All into Account J.P. Morgan Global Research

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy
In this report, we focus on two topics: first, at sector level on the Cyclicals vs Defensives performance into rate cuts and against the backdrop of falling bond yields, and at the style level on the performance of Large vs Small caps. Historically, Defensives and bond proxies struggled when bond yields would be moving higher. This phase might be ending. Especially if bond yields are falling as economic growth is moderating, the sector leadership is likely to be more Defensively tilted, as is the case so far in Q2. Additional considerations are: valuations – Cyclicals are generally trading stretched vs Defensives; past performance – the Cyclical run over the last 18 months has opened up a gap with PMIs, which has not closed yet; and finally the weaker recent earnings delivery of Cyclical vs Defensive sectors. We favour a barbell of Defensives and Commodities. With respect to Small vs Large caps style tilts, there is a typical pattern of weakness in Small caps into, and a rebound post, the start of central banks easing. This is visible for both the Eurozone and UK small caps. For the US Small vs Large caps, the weakness into the first Fed cut is seen too, but there was no imminent rebound, more a weaker performance for another six months or so, and only then a recovery. Additional consideration for small caps trade is likely the domestic economic backdrop. Here, European growth had a reset last year, and is looking sequentially better this year, while US was resilient last year, but could soften from here. Small caps have had two poor years everywhere, and are lagging again so far ytd, by 9% in the US, 4% in Eurozone, 2% in UK and 8% in Japan – the turn might be upon us, likely more in Europe than in the US, though, given less visibility over Fed start and softer forward activity momentum in the US.
This podcast was recorded on 27 May 2024.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4117650-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures.
© 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.
 

Speaker - Mislav Matejka, CFA, Head of Global Equity Strategy
Q1 reporting season again showed an age-old pattern of beats vs heavily lowered expectations. For full year 2024, earnings projections in the US are unchanged ytd, and down a few percent in Europe. The downgrades to sellside analyst EPS expectations throughout the year are nothing unusual, they happen most of the time, without adverse equity market reaction, but we believe that it is important that they do not escalate, as then the market might not be able to look through them. Beneath the surface, there are three interesting trends, one being maintained, and two showing a rotation: 1. All the US earnings growth is still Mag-7 driven. Q1 was the 5th quarter in a row where, if Mag-7 contribution is taken out, the remaining 493 S&P500 constituents have shown outright negative yoy% EPS growth. This has been beneficial to our continued OW on Growth vs Value style, and OW large vs small caps, but the odds could be increasing that we might see some reversal. 2. European earnings are starting to do better vs the US, and that was one of the reasons why we upgraded Eurozone vs the US last quarter. We continue to believe that the region will at least hold its own vs the US, irrespective of the direction of the overall equity market. 3. Cyclical sector earnings are softening vs Defensives. For S&P500, median Cyclical EPS growth is now below Defensives, for the first time since Covid. This is one of the reasons why we argued in early April for a rotation into Defensives, especially into the Utilities and Real Estate sectors. From a top down perspective, we are particularly concerned about the earnings prospects of the Autos sector, rating it as UW.
This podcast was recorded on 19 May 2024.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4117650-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures.
© 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy
After a terrible spell between Jan ’23 and January of this year, where MSCI China lost almost 40%, it is now up 25% from the lows. While we do not believe that the longer term structural concerns of deflationary backdrop, real estate demand-supply imbalances, credit saturation and global decoupling are finished, our tactical view remains that the more positive China trading could last through summer, through July-August, until the US elections heat up in earnest. There is still an EM investor underweight on China, and the valuations probably have another 10-15% upside before closing the discount to historical. A more bullish tactical China stance was one of the drivers of our upgrade of Eurozone equities in Q1. We continue to believe that Eurozone risk-reward has improved, and that the region will at least hold its own vs the US, whether the overall market goes up or down. UK (OW) is also starting to trade better of late, erasing the almost 10% relative weakness seen earlier in the year. At sector level, we think commodities remain interesting as a way to position for more positive China trading, both Mining and Energy. We are less positive on some of other traditional China plays, such as Autos (UW) and Luxury (N). Pricing is a significant risk for both, as well as a potential volume disappointment, leaving their elevated margins at risk. More broadly, at sector level we have been arguing that Defensives should start to trade better, last month Real Estate, Utilities, Staples and Healthcare are top 4 sectors in Europe. Now, more positive tactical China call is clearly a big help for EM group, but we do not believe EM is a buy vs DM. The headwinds for EM remain Fed higher for longer, and stronger USD. EM equities typically struggle to outperform DM when their currencies are under pressure.
This podcast was recorded on 12 May 2024.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4696703-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures.
© 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.

It’s been a tough year for both getting long outright duration or being long steepeners. We expect disinflation will reassert itself, but in the near term, there is event risk (e.g., CPI & HICP numbers) making us cautious. Fabio joins us to discuss the catalysts to trade duration, the curve, and intra-EMU spreads.
 
SpeakersThomas Salopek, Global Cross Asset StrategyFabio Bassi, Head of International Rates Strategy
 
This podcast was recorded on May 8, 2024.
This communication is provided for information purposes only. Institutional clients can view the related report at  https://www.jpmm.com/research/content/GPS-4691318-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.

Speakers:  
Joyce Chang, Chair of Global Research
Jan Loeys, Long-term Strategy
Joe Lupton, Economic and Policy Research
Natasha Kaneva, Global Commodities Research
Steve Dulake, Global Head of Credit, Securitized Products and Public Finance Research
 
 
This podcast was recorded on 7 May 2024.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4682573-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.
 

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy
We are concerned about inflation staying too high if there is no slack created in the economy, adverse bonds demand-supply with negative term premia, consensus expectation of profit acceleration of almost 20% between Q1 and Q4 of this year, which doesn’t typically happen, especially if the economy softens in 2H, consumer tailwinds potentially turning, as well as concentration and leadership reversal hurting the market. At the core, the Goldilocks view that market embraced in Q1 of inflation/rates moving lower but at the same time of earnings acceleration and economy having no landing remains an inconsistent one. In fact, the Growth-Inflation tradeoff could end up the opposite, as seen in recent ISM showing a spike in pricing and slowing orders. Together with seasonally poor time for markets coming up and still stretched positioning, we look for more of a consolidation in equity markets over the next months. Within this, we advocate for some of the rotations to come up/have legs. Growth is ahead of Value ytd, small caps are heavily behind again ytd. We fundamentally stay with Growth, Quality and large caps tilts, but the turn could be coming, where small caps tended to perform better as ECB starts to ease. Regionally, we have in Q1 taken profits on US vs Eurozone OW, as well as tactically exited our longstanding China bearish stance. The latest market move to a more Defensive trading should have legs, such as recent outperformance of Utilities and Staples, alongside commodity sectors.
This podcast was recorded on 06 May 2024.
This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-4691410-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures.
© 2024 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P. Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to prevent any and all access to or use of such J.P. Morgan Data by any third-party.