The Millennials) available for live streaming, complete with backstory, a list of episodes and detailed production notes. Millennials that binge-watch the series in its entirety, as well as their financial advisors, employers and parents, will gain a greater understanding of the drivers of financial security in a rapidly changing world, one that the millennials will now inherit.
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Dr. Kelly's Commentary: Waiting on the world to change

This bulletin, written by Dr. David Kelly, addresses the Federal Open Market Committee meeting announcement on September 17.
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The long and short of baby boomer balance sheets

Baby boomers are entering retirement, bringing with them a median level of household assets considerably higher than that of their parents’ generation and, in all likelihood, far exceeding that of the next generation as well. We refer to this massive accumulation of assets—and the impact it is likely to have on the economy, markets and the retirement prospects of multiple generations—as baby boomers' "financial exceptionalism." This research examines the evolution of baby boomer balance sheets and attempts to assess and quantify its implications for markets and investors.
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Rethinking the "core": Finding the middle ground in equities

In an environment of lower returns and higher volatility, equity approaches that straddle both actively and passively managed strategies can help investors generate higher returns or minimize volatility.

In a lower-return environment, the contribution from any excess return is a more meaningful contributor to overall return. But because finding consistently outperforming active managers can be difficult, many investors have gravitated toward benchmark-oriented solutions.

Investors who have adopted a core-and-satellite approach for their core equity allocation should consider substituting some or all of their passively managed equity allocations for incremental return-enhancing or risk-reducing strategies. Doing so should result in better risk-adjusted returns.

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Take stock: Equity investing for P&C insurers

By Mark Snyder

Mark Snyder, Head of Institutional Strategy & Analytics, explains how SMAs have led to a wide dispersion in results, large deviations from standard benchmark returns, and in many cases underperformance.

For U.S. property and casualty (P&C) insurers, public equity investments diversify risk in income-oriented portfolios, typically offer higher expected returns than fixed income securities and provide a ready source of liquidity. They have regularly made up the second-largest allocation in P&C portfolios after fixed income and currently account for nearly 10% of total non-affiliated investments.* P&C insurers hold most of their equity investments in separately managed accounts (SMAs). The low-turnover, buy-and-hold strategies of many SMAs, while allowing for precise control of the timing of realized gains and losses for tax purposes, have led to a wide dispersion in results and large deviations from standard benchmark returns—with substantial under performance in many cases, as our analysis shows.

P&C companies have allocated a much smaller portion of equity investments to funds and exchange-traded funds (ETFs). These allocations trade the ability to manage tax outcomes for the SMA’s ability to track a benchmark at low cost or gain access to skilled managers who can potentially outperform a benchmark. We believe insurers should give this trade-off serious consideration, weighing the advantages of a buy-and-hold strategy against the drag it can impose on returns that chronically lag an established benchmark.

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Recent Market Events: Regarding the Chinese Renminbi and recent market corrections

By Richard Titherington
Comments from Richard Titherington, CIO Emerging Markets and Asia Pacific Equities, regarding the Chinese Renminbi and recent market corrections.
Panic selling can create opportunities for long-term managers with discipline and stock selection expertise to buy stocks that they previously thought were too expensive. Our Emerging Markets Equity team is revisiting their portfolios and looking to add to high conviction ideas whose share prices have corrected to attractive levels.
Historical analysis suggests that investors can potentially enjoy significant upside when entering the markets at low Price to Book levels.
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The Wage Puzzle - Long version

By Dr. David Kelly

This bulletin, written by Dr. David Kelly, discusses factors affecting the lack of wage growth in the U.S.:

  • Structural, not cyclical, factors are largely responsible for the lack of wage growth in recent years. These factors—such as the retirement of baby boomers, the continued fall in union membership, growth in part-time workers and a slowdown in productivity—cannot easily be fixed by monetary or fiscal stimulus.
  • U.S. wage growth has also failed to respond to falling unemployment due to temporary forces, such as the plunge in inflation and pessimistic attitudes on the economy, which should fade in the months ahead. As these influences wane and as the unemployment rate continues to decline, wages should move higher.
  • The lack of wage growth does not appear to justify the Federal Reserve’s (Fed) near-zero interest rate policy. We expect the Fed will, in the absence of further shocks, initiate the first rate hike in more than nine years in September.
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Chinese yuan devalued — Reform not stimulus

By Tai Hui
This bulletin, written by Tai Hui, Chief Market Strategist — Asia, discusses the PBoC’s move to devalue the Chinese currency and how this decision will impact economic growth in region.
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Dr. David's August 2015 Commentary: The wage puzzle (short version)

By Dr. David Kelly

Dr. Kelly's Commentary for August 2015:

The July U.S. jobs report was solid and mostly in line with expectations. However, it is notable that, in a steadily improving job market, both labor force growth and wage growth remained weak. We have argued in the past that most of the labor force problem is structural rather than cyclical. That is to say, it is largely due to the retirement of babyboomers, a surge in disability benefits and a growing number of Americans who are essentially excluded from the job market due to prior felony convictions, educational deficiencies and issues with addiction. All of these are important issues and deserve the urgent attention of the government.

However, unlike a general lack of economic demand, they cannot be fixed by monetary or fiscal stimulus. Wage growth also remains very weak with wages of production and nonsupervisory workers up just 0.1% in July compared to June and up just 1.8% year-over-year. This is remarkably different from the last three economic expansions. The July jobs report showed only a marginal drop in the unemployment rate from 5.28% to 5.26%. However, the last three times the unemployment rate hit 5.3% on the way down, wage growth was much stronger, achieving year-over-year gains of 3.3% in November of 1988, 3.4% in June 1996 and 2.6% in January 2005.

So why are wages so weak, this time around? A full explanation is elusive. However, statistical analysis suggests that, as is in the case of labor force participation, the problems are largely structural or else due to factors that are mostly independent of demand in the economy.

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2Q15 Earnings season recap: High hopes, low expectations

We estimate that 2Q 2015 earnings-per-share (EPS) for S&P 500 companies declined by 6.9% on a year-over-year (y/y) basis. Lower oil prices and the stronger U.S. dollar have dragged down earnings growth since 4Q 2014.
Fortunately, because these factors are transitory in nature, downward revisions to earnings estimates have stabilized and there are high hopes for EPS to rebound by 4Q and in 2016.
Excluding the energy sector, S&P 500 EPS grew by 4.1%, below historical trends. This is because the stronger dollar resulted in an average EPS decline of 5% for the most dollar-sensitive companies.
While share buybacks have boosted EPS over this market cycle, they have been of secondary importance at best. The primary drivers of earnings have been sales and margin growth.
We continue to favor U.S. equities despite the recent slowdown in EPS growth. Our base case for 2015 still calls for a single-digit return for the S&P 500, which we believe is attractive for most portfolios in this market environment.
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India and Mr. Modi: A progress report

By Tai Hui

Market reaction to the Modi government’s reform program has cooled. After a strong 2014, India’s equities market have grown only moderately this year, with the MSCI India gaining 4.5% in dollar terms (USD) and 5.6% in local currency.

  • Nevertheless, the government has made much progress in the past 12 months, implementing measures to encourage foreign direct investment (FDI) and a more friendly business environment for foreign companies and promoting energy, coal and mining reforms, as well as implementing enhanced social welfare programs.
  • Some reforms are still works in progress, however, and have not yet met market expectations. Manufacturing growth has been disappointing and the tax system is still unfavorable for foreign companies. Both the Goods and Services Tax (GST) and land reforms have been delayed, casting doubt on the government’s ability to push ahead with reform.

While we believe India’s reform agenda is progressing at a steady pace, clearly more remains to be done—and to judge from the market’s reaction, more will be expected in 2H 2015.

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Dr. Kelly's July 2015 Commentary: Annual checkup

By Dr. David Kelly

Dr. David Kelly's commentary for July 2015:

He warns that it is only prudent to consider both careful monitoring and a prescriptiont to make exact predictions of long-term outcomes for U.S. stock and bond investors. The most effective monitors are market prices and the monthly employment report. If stock prices continue to rise and longterm yields remain low, even as the employment report shows a tightening job market and anemic labor supply, then the eventual risks to both bond and stock markets will rise.

As for a prescription, it is relatively simple at this stage. Given the super-low yields on cash, it still makes sense for long-term investors to be in long-term assets. However, this should also be a time to be a little underweight fixed income overall, while looking at global opportunities in both equities and fixed income. It also makes sense to have a broad and active approach in asset allocation across stocks, bonds and alternative assets and in hiring managers who can focus on what is still good value in markets that, after a very long run, are no longer so cheap.

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Stephanie Flanders speaks to Bloomberg about Greece

By Stephanie Flanders

Get Stephanie Flanders' reaction to the unfolding events in Greece. In this interview on Bloomberg Business, she discusses impact of the referendum, the weakened government, political change in Greece and the IMF memo leak.

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Creating Opportunities through Risk Management and Diversification

Real world liquidity, volatility, risk/return scenarios to drive enhanced returns for a non-profit healthcare client. Discover which three trends are found in this case study and how the client achieved their investment goals across a broad range of asset pools by employing our robust analytic and risk-management capabilities.
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Reducing constraints to maximize potential

By Peter Kirkman
From November 2014: Peter Kirkman, portfolio manager for the Global Thematic and Sector Funds, discusses how an unconstrained approach enables him to build a concentrated portfolio of his highest conviction ideas.
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European assets: Volatility strikes back

What has happened? Rather than abating, as many had expected, the sell-off in European markets that began in late April has continued into June.

What has been driving this? There are a number of factors being touted as the primary driver of recent market movements, including:
  • Changing inflation expectations relative to the start of 2015
  • Unwinding of speculative positioning
  • Liquidity concerns in key markets
  • A mild softening of economic data
  • Worries over Greece
  • Worries over a rising euro
Do we think this will last? It is good news to see bond yields rising, if that increase comes as a result of reduced fears of deflation and/or increased hopes of economic recovery.
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Living in a less liquid world: The do's and don'ts for bond investors

The bond liquidity issue is one of the hottest topics in finance today. But what exactly is it? Is liquidity lower today and, if so, why? Most importantly, what does it mean to investors? In this bulletin we explore these timely subjects, focusing primarily on liquidity in the corporate bond market. We conclude with a list of do’s and don’ts for bond investors to consider.
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CIO Perspectives: Innovative asset class solutions

By Jeff Geller
Investors are challenged with constructing portfolios for today's risks. Listen to Jeffrey Geller, CIO of Multi-Asset Solutions Group, discuss key findings in this episode of our Insights audio program from October 2014.
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What's in store for emerging markets in 2015

By Pierre-Yves Bareau
In January 2015, Pierre-Yves Bareau wrote about how the growth picture remained challenging for emerging market economies, with momentum fading and the growth differential over developed markets continuing to narrow. Some of what we said:
Against this backdrop, our investment focus will continue to center on differentiation, while we will remain defensively positioned with a focus on technicals and liquidity. We currently favour higher quality issuers, monitoring fundamentals for signs of a catalyst to time entry into higher yielding "turnaround" stories.
We are more defensively positioned with respect to EM currencies, maintaining a U.S. dollar bias. While we acknowledge that value has been created in EM FX, both fundamentals and timing need to be right. We favour oil importing currencies that are not threatened by deflation concerns—the Turkish lira and Indian rupee being two such currencies. On the corporate side, liquidity remains the chief concern. Valuations have recovered to attractive levels, while fundamentals have declined on the margin and solvency is not an issue.
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Accessing Asia: Investing in the infrastructure imperative

By Pulkit Sharma
Our Global Real Assets expert Pulkit Sharma, with Real Asset Strategist Michael Hudgins, discusses the infrastructure opportunity in Developing Asiaone of the world’s fastest growing regional economies, in this video from September 2014.
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Absolute return bond investing: multiple approaches to mitigate risk

By William Eigen
In this video from August 2014, Bill Eigen, head of Absolute Return and Opportunistic Fixed Income, describes his philosophy toward absolute return fixed income investing.
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Managing risk, delivering results

By Raffaele Zingone
Catch Raffaele Zingone, Portfolio Manager for the U.S. Research Enhanced Index Strategies, discuss his three-pronged investment approach and how he mitigates risk while delivering returns in this video from October 2014:
  • Stock prices follow long-term earnings
  • The market often misprices stocks based on those long term projections
  • If you can capture those mispricings consistently over time you can generate excess return
He also discusses managing risk in the portfolio through a set of simple rules, quanititative risk modeling, and proactive risk control.
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Are tailwinds the new headwinds for bonds?

By William Eigen
Bill Eigen, CIO of Absolute Return and Opportunistic Fixed Income Investing, explains today's fixed income markets in this video from August 2014.
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Hedge funds: Back to normal?

By John Anderson
As quantitative easing unwinds in the U.S. and markets begin to normalize after five years of recovery, will hedge funds reassert the long-term risk-return profile investors have come to value and expect? John Anderson's analysis from November 2014 suggests:
  • While hedge funds have underperformed conventional assets on an absolute basis over the last five years, they continue to provide alpha and portfolio diversification.
  • Long-term investors who focus on performance over an investment cycle have benefited from allocating to hedge funds.
  • Managers with more flexible investment toolboxes may benefit from recent structural changes in markets, such as the decline in market liquidity.
  • Historically, low growth, low inflation and rising rate environments have been attractive for hedge funds, while volatile markets have provided a relative advantage.
  • The greater dispersion of hedge fund returns vs. long-only strategy returns highlights the importance of manager selection.
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The great re-alignment

By Richard Oswald
This paper from April 2014 discusses three key challenges with traditional fixed income benchmark strategies:
  • Duration: Significant sensitivity to changes in interest rates
  • Concentration: Highest allocation to the most stressed and frequent borrowers
  • Constraints: Limited flexibility to capture returns outside the confines of the index
Employing an unconstrained approach to fixed income investing can address each of these issues. In this Strategy Insights we look at one approach to unconstrained investing and examine the potential effects on risk and return when benchmark-agnostic strategies with more flexibility to change duration and sector exposures are blended with traditional core fixed income allocations.
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The hedging edge: How much beta do you want?

By Hamilton Reiner

Have a refresher course on how investors have learned that unexpected threats and volatility can quickly erase their hard-won equity gains in the market.

This paper from February 2014 provides a broad overview of these equity hedging strategies and insight on what to consider when evaluating different types of equity hedges, as well as an examination of the roles these strategies can play in asset allocation and investor portfolios. Successful equity hedging strategies start with an effective stock valuation and investment process. In addition, the complexities of managing options and short positions also require a set of unique and robust operational capabilities, as well as a portfolio team with the skills and experience in shorting and managing derivatives- and options-based strategies.

Equity hedging strategies, which can include hedged equity or long/short strategies, help investors stay in the market during bouts of volatility. They do this, in part, by capturing gains when the markets are rallying and cushioning the falls when the markets are dropping. Given the variety of approaches to hedging equities, investors need to consider their objectives, risk profile and desired beta exposure when selecting an appropriate strategy.

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Is the ECB’s QE too late? - Chart of the week

In the game of quantitative easing (QE), there are costs to being late. With eurozone inflation and yields at extremely low levels, this chart from the Market Insights team shows that the European Central Bank’s (ECB) latest QE move is coming late in the QE game.

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When will the Fed raise rates? Look at wages and job gains - Chart of the week

Despite a strong employment report, wage growth, which tends to have an inverse relationship with the unemployment rate, declined in December. This chart shows that investors should pay close attention to both job gains and wage growth for any developments that might change the Fed’s timeframe for raising rates.
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Deeper dive on infrastructure investing

By Michael Cembalest
This video from May 2014 takes the infrastructure conversation deeper with Michael Cembalest, and discusses what surprised him about this research and where he sees opportunities going forward.
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Sovereign Client experience

By Patrick Thomson
From May 2014: in this video, Patrick Thomson discusses what sovereign clients can expect from their partnership with JPMAM.
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