JPM Q3 Guide to Markets
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Transcript of JPM Q3 Guide to Markets
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As of June 30, 2013
i h M rk
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Table of Contents
EQUITIES
ECONOMY
4
17
INTERNATIONAL
ASSET CLASS
39
57
U.S. Market Strategy Team
Dr. David P. Kelly, CFA [email protected]
Joseph S. Tanious, CFA [email protected]
-. . . .
Anastasia V. Amoroso, CFA [email protected]
Brandon D. Odenath [email protected]
Gabriela D. Santos [email protected]
Anthony M. Wile [email protected]
2Past performance is not indicative of future returns.
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Page Reference
4. Returns by Style
5. Returns by Sector
6. S&P 500 Index at Inflection Points
35. Credit Conditions
36. High Yield Bonds
37. Municipal Finance
38. Emerging Market Debt
Equities
7. Stock Valuation Measures: S&P 500 Index
8. Earnings Estimates and Multiples
9. Valuations by Sector and Style
10. Corporate Profits and Leverage
11. Sources of Earnings per Share Growth
12. Confidence and the Capital Markets
13. Interest Rates and E uities
39. Global Equity Markets: Returns
40. Global Equity Markets: Composition
41. Global Economic Growth
42. Manufacturing Momentum
43. The Importance of Exports
44. The Im act of Global Consumers
14. Deploying Corporate Cash
15. P/E Ratios and Equity Returns
16. Equity Correlations and Volatility
17. Economic Growth and the Composition of GDP
45. Sovereign Debt Stresses
46. Global Manufacturing Wages
47. Global Monetary Policy
48. Europe: Economic Growth
49. Europe: Austerity50. Eurozone: Sovereign Bond Yields
Economy
.
19. The Aftermath of the Housing Bubble
20. Consumer Finances
21. Federal Finances: Outlays and Revenues
22. Federal Finances: Deficits and Debt
23. Trade and the U.S. Dollar
24. Employment
.
52. China: Cyclical Indicators
53. J apan: Economic Snapshot
54. Global Equity Valuations Developed Markets
55. Global Equity Valuations Emerging Markets
56. Emerging Market Equity Composition
Asset Class.26. Consumer Price Index
27. Oil and the Economy
28. Global Energy Supply
29. Consumer Confidence and the Stock Market
57. Asset Class Returns
58. Correlations: 10-Years
59. Mutual Fund Flows
60. Yield Alternatives: Domestic and Global
61. Global Commodities
62. Historical Returns by Holding PeriodFixed Income
3
30. Fixed Income Sector Returns
31. Interest Rates and Inflation
32. Fixed Income Yields and Returns
33. Correlation to 10-Year Treasury Returns
34. The Fed and the Money Supply
63. Diversification and the Average Investor
64. Annual Returns and Intra-year Declines65. Cash Accounts
66. Corporate DB Plans and Endowments
67. Stock Market Since 1900
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Returns by Style
1,700
S&P 500 Index2Q 2013 YTD 2013
Charts reflect index levels (price change only). All returns and annotations reflect total return, including dividends.
Value Blend Growth Value Blend Growth
1,500
1,600
Equ
ities
2Q 2013:+2.9% L
arge
3.2% 2.9% 2.1%Large
15.9% 13.8% 11.8%
Mid 1.7% 2.2% 2.9% M
id 16.1% 15.5% 14.7%
Dec-12 Feb-13 Mar-13 Apr-13 May-13 J un-131,400
S&P 500 Index
.
Since Market Low (March 2009)Since Market Peak (October 2007)
Small
2.5% 3.1% 3.7%Small
14.4% 15.9% 17.4%
Value Blend Growth Value Blend Growth
1,200
1,400
1,600
, Since 10/9/07 Peak:+16.5%
Large
9.6% 16.5% 26.0%Large
173.2% 160.3% 157.0%
M
id
27.7% 28.7% 28.0% Mid
226.1% 210.5% 196.0%
Dec-06 Apr-08 Aug-09 Nov-10 Mar-12 J un-13600
800
,
Source: Russell Investment Group, Standard & Poors, FactSet, J .P. Morgan Asset Management.
Low: +160.3%
Small
20.8% 25.4% 29.3%Small
198.8% 202.3% 205.2%
4
, . ,market returns since the most recent S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 6/30/13, illustrating market returns since the S&P500 Index low on 3/9/09. Returns are cumulative returns, not annualized. For all time periods, total return is based on Russell-style indexes with the exception of thelarge blend category, which is reflected by the S&P 500 Index. Past performance is not indicative of future returns.
Data are as of 6/30/13.
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S&P 500 Index at Inflection Points
Index level 1,527 1,565 1,606P/E ratio (fwd.) 25.6x 15.2x 13.9x
S&P 500 Index
Mar. 24, 2000
Jun. 30, 2013P/E (fwd.) = 13.9x
Oct. 9, 2007
Characteristic Mar-2000 Oct-2007 Jun-2013
1,400
, . . .10-yr. Treasury 6.2% 4.7% 2.5%
Equ
ities P/E (fwd.) = 25.6x
1,527
,P/E (fwd.) = 15.2x
1,565
1,200
-49%
+101%
-57% +137%
+106%
800
1,000
'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
600
Source: Standard & Poors, First Call, Compustat, FactSet, J .P. Morgan Asset Management.
ct. ,P/E (fwd.) = 14.1x
777
. ,P/E (fwd.) = 16.0x
741
Mar. 9, 2009P/E (fwd.) = 10.3x
677
6
v en ye s ca cua e as e annua ze v en ra e v e y prce, as prov e y ompus a . orwar rce o arnngs a o s a o om-up ca cua on ase
on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates.Returns are cumulative and based on S&P 500 Index price movement only, and do not include the reinvestment of dividends. Past performance is not indicative of futurereturns.
Data are as of 6/30/13.
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Stock Valuation Measures: S&P 500 Index
S&P 500 Index: Valuation Measures Historical Averages
Valuation
Measure DescriptionLatest*
1-year
ago
3-year
avg.
5-year
avg.
10-year
avg.
15-year
avg.
Equ
ities P/E Price to Earnings 13.9x 12.0x 12.6x 12.9x 14.1x 16.4x
P/B Price to Book 2.4 2.1 2.2 2.1 2.5 2.9
P/CF Price to Cash Flow 9.4 8.3 8.6 8.4 9.6 10.9
P/S Price to Sales 1.4 1.2 1.2 1.1 1.3 1.5
PEG Price/Earnings to Growth 1.4 1.1 1.1 2.0 1.7 1.6
12%
14%50x
S&P 500 Shiller Cyclically Adjusted P/EAdjusted using trailing 10-yr. avg. inflation adjusted earnings
S&P 500 Earnings Yield vs. Baa Bond Yield
S&P 500 Earnings Yield:
Div. Yield Dividend Yield 2.2% 2.4% 2.2% 2.3% 2.1% 1.9%
6%
8%
10%
20x
30x
40x
. .
2Q13:23.6x
Average: 19.0x
'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '122%
4%
'55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '100x
10x
Moodys Baa Yield: 5.4%
Source: (Top) Standard & Poors, FactSet, Robert ShillerData, J .P. Morgan Asset Management.Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months. Price to Book is price divided by book value per share. Data
-
7
.
months. Price to Sales is calculated as price divided by consensus analyst estimates of sales per share for the next 12 months. PEG Ratio is calculated as NTM P/E divided byNTM earnings growth. Dividend Yield is calculated as consensus analyst estimates of dividends for the next 12 months divided by price. All consensus analyst estimates areprovided by FactSet. (Bottom left) Cyclically adjusted P/E uses as reported earnings throughout. *Latest reflects data as of 6/30/2013.(Bottom right) Standard & Poors, IBES, Moodys, FactSet, J .P. Morgan Asset Management.Data are as of 6/30/13.
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Earnings Estimates and Multiples
24x
26x
S&P 500 Index: Forward P/E Ratio S&P 500 Index LevelsIndex levels implied by operating earnings and P/E ratio combinations
$80 $90 $100 $110 $120 $130
14x
16x
18x
20x
Average: 14.9x
Jun. 2013: 13.9xEqu
ities
11x 880 990 1100 1210 1320 1430
12x 960 1080 1200 1320 1440 1560
'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '128x
10x
12x
S&P 500 Operating Earnings Estimates
13x 1040 1170 1300 1430 1560 1690
14x 1120 1260 1400 1540 1680 1820
$80
$100
$120
$1402Q13: $116.12
x
16x 1280 1440 1600 1760 1920 2080
17x 1360 1530 1700 1870 2040 2210
0
$20
$40
$60
18x 1440 1620 1800 1980 2160 2340
19x 1520 1710 1900 2090 2280 2470
8
'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
Source: Standard & Poors, IBES, FactSet, J .P. Morgan Asset Management. Earnings estimates are for calendar years and taken at quarterend dates throughout the year. Forward Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next 12months.
Data are as of 6/30/13.
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Valuations by Sector and Style
1.3x
Defensive vs. Cyclical Sector ValuationsNext 12-month P/E ratio for defensives / next 12-month P/E ratio for cyclicals
Current P/E vs. 20-year avg. P/E
13.4 13.9 16.6
Value Blend Growth
e
1.1x
1.2x
Equ
ities
Defensive Sectorspremium valuation
13.9 16.2 20.9
14.7 16.3 18.6
14.0 16.3 21.8
Lar
Mid
0.9x
1.0x
Average: 1.0x Current P/E as % of 20-year avg. P/EE. .: Lar e Ca Blend stocks are 13.8%
15.3 17.0 19.1
14.2 17.1 21.3Small
0.7x
0.8xValue Blend Growth
Large
96.4% 86.2% 79.4%
cheaper than their histor ical average.
0.5x
0.6x
Mid 104.7% 100.0% 85.5%
Small
107.2% 99.5% 89.6%
premium valuation
9
'96 '98 '00 '02 '04 '06 '08 '10 '12
Source: Standard & Poors, Russell Investment Group, IBES, FactSet, J .P. Morgan Asset Management.
Defensive vs. Cyclical sector analysis based on GICS sectors and excludes Financials. Defensives sectors are comprised of Health Care, Consumer Staples,Utilities and Telecommunications Services. Cyclical sectors are comprised of Information Technology, Industrials, Energy, Consumer Discretionary and Materials.P/E ratios are calculated and provided by Russell based on IBES consensus estimates of earnings over the next 12 months except for large blend, which is the S&P500.
Data are as of 6/30/13.
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Corporate Profits and Leverage
$26
S&P 500 Earnings Per ShareOperating basis, quarterly
Adjusted After-Tax Corporate Profits (% of GDP)Includes inventory and capital consumption adjustments11%
1Q13:9.7%
1Q13: $25.77
2Q07: $24.06
$20
$23
Equ
ities
6%
7%
8%
9%
10%
50-yr. avg.: 6.2%
$14
$17
'65 '70 '75 '80 '85 '90 '95 '00 '05 '10
3%
4%
5%
Total Leverage
$5
$8
$11
200%
220%
240%
S&P 500, ratio of total debt to total equity, quarterly
-$1
$2
'''''''
120%
140%
160%
1Q13:107%
Average: 172%
10
Source: Standard & Poors, Compustat, BEA, J .P. Morgan Asset Management.EPS levels are based on operating earnings per share. Most recently available data is 4Q12 as 1Q13 are Standard & Poors estimates with 99.7% ofcompanies reported.Past performance is not indicative of future returns.
Data are as of 6/30/13.
'94 '96 '98 '00 '02 '04 '06 '08 '10 '12
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Sources of Earnings per Share Growth
50%
S&P 500 Year-Over-Year EPS GrowthGrowth broken into revenue growth and margin expansion, quarterly
30%
40%
Equ
ities
Revenue Share of EPS Growth
10%
20%
-20%
-10%
-40%
-30%
1Q131Q111Q091Q071Q051Q031Q011Q991Q971Q95
11
Source: Standard & Poors, Compustat, J .P. Morgan Asset Management.EPS levels are based on operating earnings per share. Most recently available data is 4Q12 as 1Q13 are Standard & Poors estimates with 99.7%of companies reported. Past performance is not indicative of future returns. 4Q2008, 1Q2010 and 2Q2010 reflect -101%, 92% and 51% growth inoperating earnings, and are adjusted on the chart.
Data are as of 6/30/13.
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Confidence and the Capital Markets
120
24x
26x
Multiple Expansion and Contraction
Consumer SentimentForward P/E
S&P 500 forward P/E based on consensus EPS estimatesEst. impact of a 10pt. rise in sentiment: +2.0 multiple points*
80
90
100
16x
18x20x
22x
Equ
ities
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
50
60
10x
12x
14x
Sentiment & Real Yields*
Correlation Coefficient: 0.75
100
110
120
4%
5%
6% Consumer SentimentReal 10-year Yield
Real yield based on nominal 10-yr. yield minus year-over-year core CPI. .
60
70
80
0%
1%
2%
Correlation Coefficient: 0.68
12
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '1250-1%
Source: (Top) Standard & Poors, FactSet, J .P. Morgan Asset Management. (Bottom) U.S. Treasury, BLS, University of Michigan, J .P. MorganAsset Management. Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next twelve months. Real 10-year Treasury yields are calculated as the daily Treasury yield less year-over-year core inflation for that month. *Estimated impact based oncoefficients from regression analysis. Data are as of 6/30/13.
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13
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
0% 2% 4% 6% 8% 10% 12% 14% 16%
Sector Correlations to Rates2-year rolling, 1994-2013
Correlations Between Weekly Stock Returns and Interest Rate MovementsWeekly S&P 500 returns, 10-year Treasury yield, rolling 2-year correlation, 1963-2013
Source: Standard & Poors, US Treasury, FactSet, J.P. Morgan Asset Management.
Returns are based on price index only and do not include dividends. Grey bars in the right chart represent the historic range
in correlations for each sector.Data are as of 6/30/13.
Equities
Positive
relationship
between yield
movements
and stock
returns
Negative
relationship
between yieldmovements and
stock returns
When yields are
below 5%, rising
rates are
generally
associated with
rising stock
prices
10-Year Treasury Yield
Correlation
Coefficient
Max
Average
Current
Min
-1.00 -0.50 0.00 0.50 1.00
Utilities
Telecom
Cons . Staples
Materials
Technology
Health Care
Energy
Cons. Disc.
S&P 500
Industrials
Financials
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Deploying Corporate Cash
Corporate Cash as a % of Current AssetsS&P 500 companies cash and cash equivalents, quarterly
30%
Corporate Growth
Capital Expenditures M&A Activity
$bn, nonfarm nonfinancial capex, quarterly value of deals completed$1,600$1,300
Equ
ities
20%
22%
24%
26%
28%
$600
$800
$1,000
$1,200
,
$900
$1,000
$1,100
,
Cash Returned to ShareholdersDividend Payout Ratio'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
14%
16%
18%
$0
$200
$400
$600
$700
800
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
50%
60%
S&P 500 companies, rolling 4-quarter averages, billions USDS&P 500 companies, LTM
Dividends per Share
$120
$140
$160
$27
$30
$33
30%
40%
Share Buybacks
20
$40
$60
$80
15
$18
$21
$24
14
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12Source: Standard & Poors, FRB, Bloomberg, FactSet, J .P. Morgan Securities, J .P. Morgan Asset Management.
(Top left) Standard & Poors, FactSet, J .P. Morgan Asset Management. (Top right) M&A activity is the quarterly value of deals completed andcapital expenditures are for nonfarm nonfinancial corporate business. (Bottom left) Standard & Poors, FactSet, J .P. Morgan AssetManagement. (Bottom right) Standard & Poors, Compustat, FactSet, J .P. Morgan Asset Management. Data are as of 6/30/13.
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
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P/E Ratios and Equity Returns
60%60%
P/E and Total Return Over 5-yr. Annualized PeriodsP/E and Total Return Over 1-yr. PeriodsQuarterly, 1Q 1952 to 1Q 2008Quarterly, 1Q 1952 to 1Q 2012
Current P/E: 14.5x Current P/E: 14.5x
40%40%Equ
ities
20%20%
0%5x 10x 15x 20x 25x 30x
0%5x 10x 15x 20x 25x 30x
-40%
-20%
-40%
-20%
15
Source: BEA, FRB, J .P. Morgan Asset Management. Prices are based on the market value of all U.S. corporations and include quarterlydividends. Valuation based on long-term P/E ratio.
Note: Orange line denote results of linear regression with R-squared of 0.15 for 1-yr. returns (left) and 0.36 for 5-yr. returns (right).
Data are as of 6/30/13.
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Equity Correlations and Volatility
70%
Large Cap StocksCorrelations Among Stocks
Sovereign DebtCrisis
LehmanGreat Depression /
30%
40%
50%
Equ
ities
Tech Bust & 9/11
1987 Crash
OPEC Oil
Crisis
Cuban Missile Crisis
0%
10%
20%
'26 '32 '38 '44 '50 '56 '62 '68 '74 '80 '86 '92 '98 '04 '10
Average: 26.9% Jun. 2013: 34.2%
2.5%
3.0%
3.5%
60
75
90Volatility Measure 08 Peak Average LatestDJIA (Left) 3.30% 0.72% 0.60%VIX (Right) 80.9 20.3 16.9
DJIA vol. shownin 3-month
moving average
0.5%
1.0%
1.5%
.
15
30
45
16
'30 '35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '100.0% 0
Source: (Top) Empirical Research Partners LLC, Standard & Poors, J .P. Morgan Asset Management. Capitalization weighted correlation of top750 stocks by market capitalization, daily returns, 1926 J un. 30, 2013. (Bottom) CBOE, Dow J ones, J .P. Morgan Asset Management. DJ IAvolatility are represented as three-month moving averages of the daily absolute percentage change in the Dow Jones Industrial Average.
Charts shown for illustrative purposes only. Data are as of 6/30/13.
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Economic Growth and the Composition of GDP
$18,00010%
Real GDP% chg at annual rate
20-yr avg. 1Q13
Components of GDP1Q13 nominal GDP, billions USD
12000
$14,000
$16,000
4%
6%
8%
y
Real GDP: 2.5% 1.8%
10.7% Investment ex-housing
18.9%Govt Spending
. ous ng
$625 bn of
$8,000
$10,000
0%
2%
Econo
$2,000
$4,000
$6,000
-6%
-4%
- .Consumption
, n ooutput
recovered
-$2,000
$0
'04 '06 '08 '10 '12-10%
-8%
Source: BEA, FactSet, J .P. Morgan Asset Management.
- 3.4% Net Exports
17
va ues s own n egen are c ange vs. pror quar er annua ze an re ec .
Data are as of 6/30/13.
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Cyclical Sectors
24
Millions, seasonally adjusted annual rateLight Vehicle Sales
$150
Change in Private InventoriesBillions of 2005 dollars, seasonally adjusted annual rate
1Q13: 36.7
14
1618
20
y Average: 15.2
May 2013:15.2
$-50
$0
$50
Average: 28.7
'94 '96 '98 '00 '02 '04 '06 '08 '10 '128
10
12
Econo
Real Capital Goods Orders
Housing Starts
'94 '96 '98 '00 '02 '04 '06 '08 '10 '12$-200
$-150
-
$60
$65
$70
$75
1,600
2,000
2,400
- . , ,ousan s, seasona y a us e annua rae
May 2013:59.6
'94 '96 '98 '00 '02 '04 '06 '08 '10 '12$40
$45
$50
$55
'94 '96 '98 '00 '02 '04 '06 '08 '10 '120
400
800
, 914
Average: 55.8
,
18
Source: (Top left) BEA, FactSet, J .P. Morgan Asset Management. (Top right) Census Bureau, FactSet, J .P. Morgan Asset Management. (Bottom left) Census Bureau,FactSet, J .P. Morgan Asset Management. (Bottom right) Census Bureau, FactSet, J .P. Morgan Asset Management.Capital goods orders deflated using the producer price index for capital goods with a base year of 1982.
Data are as of 6/30/13.
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The Aftermath of the Housing Bubble
$1,100150
Monthly Rent vs. Monthly Mortgage PaymentVacant propertiesIndexed to 100, seasonally adjusted
Home Prices
-
$500
$650
$800
$950
140
y
2Q13*:$727
on yMortgagePayment
FHFA Purchase Only
Average Existing Home
$200
$350
'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
120
130
Econo
Home Inventories
2Q13*: $529Monthly Rent
110
ons, annua rae, seasona y a us e
3.5
4.0
4.5
'03 '04 '05 '06 '07 '08 '09 '10 '11 '1290
100
'94 '96 '98 '00 '02 '04 '06 '08 '10 '121.5
2.0
2.5
.
May 2013: 2.2
19
Sources: (Left) National Association of Realtors, Standard & Poors, FHFA, FactSet, J .P. Morgan Asset Management. (Top right) Census Bureau, J .P. Morgan Asset Management.Monthly mortgage payment assumes a 20% down payment at prevailing 30-year fixed-rate mortgage rates; analysis based on median asking rent and median mortgage paymentbased on asking price. (Bottom right) Census Bureau, National Association of Realtors, J .P. Morgan Asset Management. *2Q13 rent and mortgagepayment values are J .P. Morgan Asset Management estimates.
Data are as of 6/30/13.
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Consumer Finances
15%
Household Debt Service RatioDebt payments as % of disposable personal income, seasonally adjusted
3Q07:
Consumer Balance SheetTrillions of dollars outstanding, not seasonally adjusted
Total Assets: $83.7tn 3Q-07 Peak: $82.1tn
$70
$80
12%
13%
14%
y 1Q80:
14.0%
Homes: 25%
- .
$50
$60
'80 '85 '90 '95 '00 '05 '1010%
11%
Econo
.
2Q13*:10.5%
Household Net WorthBillions USD, saar 2Q13*:
Deposits: 10%
Pension Funds: 18%
Other Tangible: 6%
$20
$30
$50,000
$60,000
$70,000
$80,000 ,3Q07:$67,413
Revolving (e.g.: credit cards): 6%Non-revolving: 15%Other Liabilities: 8%
$0
$10
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12$10,000
$20,000
$30,000
$40,000
Total Liabilities: $13.4tn
Assets: 41%
Mortgages: 71%
20
Source: (Left) FRB, J .P. Morgan Asset Management. Data includes households and nonprofit organizations. (Right) BEA, FRB, J .P. Morgan Asset
Management. *2Q13 household debt service ratio and household net worth are J .P. Morgan Asset Management estimates. Values may not sum to100% due to rounding.
Data are as of 6/30/13.
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Federal Finances: Outlays and Revenues
26%$4.0
The 2013 Federal BudgetCBO Baseline forecast, trillions USD
Federal Outlays and Receipts1960 2013, % of GDP
24%
$3.0
$3.5
y
Total Spending: $3.5tn
Other
$359bn (10%)
Net Int.: $223bn (6%)
Borrowing:$642bn (19%)
20%
22%
$2.0
$2.5
Econo
Defense:
$751bn (22%)
on- e ense sc.:$461bn (13%)
Average: 20.5%2013:21.5%
Social Insurance:
$952bn (28%)
Other: 237bn (7%)
18%
$1.0
$1.5
Social Security:$809bn (23%)
Average: 17.9%
2013:17.5%Corp.: $291bn (8%)
14%1960 1970 1980 1990 2000 2010
$0.0
$0.5
Total Government Spending Sources of Financing
Medicare & Medicaid:$852bn (25%)
$1,333bn (39%) RevenuesOutlays
21
Source: U.S. Treasury, BEA, OMB, CBO, J .P. Morgan Asset Management.
2013 Federal Budget is based on the CBOs May 2013 Baseline Scenario. Other spending includes, but is not limited to, health insurance subsidies, income security,and federal civilian and military retirement.Note: Years shown are fiscal years (Oct. 1 through Sep. 30).
Data are as of 6/30/13.
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Federal Finances: Deficits and Debt
-12%100%
Federal Budget Surplus/Deficit Federal Net Debt (Accumulated Deficits)% of GDP, 1990 2022 % of GDP, 1990 2022
ForecastForecast
-10%
-8%
80%
y
ase ne
2012 actual: 72.6%
2013 CBO Baseline
2022: 72.9%
ase ne
2013 CBO Baseline
-6%
-4%
60%
Econo
2022: 58.5%
-2%
0%
20%
2%
4%1990 1994 1998 2002 2006 2010 2014 2018 2022
0%1990 1994 1998 2002 2006 2010 2014 2018 2022
Source: U.S. Treasury, BEA, CBO, J .P. Morgan Asset Management.
22
. . . . outlays). Federal net debt comprises all financial liabilities of the Federal government (gross debt) minus all intra-government holdings as assets. Deficitand debt scenarios are based on CBO budget forecasts from August 2012 and May 2013, which include the American Taxpayer Relief Acts costestimates.
Data are as of 6/30/13.
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Trade and the U.S. Dollar
115-8%
Current Account Balance, % of GDP U.S. Dollar IndexNominal trade-weighted exchange index: major currencies
105
110
-6%
4Q05:-6.5%
y
90
95
100
-4%Econo
80
85
-2%1Q13:-2.7%
.84.0
Jun. 2013:76.1
' ' ' ' ' ' ' ' ' '65
70
75
' ' ' ' ' ' ' ' ' '
0% Mar. 2008: 70.3
23
Source: BEA, FactSet, J .P. Morgan Asset Management.
Data are as of 6/30/13.
Source: Federal Reserve, FactSet, J .P. Morgan Asset Management.
Data are as of 6/30/13.
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Employment
60012%
Civilian Unemployment Rate Employment Total Private PayrollSeasonally adjusted Total job gain/loss (thousands)
200
400
10%
11%
y 8.8mm
-200
0
8%
9%
Econo
May 2013: 7.6%
6.9mmjobs
-600
-400
6%
7%
-1,000
-800
3%
4%
5 50-yr. avg.: 6.1%
24
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12'70 '80 '90 '00 '10
Source: BLS, FactSet, J .P. Morgan Asset Management.
Data are as of 6/30/13.
Source: BLS, FactSet, J .P. Morgan Asset Management.
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Employment and Income by Educational Attainment
18%$87,981$90,000
Average Annual Earnings by Highest Degree EarnedFull-time workers aged 18 and older, 2011, USD
Unemployment Rate by Education Level
14%
16%
$70,000
$80,000
y
+29K
May 2013:
Less than High School Degree
High School No College
Some CollegeCollege or Greater
10%
12% $59,415
$50,000
$60,000
Econo
+27K
May 2013:7.4%
.
6%
8%
$32,493
$30,000
$40,000
May 2013:6.5%
0%
2%
$0
$10,000
,
May 2013:3.8%
25
'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 High School Graduate Bachelor's Degree Advanced Degree
Source: Census Bureau, J .P. Morgan Asset Management.Source: BLS, FactSet, J .P. Morgan Asset Management.
Unemployment rates shown are for civilians aged 25 and older.
Data are as of 6/30/13.
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Consumer Price Index
15%
CPI and Core CPI50-yr. Avg. May 2013
Headline CPI: 4.2% 1.4%
% change vs. prior year, seasonally adjustedCPI
Components
Weight in
CPI
12-month
Change
Food & Bev. 15.3% 1.4%
12%
y
Core CPI: 4.1% 1.7%Housing 41.0% 2.2%
Apparel 3.6% 0.2%
Transportation 16.8% -0.5%
6%
9%
Econo Medical Care 7.2% 2.2%
Recreation 6.0% 0.8%
Educ. & Comm. 6.8% 1.3%
0%
3%
. .
Headline CPI 100.0% 1.4%
Less:
Energy 9.6% -0.8%
'65 '70 '75 '80 '85 '90 '95 '00 '05 '10-3%
Source: BLS, FactSet, J .P. Morgan Asset Management.
Food 14.3% 1.4%
Core CPI 76.1% 1.7%
26
CP I used is CPI-U and values shown are % change vs. 1 year ago and reflect May 2013 CPI data. CPI component weights are as of December 2012 and 12-month changereflects non-seasonally adjusted data through May 2013. Core CPI is defined as CPI excluding food and energy prices.
Data are as of 6/30/13.
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Oil and the Economy
$160 $4.50
4%
WTI Crude Oil & Retail Gasoline Prices
Oil Gas12/31/00 6/30/13Oil $26.72 $96.56
Economic Drag From Oil PricesU.S. petroleum imports as a % of GDP
3Q08: 3.8%
$120
$140
$3.50
$4.00
2%
3%
y
. .
$80
$100
$2.50
$3.00
'70 '75 '80 '85 '90 '95 '00 '05 '10
0%
1%
Econo 2Q13*: 2.5%
Total U.S. Ener Net Im orts
$40
$60
$1.50
$2.00Energy Spending by Income Level% of after-tax income
25%
30%
35%
% of total energy consumption
EIAforecast
0
$20
0.50
$1.00
5%
10%
15%
27
'94 '96 '98 '00 '02 '04 '06 '08 '10 '12
Source: U.S. Department of Energy, FactSet, J .P. Morgan Asset Management. Price ofgas based on U.S. retail national average of all formulations and WTI for crude.Imports are mostly crude oil, petroleum and natural gas while consumption includes oil,gas, coal, nuclear, hydropower and bio-fuels.
Data are as of 6/30/13.
Source: (Top) BEA, FactSet, J .P. Morgan Asset Management.(Bottom) EIA, J .P. Morgan Asset Management.*2Q13 drag on growth is a J .P. MorganAsset Management estimate.
'90 '95 '00 '05 '10 '15 '20
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Global Energy Supply
30
U.S. Natural Gas ProductionTrillions of cubic meters, USD EIA
forecast
Kuwait
Middle East Energy Production & Chokepoints
Percent of global liquid fuel production, 2012*
10
15
20
25
yOther
Shale Gas
Iran3.9%
Iraq3.9%
3.4%yr a
0.2%Suez Canal
2.2%
0
5
1990 1995 2000 2005 2010 2015 2020 2025Econo Libya
1.8%Egypt0.8% Saudi Arabia
12.9%
Strait ofHormuz Natural Gas Prices b Countr
u an0.1%
UAE3.5%
.
Bab el-Mandeb
USD per mmBTU*
$13.70 $14.10
$10
$12
$14
$16
3.4%
$4.03
$10.11
$2
$4
$6
$8
Major Producers Major Consumers
Percent of global total, 2012 Percent of global total, 2012
Saudi Arabia 13% China 5% United States 21% India 4%
28
Source: EIA, J .P. Morgan Asset Management.Forecasts are from the EIA Annual Energy Outlook 2013. *mmBTU represents 10,000 million British thermal units. Natural gas prices are as of J une2012. *Production numbers as of 2012, while chokepoints are 2011 data.
Data are as of 6/30/13.
$0
United States United Kingdom China J apan
Russia 12% Iran 4% J apan 5% Brazil 3%
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Consumer Confidence and the Stock Market
130
Consumer Sentiment Index University of Michigan
Average 12-month S&P 500 index return
110
120
y
Jan. 2000
-2.0%
Jan. 2004+4.4%
. . .
90
100
Average: 85.3
Econo
.+13.5%
May 1977+1.2%
.-6.2%
Jan. 2007-4.2%
60
70
Oct. 1990
Mar. 2003+32.8% Oct. 2005
+14.2%
' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' '40
50
Feb. 1975+22.2%
May 1980+19.2%
+29.1%
Nov. 2008+22.3%
Aug. 2011+15.4%
29
Source: University of Michigan, FactSet, J .P. Morgan Asset Management.
Peak is defined as the highest index value before a series of lower lows, while a trough is defined as the lowest index value before a seriesof higher highs. Subsequent 12-month S&P 500 returns are price returns only, which excludes dividends.
Data are as of 6/30/2013.
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Fixed Income Sector Returns
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD 2Q13 Cum. Ann.
High Yield EMD EMD High Yield TIPS Treas. High Yield High Yield TIPS EMD High Yield High Yield EMD EMD
10-yrs. '03 - '12
29.0% 11.9% 12.3% 11.8% 11.6% 13.7% 58.2% 15.1% 13.6% 17.9% 1.4% -1.4% 200.3% 11.6%
EMD High YieldAsset
Alloc.EMD Treas. MBS EMD EMD Muni High Yield MBS Treas. High Yield High Yield
26.9% 11.1% 3.6% 10.0% 9.0% 8.3% 34.2% 12.8% 10.7% 15.8% -2.0% -1.9% 174.3% 10.6%
Asset
Alloc.TIPS Muni MBS
Barclays
Agg
Barclays
AggCorp. Corp. Treas. Corp. Treas. MBS
Asset
Alloc.
Asset
Alloc.
. . . . . . . . . . - . - . . .
TIPSAsset
Alloc.TIPS
Asset
Alloc.MBS
Asset
Alloc.
Asset
Alloc.
Asset
Alloc.
Asset
Alloc.
Asset
Alloc.
Barclays
Agg
Barclays
AggTIPS TIPS
8.4% 6.3% 2.8% 5.1% 6.9% -1.4% 15.8% 7.6% 8.9% 7.8% -2.4% -2.3% 90.4% 6.7%
Corp. Corp. Treas. Muni
Asset
Alloc. TIPS Muni
Barclays
Agg Corp. TIPS Muni Muni Corp. Corp.
8.2% 5.4% 2.8% 4.8% 6.2% -2.4% 12.9% 6.5% 8.1% 7.0% -2.7% -3.0% 84.7% 6.3%com
e
Muni MBS High YieldBarclays
AggEMD Muni TIPS TIPS
Barclays
AggMuni
Asset
Alloc.
Asset
Alloc.
Barclays
Agg
Barclays
Agg
5.3% 4.7% 2.7% 4.3% 5.2% -2.5% 11.4% 6.3% 7.8% 6.8% -3.1% -3.1% 65.7% 5.2%
Barclays
AggMuni MBS Corp. Corp. Corp.
Barclays
AggTreas. EMD
Barclays
AggCorp. Corp. Muni Muni
4.1% 4.5% 2.6% 4.3% 4.6% -4.9% 5.9% 5.9% 7.0% 4.2% -3.4% -3.3% 64.5% 5.1%
FixedI
MBSAgg
Agg
Treas. Muni EMD MBS MBS MBS MBS EMD EMD MBS MBS
3.1% 4.3% 2.4% 3.1% 3.4% -14.7% 5.9% 5.4% 6.2% 2.6% -6.5% -5.1% 64.1% 5.1%
Treas. Treas. Corp. TIPS High Yield High Yield Treas. Muni High Yield Treas. TIPS TIPS Treas. Treas.
2.2% 3.5% 1.7% 0.4% 1.9% -26.2% -3.6% 2.4% 5.0% 2.0% -7.4% -7.0% 59.0% 4.7%
Source: Barclays Capital, FactSet, J .P. Morgan Asset Management.
30
Past performance is not indicative of future returns. Fixed income sectors shown above are provided by Barclays Capital and are represented by: Barclays Capital U.S. Aggregate
Index; MBS: Fixed Rate MBS Index; Corporate: U.S. Corporates; Municipals: Muni Bond Index; Emerging Debt: Emerging Markets USD Index; High Yield: Corporate High YieldIndex; Treasuries: Barclays Capital U.S. Treasury; TIPS: Barclays Capital TIPS. The Asset Allocation portfolio assumes the following weights:10% in MBS, 20% in Corporate, 15% in Municipals, 10% in Emerging Debt, 10% in High Yield, 25% in Treasuries, 10% in TIPS.Asset allocation portfolio assumes annual rebalancing.
Data are as of 6/30/13.
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Interest Rates and Inflation
20%
Nominal and Real 10-year Treasury Yields
15%
ep. , :15.84%
Average 6/30/13
Nominal Yields 6.42% 2.49%Real Yields 2.55% 0.81%
10%
com
eNominal 10-yearTreasury Yield
5%
FixedI Jun. 30, 2013: 2.49%
Real 10-year
-
0%
Jun. 30, 2013: 0.81%
Rising Rate Corp. Bonds S&P 5001958-1981 3.0% 8.6%Ann. Inflation 5.0% 5.0%Ann. Real Return -2.0% 3.5%
Falling Rate Corp. Bonds S&P 5001982-2012 10.1% 11.0%Ann. Inflation 3.1% 3.1%Ann. Real Return 6.8% 7.7%
31
'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
-
Source: Federal Reserve, BLS, J .P. Morgan Asset Management.Real 10-year Treasury yields are calculated as the daily Treasury yield less year-over-year core inflation for that month except for J une 2013, wherereal yields are calculated by subtracting out May 2013 year-over-year core inflation. All returns above reflect annualized total returns, which includereinvestment of dividends. Corporate bond returns are based on a composite index of investment grade bond performance.Data are as of 6/30/13.
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Correlation to 10-Year Treasury Returns
1.0
Correlations to 10-yr. U.S. Treasury Returns
U.S. Aggregate
Calculated over two year rolling periods using monthly total return indices
0.6
0.8
Investment Grade
0.0
0.2
0.4
com
e
-0.4
-0.2 Emerging MarketDebt
FixedI
-0.8
-0.6
Rising FedFunds Rate
High Yield
33
-1.0
'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
Source: Federal Reserve, Barclays, J .P. Morgan Asset Management.
Indices used include Barclays US Treasury Bellwethers (10Y), Barclays US Aggregate, Barclays US Aggregate Credit Corporate Investment Grade,Barclays US Aggregate Credit Corporate High Yield, and Barclays Emerging Markets USD.Data are as of 6/30/13.
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The Fed and the Money Supply
Money MultiplierM2 / Monetary Base
Feds Balance Sheet: Assets$ trillions
10.x$4.0
5.x
6.x
7.x
8.x
.er
U.S. Treasuries
Agency MBS
Jun. 2013:$1.5
$2.0
$2.5
$3.0
.
Feds Balance Sheet: Liabilities
com
e
Federal Funds Rate & FOMC Interest Rate Projections
'04 '05 '06 '07 '08 '09 '10 '11 '122.x
3.x
4.x.
$0.0
$0.5
$1.0
'04 '05 '06 '07 '08 '09 '10 '11 '12
$2.5
$3.0
$3.5
$4.0
6%
8%
10%
12%r ons
FixedI
Long-term Fedprojection
Other Liabilities
Excess Reserves
Required Reserves
'04 '05 '06 '07 '08 '09 '10 '11 '12$0.0
$0.5
$1.0
$1.5
.
0%
2%
4%
'84 '88 '92 '96 '00 '04 '09 '12 '14
Jun. 30, 2013:0.0%-0.25%
34
Source: Federal Reserve, FactSet, J .P. Morgan Asset Management.
Monetary base is defined as the total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits heldin the central bank's reserves. Money multiplier defined as M2 divided by the monetary base. Long-term Fed projection is based on averageexpectations of FOMC members. Other liabilities of the Federal Reserve primarily consist of the monetary base.
Data are as of 6/30/13.
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Credit Conditions
760 60%
Commercial & Industrial Loan DemandNet percent of banks reporting stronger demand
Small Firms
Lending Standards for Approved Mortgage LoansAverage FICO score based on origination date
700
720
740
-
-20%
0%
20%
40% Large & Medium Firms
6%
8%
Apr. 2013:
745
660
680
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Delinquency Rates
com
e
Common Equity as a % of Total Assets
'94 '96 '98 '00 '02 '04 '06 '08 '10 '12-80%
-60%
-
10%
12%
14%
8%
10%
12%
Consumer Loans
Residential Mortgages
an s, seasona y a use
FixedI
Commercial and Industrial Loans 9.7%
,
2012:11.1%
4%
6%
8%
' ' ' ' ' ' ' ' ' ' ' ''92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
2%
4%
6%
1.5%
2.5%
Average: 7.6%
35
Source: (Top left) McDash, J .P. Morgan Securitized Product Research, J .P. Morgan Asset Management. (Top right) Federal Reserve, FactSet, J .P. Morgan AssetManagement. (Bottom left): Federal Reserve, FactSet, J .P. Morgan Asset Management. (Bottom right) FDIC, J .P. Morgan Asset Management.
All data reflect most recently available releases.
Data are as of 6/30/13.
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High Yield Bonds
20%Average Latest
HY Spreads 5.9% 5.4%Lev. Loan Spreads 5.1% 4.1%HY Defaults Rates 4.2% 1.1%
High Yield Spreads and Defaults
HY Spreads
5%
10%
ev. oan prea s
HY Default Rates
0%
'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
com
e
Historical High Yield Recovery RatesHi h ield bonds cents on the dollar
Annual Flows into High Yield and Leveraged Loan FundsMutual funds & ETFs, billions USD
$20
$30
$40
$50
FixedI
Average: 40.1
.
High Yield
Leveraged Loans
40
50
60
70
-$20
-$10
$0
$10
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
0
10
20
30
'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
36
Source (Top chart): U.S. Treasury, J .P. Morgan, Strategic Insight, J .P. Morgan Asset Management. Default rates are defined as the par value percentage of the total market
trading at or below 50% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. (Bottom left): J .P Morgan, Fitch, J .P. Morgan AssetManagement. (Bottom right): Strategic Insight, J .P. Morgan Asset Management. Spreads indicated are benchmark yield to worst less comparable maturity Treasury yields.2013 recovery rate is a weighted average number as of May 2013. Yield to worst is defined as the lowest potential yield that can be receivedon a bond without the issuer actually defaulting and reflects the possibility of the bond being called at an unfavorable time for the holder.Flows include ETFs and are as of May 2013. Past performance is not indicative of comparable future results.Data are as of 6/30/13.
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Municipal Finance
8%
State & Local Government Debt Service% of current expenditures
Muni/Treasury RatioRatio of Barclays 10-year Municipal Bond yield to 10-year Treasury240%
6%
7%
200%
220%
1Q13: 5.2%
4%'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
com
e
Municipal Bond Issuance*Billions USD revenue and GO issues
160%
180%
FixedI
100%
120%
$300bn
$400bn
$500bn
'00 '02 '04 '06 '08 '10 '1260%
80%Jun. 30, 2013:
111%
$0bn
$100bn
$200bn
'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
37
Source (Left chart): Barclays Capital, U.S. Treasury, FactSet, J .P. Morgan Asset Management. (Top right) BEA, J .P. Morgan Asset Management. (Bottom right) SIFMA,
J .P. Morgan Asset Management.
*Excludes maturities of 13 months or less and private placements. 2013 issuance data is as of May 2013.
Data are as of 6/30/13.
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Emerging Market Debt
12%
Emerging Markets Debt SpreadsSpread to Treasuries of USD-denominated debt, percent
Index Breakdown USD Denominated EMDMiddle East &
Africa 11%Middle East &
Africa 14%100%
IndexAverage
S read
Spread
6/30/13
4%
6%
8%
Asia 42%
Europe 35%
Europe 16%
Latin America36%
Latin America28%
20%
40%
60%
80%EMBIG 3.8% 3.5%
CEMBI 3.3% 3.8%
0%
2%
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
com
e
Annual Flows into EMD Mutual Funds & ETFsBillions USD
Emerging Market Debt Credit RatingEMBIG average monthly credit rating, inverse scale
Asia 19%
0%Sovereigns
(EMBIG)Corporates
(CEMBI)
$15
$20
$25
$30
FixedI ay : -
BB+
BBB-
BB
BB-
: . n
'93 '95 '97 '99 '01 '03 '05 '07 '09 '11
-$5
$0
$5
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
B-
B
B+
38
Source: J .P. Morgan, MorganMarkets, FactSet, Strategic Insight, J .P. Morgan Asset Management.
Spreads measure the credit risk premium over comparable maturity U.S. Treasury bonds. The J .P. Morgan EMBI Global (EMBIG) Index is a USD-denominated external debt index tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. The J .P. Morgan Corporate EmergingBond Index (CEMBI) is a USD-denominated external debt index tracking bonds issued by corporations in developing nations. Flow data is as of May2013. Past performance is not indicative of comparable future results. Index breakdown may not equate to 100% due to rounding.Data are as of 6/30/13.
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Global Equity Markets: Returns
MSCI EAFE Index: Return Needed to Reach 2007 PeakAnalysis as of Jun. 30, 2013, implied average annualized total return
47.0%1 YrCountry / Region
2Q13 YTD 2013
Local USD Local USD
23.2%
16.2%
2 Yrs
3 Yrs
Regions / Broad Indexes
USA (S&P 500) - 2.9 - 13.8EAFE 1.4 -0.7 11.4 4.5
MSCI EME Index: Return Needed to Reach 2007 Peak
12.9%
10.9%
4 Yrs
5 Yrs
- . . . . . .
Pacific ex-Japan -2.9 -10.9 3.9 -4.6
Emerging Markets -4.3 -8.0 -4.7 -9.4
MSCI: Selected Countries
o
nal
Analysis as of Jun. 30, 2013, implied average annualized total return
28.1%
14.8%
1 Yr
2 Yrs
United Kingdom -2.0 -2.1 7.5 0.3
France 2.2 3.5 5.6 4.1
Germany 2.2 3.4 5.2 3.7
Internati
10.7%
8.7%
3 Yrs
4 Yrs
. . . .
China -6.6 -6.5 -10.7 -10.8
India 3.2 -5.6 -0.2 -8.0
Brazil -9.3 -17.2 -11.4 -17.8
39
Source: Standard & Poors, MSCI, IMF, FactSet, J .P. Morgan Asset Management.
All return values are MSCI Gross Index (official) data. Definition of emerging markets is based on MSCI data. Data assume dividend yields as of6/30/13 (MSCI EAFE: 3.4% and MSCI EM: 2.9%). Chart is for illustrative purposes only. Past performance is not indicative of future results. P leasesee disclosure page for index definitions.Data as of 6/30/13.
.Russia -4.1 -8.3 -5.8 -11.2
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Global Equity Markets: Composition
14%
16%
Weights in MSCI All Country World Index% global market capitalization, float adjusted
Share of Global Market Capitalization% global market capitalization, float adjusted
6%
8%
10%
12%
UnitedStates49%
Europe ex-U.K.15%
U.K. 8%
EmergingMarkets
Jun. 2013:11%
0%
2%
'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
Share of Global GDP
11%
Japan8%
Emerging Market Share of MSCI ACWI Earnings
EM Market
o
nal
OtherDeveloped
5%
Europe ex-U.K.16%
U.K. 3%
,
10%
12%
14%
16%
Canada 2%Internati
Markets51%
UnitedStates19%
Japan 5%
2%
4%
6%
8%
40
Source: MSCI, IMF, FactSet, J .P. Morgan Asset Management.
Share of global market capitalization is based on float adjusted MSCI data. Share of global GDP based on purchasing power parity (PPP) ascalculated by the IMF for 2013. Definition of emerging markets is based on MSCI and IMF data sources.Percentages may not sum to 100% due to rounding.Data as of 6/30/13.
'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
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Global Economic Growth
Year-over-year % chg. forecasts from JPMSI
Emerging Market Country Real GDP Growth
2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
Historical
1Q14
J PMSI Forecast
10%
0%
2%
4%
6%
8%
Developed Market Country Real GDP Growth
-4%
-2%
Emerging Markets China India Mexico South Africa Korea Russia Brazil
Year-over-year % chg. forecasts from JPMSI
o
nal
2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
1Q14
4%
6%
8%
10%
Internati
-4%
-2%
0%
2%
DevelopedCountries
U.S. Canada U.K. J apan Germany France Italy
41
Source: J .P. Morgan Global Economic Research, J .P. Morgan Asset Management.
Forecast and aggregate data come from J .P. Morgan Global Economic Research. Historical growth data collected from FactSet Economics.
Data are as of 6/30/13.
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Manufacturing Momentum
Global Purchasing Managers Index for Manufacturing
l'11
g'11
p'11
ct'11
v'11
c'11
n'12
b'12
r'12
r'12
y'12
n'12
l'12
g'12
p'12
ct'12
v'12
c'12
n'13
b'13
r'13
r'13
y'13
n'13
J A S O N D Ja
F M A M J J A S O N D Ja
F M A M J
Global 51.3 51.2 50.5 50.7 49.6 50.3 51.0 51.2 51.6 51.3 50.2 49.7 48.8 48.7 48.7 48.8 49.6 50.0 51.5 50.9 51.2 50.4 50.6 50.6
U.S. 52.6 53.9 53.7 53.6 53.4 53.9 54.3 53.6 56.0 56.0 54.0 52.5 51.4 51.5 51.1 51.0 52.8 54.0 55.8 54.3 54.6 52.1 52.3 51.9
U.K. 50.3 49.7 51.3 48.9 47.9 49.2 50.7 51.1 51.8 49.9 46.1 48.3 45.6 49.7 48.9 47.7 49.0 50.9 50.9 48.2 49.0 50.2 51.5 52.5
Germany 52.0 50.9 50.3 49.1 47.9 48.4 51.0 50.2 48.4 46.2 45.2 45.0 43.0 44.7 47.4 46.0 46.8 46.0 49.8 50.3 49.0 48.1 49.4 48.6
France 50.5 49.1 48.2 48.5 47.3 48.9 48.5 50.0 46.7 46.9 44.7 45.2 43.4 46.0 42.7 43.7 44.5 44.6 42.9 43.9 44.0 44.4 46.4 48.4
Italy 50.1 47.0 48.3 43.3 44.0 44.3 46.8 47.8 47.9 43.8 44.8 44.6 44.3 43.6 45.7 45.5 45.1 46.7 47.8 45.8 44.5 45.5 47.3 49.1
Spain 45.6 45.3 43.7 43.9 43.8 43.7 45.1 45.0 44.5 43.5 42.0 41.1 42.3 44.0 44.5 43.5 45.3 44.6 46.1 46.8 44.2 44.7 48.1 50.0
Greece 45.2 43.3 43.2 40.5 40.9 42.0 41.0 37.7 41.3 40.7 43.1 40.1 41.9 42.1 42.2 41.0 41.8 41.4 41.7 43.0 42.1 45.0 45.3 45.4
Ireland 48.2 49.7 47.3 50.1 48.5 48.6 48.3 49.7 51.5 50.1 51.2 53.1 53.9 50.9 51.8 52.1 52.4 51.4 50.3 51.5 48.6 48.0 49.7 50.3
Australia 43.4 43.3 42.3 47.4 47.8 50.2 51.6 51.3 49.5 43.9 42.4 47.2 40.3 45.3 43.0 42.8 44.3 44.3 40.2 45.6 44.4 36.7 43.8 49.6
o
nal
apan . . . . . . . . . . . . . . . . . . . . . . . .
China 49.3 49.9 49.9 51.0 47.7 48.7 48.8 49.6 48.3 49.3 48.4 48.2 49.3 47.6 47.9 49.5 50.5 51.5 52.3 50.4 51.6 50.4 49.2 48.2
Indonesia 50.9 50.8 49.7 51.6 50.1 48.8 48.5 50.6 50.8 50.5 48.1 50.2 51.4 51.6 50.5 51.9 51.5 50.7 49.7 50.5 51.3 51.7 51.6 51.0
Korea 51.3 49.7 47.5 48.0 47.1 46.4 49.2 50.7 52.0 51.9 51.0 49.4 47.2 47.5 45.7 47.4 48.2 50.1 49.9 50.9 52.0 52.6 51.1 49.4
Taiwan 46.1 45.2 44.5 43.7 43.9 47.1 48.9 52.7 54.1 51.2 50.5 49.2 47.5 46.1 45.6 47.8 47.4 50.6 51.5 50.2 51.2 50.7 47.1 49.5
India 53.6 52.6 50.4 52.0 51.0 54.2 57.5 56.6 54.7 54.9 54.8 55.0 52.9 52.8 52.8 52.9 53.7 54.7 53.2 54.2 52.0 51.0 50.1 50.3
Source: Markit, J .P. Morgan Asset Management.
Internati Brazil 47.8 46.0 45.5 46.5 48.7 49.1 50.6 51.4 51.1 49.3 49.3 48.5 48.7 49.3 49.8 50.2 52.2 51.1 53.2 52.5 51.8 50.8 50.4 50.4
Mexico 54.7 51.7 53.0 54.7 53.7 53.1 52.2 53.7 53.8 56.3 55.2 55.9 55.2 55.1 54.4 55.5 55.6 57.1 55.0 53.4 52.2 51.7 51.7 51.3
Russia 49.8 49.9 50.0 50.4 52.6 51.6 50.8 50.7 50.8 52.9 53.2 51.0 52.0 51.0 52.4 52.9 52.2 50.0 52.0 52.0 50.8 50.6 50.4 51.7
42
ea map co ors are ase on re a ve o e eve , w c n caes expans on or con rac on o e sec or, or e me pero s own.
Data are as of 6/30/13.
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The Importance of Exports
Latest 12 months, goods exportedExports as a % of GDP
U.S. Eurozone BRIC Other .
1.9%
4.3%
2.0%
.
2.0%
2.8%
7.3%
.
1.4%
1.6%
0.6%
.
11.5%
17.5%
21.1%
India
China
Russia
.
16.8%
26.2%
31.0%
1.8%
1.2% 1.2%
2.2%
7.5%
9.1%
U.S.
Eurozone
10.0%
13.2%
2.4%
2.7%
2.1%
0.9%
8.6%
10.0%
2.8%
1.6%
1.1%
7.3%
6.6%
8.6%
J apan
U.K.
France
o
nal
19.5%
21.9%
13.5%
1.7%
3.3%
13.0%
15.5%
1.8%
4.7%
8.4%
17.9%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Italy
Germany
Internati 24.8%
41.3%
43
, , , , , , , , ,
Industry, ISTAT, German Federal Statistics Office, FactSet, J .P. Morgan Asset Management.
Values may not sum to total exports due to rounding.
Data are as of 6/30/13.
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The Impact of Global Consumers
40% 40%
Share of Global Nominal Consumption Foreign Sales, % of Total Sales
35%
30%
35%
Mega Cap (Russell Top 200)
25%
30%
25%
Lar e Ca Russell 1000
20%15%
20%
o
nal U.S. Consumption % of Global
EM Consumption % of Global
15%1990 1995 2000 2005 2010
10%'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
Source: FactSet, Compustat, Russell, J .P. Morgan Global Economics Research, J .P. Morgan Asset Management.Foreign sales as a percentage of total sales is calculated as an unweighted average of individual index constituent companies reported sales figuresand does not ca ture all index members due to differences in re ortin ractices.
Internati
44
Data are as of 6/30/13.
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Sovereign Debt Stresses
China
10%Bubble size = 10-year
government bond yield
GDP Growth, Gross Debt to GDP and Borrowing Costs
India
Indonesia
Malaysia
10%
5%
6%
8%
014F)
Brazil
South Africa
Mexico
US
Turkey
Korea
FranceGermany
J apan
Russia Singapore
EU
Australia
UK
0%
2%
row
th(20122
Greece
Italy
Spain
Portugal
-4%
-2%
RealGDP
o
nal
-8%
-6%
0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200%
Developed Markets
Emerging Markets
Internati
240%
45
ross e - o- a os
Source: IMF, FactSet, Bloomberg, J .P. Morgan Economics, Barclays, J .P. Morgan Asset Management.
Growth and debt data are based on the April 2013 World Economic Outlook.Borrowing costs based on local currency debt. EU overall borrowing cost based on Barclays Capital Euro-Aggregate 7-10 year treasury. South Africasborrowing cost is based on 7-year government bond yield due to data availability.
Data as of 6/30/13.
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Global Manufacturing Wages
Manufacturing WagesNominal, average USD per month
Developed Countries Emerging Countries
$3,885
$3,716
$1,500
$1,750
,
$3,000
$3,500
,
Latest2001*
$2,942
$2,089 $2,077
2,958
$1,000
$1,250
$2,000
$2,500
$866
$455
$500
$750
$1,000
$1,500
o
nal
$309
$74$139 $112 $52
$323
$193$148
$0
$250
$0
$500
Source: ILO (International Labor Organization), U.S. Bureau of Labor Statistics, Ministry of Labor-Mexico, EM Advisors Group, Thailand National Statistical Office, General
Internati
Brazil Mexico China Thailand Vietnam IndonesiaU.S. Germany J apan
46
, , , , . . .Chinese wages are those of rural migrant workers as a proxy. *Data begins in 2005 for Vietnam due to availability of data.
Data is from 2012 for Mexico, China, and Thailand; 2011 for United States, Vietnam (preliminary), and Indonesia (preliminary);and 2010 for Brazil, Germany, and J apan.
Data as of 6/30/13.
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Global Monetary Policy
3%
4%
30%
35%
Central Bank Assets Percent of Nominal GDP Real Policy Rates Monthly
-1%
0%
1%
2%
10%
15%
20%
25%
European Central Bank
Bank of Japan
-3%
-2%
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '130%
5%
'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Developed Markets
Country Level Monetary Policy and Inflation
Emerging Markets
Inflation Rate Real Polic RateTar et Polic Rate
U.S. Federal Reserve
o
nal
0.0%
2.5%
5.0%
7.5%
10.0%
Internati
-5.0%
-2.5%
HongKong
U.K.
U.S.
Euroarea
Canada
Japan
Australia
India
Russia
Turkey
SouthAfrica
Mexico
Indonesia
Thailand
Colombia
Taiwan
Korea
Brazil
Poland
China
47
Source: J .P. Morgan Global Economics Research, J .P. Morgan Asset Management.(Top charts) Emerging and Developed Economy GDP growth and real policy rates represent GDP weighted aggregates estimated by J .P. MorganGlobal Economics Research. (Bottom chart) Target policy rates are the short-term target interest rates set by central banks. Inflation rates shownrepresent year-over-year quarterly rates for 2Q13. Real policy rates are short-term target interest rates set by central banks minus year-over-yearinflation.Data are as of 6/30/13.
Developed Markets Emerging Markets
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Europe: Economic Growth
6%
Europe Real GDPYear-over-year % change
Avg. Since1999
1Q13
Real GDP 1.5% -0.7%
Latest Unemployment Rates for European CountriesMay 2013, seasonally adjusted
0%
2%
4%Average:
1.5%
6.6%
5.4%
4.9%
3.7%
Netherlands
Germany
Austria
orway
'00 '02 '04 '06 '08 '10 '12-6%
-4%
-
8.4%
8.4%
7.9%
7.8%
.
Belgium
Finland
Sweden
U.K.
uYear-over-year % change
3%
4%
5%
.1999
May 2013
Headline CPI 2.1% 1.4%
Core CPI 1.7% 1.3%
o
nal
13.5%
12.0%
11.0%
11.0%
Ireland
Italy
France
European Union
'99 '01 '03 '05 '07 '09 '11
0%
1%
2%
Internati
27.0%
26.8%
17.8%
0% 5% 10% 15% 20% 25% 30%
Greece
Spain
Portugal
48
Source: Eurostat, FactSet, J .P. Morgan Asset Management.
Data are as of 6/30/13.
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Europe: Austerity
General Government Deficit Reduction% of GDP, fiscal drag measured as difference in government deficit between stated years7%
2010-2013
2013-2016
6.2%
6%
3.3%
4.4%
3.8%
3.4%
3.1%
4.0%
3.6%4%
o
nal
.
1.8%1.9%
2.8%
2%
3%
Internati
1.1%
0.3% 0.4%
0.8%
0%
1%
49
Source: IMF, J .P. Morgan Asset Management.
Government deficits calculated by the IMF as general government net lending/borrowing (revenue minus total expenditure). Data are based on the
April 2013 World Economic Outlook.
Data are as of 6/30/13.
Eurozone Greece Portugal Germany France U.K. Spain Italy
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Eurozone: Sovereign Bond Yields
European Sovereign Funding Costs10-year benchmark bond yield
35%
6/30/13
Greece 10.83%
30%
or uga .
Spain 4.72%
Ireland 4.2%
Germany 1.73%
Ireland 4.08%
Euro launch
Italy 4.54%
20%
LTRO
10%
15%OMT
o
nal
'95 '97 '99 '01 '03 '05 '07 '09 '110%
5%
Internati
50
Source: TullettPrebon, FactSet, J .P. Morgan Asset Management.
Note: The ECB announced the second round of Long Term Refinancing Operations (LTRO) in February 2012. The Outright Monetary Transaction (OMT )program was announced in September 2012.
Data are as of 6/30/13.
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China: Growth and Economic Policy
25%8%
China GDP ContributionYear-over-year % change
Investment
Consumption
Net ExportsRRRWorking Capital Rate
Monetary Policy Rates
16%
10%
15%
20%
6%
7%May 2013:
20%
4.2%4.6% 4.5% 5.2% 4.1%
4.5%
8.1%
5.5% 4.5% 3.9%
4%
8%
12%9.6%
.
10.4%9.3%
7.8%
0%
5%
5%'05 '07 '09 '11 '13
Credit Growth*Inflation
Avg. since
May 2013:6%
0.9%
-3.5%
0.4%-0.4% -0.2%
-4%
0%
2008 2009 2010 2011 2012
8%
12%
o
nal
RMB billions, new for the month
RMB Bank Loans
Other**
ear-over-year c ange .
Headline CPI: 2.3% 2.1%
Non-Food CPI: 1.0% 1.6%
1,600
2,100
2,600
0%
4%
Internati
100
600
1,100
51
-4%
'00 '02 '04 '06 '08 '10 '12Source: National Bureau of Statistics of China, The Peoples Bank of China, FactSet, CEIC, J .P. Morgan Asset Management.
Values may not sum to 100% due to rounding. RRR represents the reserve requirement ratio. *As defined by Total Social Financing. **Other:bankers acceptance bills (-9%), trust loans (8%), entrusted loans (17%), corporate bond financing (18%), foreign currency loans (3%), and non-financial equity financing (2%). Data are as of 6/30/13.
-'05 '07 '09 '11 '13
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China: Cyclical Indicators
170
Fixed Asset InvestmentYear-over-year % change, 3-month moving average35%
Index, rebased 2007=100, national average
Residential Real Estate Price
Property Tightening Measures Announced
25%
30%
140
Auto and Retail Sales
15%
20%
'06 '07 '08 '09 '10 '11 '12 '13
May 2013: 20.2%
11020%
25%
40%
60%
80%
o
nal
Year-over-year % change
Retail Sales
May 2013: 12.9%
805%
10%
15%
-20%
0%
20%
Internati
Auto SalesMay 2013: 9.7%
52
Source: National Bureau of Statistics of China, China Association of Automobile Manufacturers, China Ministry of Construction, FactSet, J .P. Morgan Asset Management.
Data are as of 6/30/13.
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Japan: Economic Snapshot
9%130 20,000
Inflation and Japanese Government Bond YieldsYear-over-year % change for inflation
Japanese Yen per U.S. Dollar Nikkei 225
Japanese Yen and the Stock Market
7%120
16,000
18,000Bank of J apan 13%
Other Domestic 79%Foreign 8%
Owners of Japanese Gov. Bonds
3%
5%
100
110
14,000
Nominal 10-year Yield
1% 90
10,000
,
o
nal
'87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13-3%
-1%
'03 '04 '05 '06 '07 '08 '09 '10 '11 '1270
80
6,000
8,000
Internati
Core CPI
53
Source: (Left) Bank of J apan, OECD, IMF, FactSet, J .P. Morgan Asset Management. (Right) FactSet, J .P. Morgan Asset Management.
Core CPI is defined as CPI excluding fresh food. Other Domestic includes banks (34%), insurance and pensions (23%), public pensions (7%),households (3%), and others (11%). Values may not sum to 100% due to rounding. Government bond data is calculated from the Bank of J apansJ une 2013 flow of funds.
Data are as of 6/30/13.
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Global Equity Valuations Developed Markets
Developed Market Countries
verage Expensive
relative toworld
Example
+5 Std Dev
+4 Std Dev
+6 Std Dev
dDevfromGlobal
Expensiverelative to own
history
Cheap relative toown history
Average
Current
+ ev
+2 Std Dev
+1 Std Dev
Average
-1 Std Dev
-2 Std Dev
-3 Std Dev
CurrentComposite Current 10-year avg.
World(ACWI)
EAFEIndex
France Germany U.K. Canada Australia J apan Switzerland UnitedStates
St
relative toworld
-4 Std Dev
-5 Std Dev
. . . . . .
World (ACWI) -0.32 12.9 1.8 7.7 2.7% 13.3 2.1 7.0 2.5%EAFE Index -1.13 12.5 1.5 6.9 3.4% 13.0 1.6 6.1 3.4%France -1.80 11.7 1.2 5.8 3.8% 11.7 1.5 5.7 3.8%
Germany -1.63 11.3 1.4 5.5 3.4% 11.8 1.5 4.8 3.4%
U.K. -1.05 11.5 1.7 8.1 3.9% 12.2 1.9 7.0 3.9%
o
nal
ana a - . . . . . . . . .
Australia -0.56 13.4 1.9 9.1 4.7% 13.3 2.1 8.2 4.5%
Japan -0.04 13.4 1.3 6.6 1.8% 16.3 1.3 5.9 2.0%
Switzerland 0.52 14.4 2.4 9.8 3.2% 13.5 2.4 9.8 3.0%United States 1.18 14.2 2.4 9.5 2.0% 14.2 2.3 8.4 2.1%Source: MSCI, FactSet, J .P. Morgan Asset Management.
Internati
54
. , ,cash flow (P/CF) and price to last 12 months dividends. Results are then normalized using means and average variability over the last 10 years. The grey bars represent
valuation index variabilityrelative to that of the MSCI All Country World Index (ACWI). See disclosures page at the end for metric definitions.Data are as of 6/30/13.
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Global Equity Valuations Emerging Markets
Emerging Market Countries
erage
+5 Std Dev
+4 Std Dev
+6 Std Dev Expensiverelative to
world
Example
Devfrom
GlobalA+ ev
+2 Std Dev
+1 Std Dev
Average-1 Std Dev
-2 Std Dev
-3Std Dev
Expensiverelative to own
history
Cheap relative toown history
Average
Current
World(ACWI)
EMIndex
Russia ChinaBrazil
TaiwanThailand
Korea SouthAfrica
India MexicoIndonesia
CurrentComposite
Current 10-year avg.
Std
-4 Std Dev
-5 Std Dev
relative to
world
w . v. . w . v. .
World (ACWI) -0.32 12.9 1.8 7.7 2.7% 13.3 2.1 7.0 2.5%
EM Index -1.74 9.8 1.4 5.5 3.0% 10.8 1.9 5.8 2.7%
Russia -4.26 5.2 0.7 3.2 4.0% 7.8 1.3 4.8 2.3%
China -2.44 8.3 1.3 5.0 3.6% 12.0 2.1 4.3 2.7%
Brazil -2.34 9.7 1.3 5.2 4.1% 8.9 1.9 5.6 3.4%
Index
o
nal
Taiwan -0.59 13.6 1.8 6.7 3.0% 13.9 1.9 6.4 3.6%
Thailand -0.45 11.6 2.3 7.7 3.1% 10.6 2.0 6.6 3.6%
Korea -0.37 8.1 1.1 4.4 1.2% 9.5 1.5 5.1 1.8%South Africa -0.06 12.8 2.2 9.3 3.4% 10.7 2.4 8.1 3.3%India 1.92 13.6 2.4 10.4 1.6% 14.8 3.3 12.4 1.5%
Mexico 1.94 16.4 2.7 7.8 1.7% 13.4 2.7 6.0 2.0%
Internati
55
Indonesia 2.31 14.3 3.5 12.8 2.5% 11.8 3.3 9.3 3.0%
Source: MSCI, FactSet, J .P. Morgan Asset Management.Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd. P/E), price to current book (P/B), priceto last 12 months cash flow (P/CF) and price to last 12 months dividends. Results are then normalized using means and average variability over thelast 10 years. The grey bars represent valuation index variability relative to that of the MSCI All Country World Index (ACWI). See disclosures page atthe end for metric definitions.Data are as of 6/30/13.
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Emerging Market Equity Composition
MSCI EM Index by Region MSCI EM Index by Sector
Other
Africa/Mideast7%
Latin Americaex Brazil
9%
Brazil11%
19%
Commodities21%
Tech15%
18%
Asia ex China& Korea
Korea15%
Europe10%
MSCI EM Country Index by Sector
Financials27%China
18%
onal
14%31%
63%
19%18%
18%
12%
15% 11% 17%23%
31%
15%
60%
80%
100%
Other
Commodities
Internati
21% 18%
37%
23%
3%16%
8%
37%30%
19%
30%
40%14%
20%
40%
Financials
Tech
Consumer
56
Source: MSCI, FactSet, J .P. Morgan Asset Management. Other is comprised of Healthcare, Industrials, Telecom, and Utilities sectors.*Mexican Telecom sector accounts for 22% of the countrys market capitalization. Values may not sum to 100% due to rounding.
Data are as of 6/30/13.
7%0%
Brazil Russia India China Mexico* Korea
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Correlations: 10-Years
Large
Cap
Small
Cap EAFE EME
Core
Bonds
Corp.
HY EMD Cmdty. REITs
Hedge
Funds
Eq.
Market
Neutral*
Large Cap 1.00 0.94 0.90 0.79 -0.26 0.77 0.60 0.52 0.79 0.82 0.59
Small Cap 1.00 0.86 0.74 -0.32 0.73 0.55 0.46 0.85 0.77 0.55
EAFE 1.00 0.91 -0.17 0.77 0.67 0.60 0.73 0.88 0.74
EME 1.00 -0.06 0.81 0.79 0.66 0.63 0.89 0.61
Core Bonds 1.00 -0.03 0.34 -0.18 0.01 -0.24 -0.09
Corp. HY 1.00 0.85 0.56 0.72 0.77 0.43
EMD 1.00 0.48 0.65 0.64 0.40
Commodities 1.00 0.40 0.71 0.51
REITs 1.00 0.58 0.49
Source: Standard & Poors, Russell, Barclays Capital Inc., MSCI Inc., Credit Suisse/Tremont, NCREIF, DJ UBS, J .P. Morgan Asset Management.
Indexes used Large Cap: S&P 500 Index; Small Cap: Russell 2000; EAFE: MSCI EAFE; EME: MSCI Emerging Markets; Bonds: BarclayssetClass
Hedge Funds 1.00 0.59
Eq. Market Neutral* 1.00
58
Capital Aggregate; Corp HY: Barclays Capital Corporate High Yield; EMD: Barclays Capital Emerging Market; Cmdty.: DJ UBS Commodity Index;Real Estate: NAREIT Equity REIT Index; Hedge Funds: CS/Tremont Multi-Strategy Index; Equity Market Neutral: CS/Tremont Equity MarketNeutral Index. *Market Neutral returns include estimates found in disclosures.
All correlation coefficients calculated based on quarterly total return data for period 6/30/03 to 6/30/13.
This chart is for illustrative purposes only.
Data as of 6/30/13.
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Mutual Fund Flows
Billions, USD AUM YTD 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998
Domestic E uit 4 952 14 156 132 81 29 149 65 0 18 101 120 26 55 261 176 149
Fund Flows
World Equity 1,762 63 3 4 58 28 (80) 139 149 106 71 24 (3) (22) 53 11 8
Taxable Bond 2,932 86 254 137 224 310 21 98 45 27 5 40 125 76 (36) 8 59
Tax-exempt Bond 586 7 50 (12) 11 69 8 11 15 5 (15) (7) 17 11 (14) (12) 15
Hybrid 1,116 44 46 29 29 12 (25) 41 18 37 48 38 8 9 (36) (14) 10
Mone Market 2 600 98 0 124 525 539 637 654 245 62 157 263 46 375 159 194 235
$1,600
$40
Difference Between Flows Into Stock and Bond FundsBillions, USD, U.S. and international funds, monthly
Bond flows exceeded equity flowsby $6 billion in May 2013
Cumulative Flows into Stock & Bond FundsIncludes both mutual funds and ETFs, $ billions
May 13: $1,502 billion into bond funds
$800
$1,000
$1,200
,
-$20
$0
$20an xe ncome s s nce
May 13: $332 billion
$0
$200
$400
600
'07 '08 '09 '10 '11 '12 '13
-$60
-$40
Nov '08 Sep '09 J ul '10 May '11 Mar '12 J an '13setClass Bonds
Stocks
into stock funds andequity ETFs since 07
59
Source: Investment Company Institute, J .P. Morgan Asset Management.Data include flows through May 2013 and exclude ETFs except for the bottom left chart. ICI data are subject to periodic revisions. World equityflows are inclusive of emerging market, global equity and regional equity flows. Hybrid flows include asset allocation, balanced fund, flexibleportfolio and mixed income flows.Data are as of 6/30/13.
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Yield Alternatives: Domestic and Global
S&P 500 Total Return: Dividends vs. Capital AppreciationAverage annualized returns Capital Appreciation
Dividends20%
4.7% 5.4% 6.0% 5.1% 3.3% 4.2% 4.4% 2.5%1.8%
4.1%
13.9%
3.0%
13.6%
4.4%
1.6%
12.6% 15.3%
-2.7%
5.6%
0%
5%
10%
Equity Dividend Yields Yield Alternatives
- .
-10%
-5%
1926 - 1929 1930's 1940's 1950's 1960's 1970's 1980's 1990's 2000's 1926 to 2012
5.6%
4.9%
3.6% 3.5%4%
5%
6%
10-year government
10-year governmentbond yield
4.5%
3.7% 3.6%
2.9%3.1%
2.6%3%
4%
5%
1.1%
0.7%1%
2%
3%
setClass
bond yield2.0% 1.9%
1%
2%
60
EMD Loc. Preferreds U.S. REITs Inter. REIT's Converts Floating Rate
Source: (Top chart) Standard & Poors, Ibbotson, J .P. Morgan Asset Management. Dividend vs. capital appreciation returns are through 12/31/12.(Bottom left) FactSet, NAREIT, J .P. Morgan Asset Management. Yields shown are that of the appropriate MSCI index. (Bottom right) FactSet, MSCI,J .P. Morgan Asset Management. Yields shown are that of the appropriate FTSE NAREIT REIT index, which excludes property developmentcompanies. Preferreds, U.S. REITs, Inter. REITs, EMD Loc., Converts, and Floating Rate yields reflect current yield.
Data are as of 6/30/13.
As 0% U.S. Australia France U.K. Switzerland Canada ACWI J apan
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Global Commodities
8% 80%500
Commodity PricesWeekly index prices rebased to 100
Precious Metals
Commodity Prices and InflationYear-over-year % chg.
DJ-UBS Commodity Index
6% 60%
400
450
Industrial Metals Headline CPI(Y/Y % chg.)
.
2% 20%
250
300
350
-2%
0%
-20%
0%
150
200Energy
Grains
-4% -40%
50
100
setClass
Livestock
61
'94 '96 '98 '00 '02 '04 '06 '08 '10 '12- -
'04 '05 '06 '07 '08 '09 '10 '11 '12
Source: Dow J ones/UBS, FactSet, J .P. Morgan Asset Management.
Commodity prices represented by the appropriate DJ /UBS Commodity sub-index.
Data are as of 6/30/13.
Source: BLS, DJ /UBS, FactSet, J .P. Morgan AssetManagement.
Data are as of 6/30/13.
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Diversification and the Average Investor
Equity Mkt. Neutral
(Top) Indexes and weights of thetraditional portfolio are as follows:U.S. Stocks: 55% S&P 500; U.S.Bonds: 30% Barclays CapitalAggregate; International Stocks:15% MSCI EAFE. Portfolio with 25%
Traditional Portfolio More Diversified Portfolio
Maximizing the Power of Diversification (1994 2012)
8%8%
8%
4%
26%REIT
S&P 500Russell 2000
55%
30% S&P 500
MSCI EAFE
Barclays Agg.
in alternatives is as follows: U.S.Stocks: 22.2% S&P 500, 8.8%Russell 2000; International Stocks:4.4% MSCI EM, 13.2% MSCI EAFE;
U.S. Bonds: 26.5% Barclays CapitalAggregate; Alternatives: 8.3%CS/Tremont Equity Market Neutral:8.3%, DJ /UBS Commodities: 8.3%NAREIT E uit REIT Index Return
9%
MSCI EM
Barclays Agg.
.and standard deviation calculatedusing Morningstar Direct.
Charts are shown for illustrativepurposes only. Past performance isnot indicative of future returns.Diversification does not guarantee
investment returns and does noteliminate risk of loss. Data are as of
Return: 7.43%Standard Deviation: 10.80% Return: 7.72%Standard Deviation: 9.87%
20-year Annualized Returns by Asset Class (1993 2012)
6/30/13.
(Bottom) Indexes used are asfollows: REITS: NAREIT Equity REITIndex, EAFE: MSCI EAFE, Oil: WTIIndex, Bonds: Barclays Capital U.S.Aggregate Index, Homes: mediansale price of existing single-familyhomes, Gold: USD/troy oz, Inflation:
11.2%
8.4% 8.2%8.1%
10%
12%
.investor return is based on ananalysis by Dalbar Inc., which utilizesthe net of aggregate mutual fundsales, redemptions and exchangeseach month as a measure of investorbehavior. Returns are annualized(and total return where applicable)and represent the 20-year periods
etClass 6.5% 6.3%
2.7% 2.5% 2.3%
4%
6%
8%
63
ending 12/31/12 to match Dalbarsmost recent analysis.A
s
0%
2%
REITs Gold S&P 500 Oil EAFE Bonds Homes Inflation AverageInvestor
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Annual Returns and Intra-year Declines
S&P 500 Intra-year Declines vs. Calendar Year ReturnsDespite average intra-year drops of 14.7%, annual returns positive in 25 of 33 years
3440%
26
1517
26
1512
27 26
7
20
27
20
26
9
14
23
13 13 13
20%
30% YTD2013
-10
1 2
-7
4
-2
-10-
3 4
0
-7 -8 -9 -8 -8 -6 -6-5
-9
-3
-8-11 -
-8 -7 -8-10 -10
-6-10%
%
-23
-
-17 -18-17
-
-34
-20 -19-17
-30
-34
-14
-28
-16
-19
-40%
-30%
-20%
setClass
-49
-60%
-50%
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
64
Source: Standard & Poors, FactSet, J .P. Morgan Asset Management.
Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough duringthe year. For illustrative purposes only. Returns shown are calendar year returns from 1980 to 2012, 2013 numbers represent year to date returns.
Data are as of 6/30/13.
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Cash Accounts
$ Billions
Weight in
Money
Supply
Money Supply
Component
$8,000
$10,000
Annual Income Generated by $100,000 Investment in a 6-month CD
M2-M1 8,018 76.9%
Retail MMMFs 634 6.1%
$2,000
$4,000
$6,000
2012:$450
,
Savings deposits 6,803 65.2%
Small time deposits 581 5.6%
$01986 1990 1994 1998 2002 2006 2010
6-month CD rate vs. Core CPICash AccountsCash as a % of Total Household Financial Assets28%
Mar. 09 S&P 500 low
Institutional MMMFs 1,747 16.7%
665 6.4%Cash in IRA & Keogh
accounts
16%
20%
24% Oct. 02 S&P 500 low
Total 10,429 100.0%
setClass
Source: Federal Reserve, St. Louis Fed, Bankrate.com, J .P. Morgan Asset Management.All cash measures obtained from the Federal Reserve are seasonally adjusted monthly numbers. All numbers are in billions of U.S. dollars.
'00 '02 '04 '06 '08 '10 '12
12%
65
As ma - enomna on me epos s are ose ssue n amoun s o ess an , . an eog accoun a ances a commerc a an s an r ns u ons are su rac e
from small time deposits. Annual income is for illustrative purposes and is calculated based on the 6-month CD yield on average during each year and $100,000 invested. 2012
average income is through December 2012. IRA and Keogh account balances at money market mutual funds are subtracted from retail money funds.Past performance is not indicative of comparable future results.
Data are as of 6/30/13.
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Corporate DB Plans and Endowments
Underfunded
Defined Benefit Plans Funded Status: S&P 500 Companies
Overfunded
Asset Allocation: Corporate DB Plans vs. Endowments
Endowments
94%78
22%
48.0%
9.0%
27.0%
FixedIncome
Equities
Pension Return Assumptions: S&P 500 companies
201219994.0%
38.0%
20.1%Hedge Funds
27%29%
20%
28%
21%
35%
20%
30%
40%
anies
2012: Average 7.3%
1999: Average 9.2%
2.0%
2.0%
17.7%
.
Real Estate
Private Equity
2% 1%
5%
9%7%
13%
3%0% 0% 0%
0%
10%
10%
%
ofCom
setClass
% of total4.0%
3.0%
3.0%
7.3%
Cash
Other
66
7.5% 8% 8.5% 9% 9.5% 10%
Return AssumptionSource: NACUBO (National Association of College and University Business Officers), Towers Watson, Compustat/FactSet, J .P. Morgan AssetManagement. Asset allocation as of 2012. Funded status as of 2012. Endowments represents dollar-weighted average data of 842 colleges anduniversities. Pension Return Assumptions based on all available and reported data from S&P 500 Index companies. Funded Status based on 347companies reporting pension funding status. Return assumption bands are inclusive of upper range. All information is shown for illustrative purposesonly. Data are as of 6/30/13.
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