jp morgan 2015q1 guide to the markets
TRANSCRIPT
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4Q | 20131Q | 20154Q | 2013As of September 30, 2013
1Q | 2015As of December 31, 2014
Guide to the MarketsGuide to the MarketsGuide to the MarketsGuide to the Markets
1
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Global Market Insights Strategy Team
Americas Europe Asia
Dr. David P. Kelly, CFANew York
Stephanie H. FlandersLondon
Tai HuiHong Kong
Andrew D. GoldbergNew York
Maria Paola ToschiMilan
Geoff LewisHong Kong
Anastasia V. Amoroso, CFAHouston
Vincent JuvynsLuxembourg
Yoshinori ShigemiTokyo
James C Liu CFA Manuel Arroyo Ozores CFA Grace Tam CFAJames C. Liu, CFAChicago
Manuel Arroyo Ozores, CFAMadrid
Grace Tam, CFAHong Kong
Julio C. CallegariSo Paulo
Tilmann Galler, CFAFrankfurt
Ian HuiHong Kong
David M. Lebovitzk
David Stubbs, PhDd
Ben LukNew York London Hong Kong
Gabriela D. SantosNew York
Lucia GutierrezMadrid
Ainsley E. WoolridgeNew York
Kerry Craig, CFALondon
Hannah J. AndersonNew York
Alexander W. DrydenLondon
Abigail B. DwyerNew York
Nandini RamakrishnanLondon
2Past performance is no guarantee of comparable future results. For China and Australia distribution, please note this communication is for intended recipients only and is for wholesale clients only in Australia. For details, please refer to the full disclaimer at the end. Unless otherwise stated, all data is as of December 31, 2014 or most recently available.
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Page Reference
4. S&P 500 Index at Inflection Points5. Returns and Valuations by Style6. Returns and Valuations by Sector
36. Fixed Income Yields and Returns37. Global Fixed Income38. Municipal Finance39. High Yield Bonds40. Emerging Market Debt
Equities Page 4
7. Stock Valuation Measures: S&P 500 Index8. Corporate Profits and Leverage9. Sources of Earnings per Share Growth10. Equity Performance in Bull Markets11. Interest Rates and Equities12. Deploying Corporate Cash13. Annual Returns and Intra-year Declines
41. Fixed Income Sector Returns
42. Global Equity Markets43. International Equity Earnings and Valuations44. Global Economic Growth45. Manufacturing Momentum
International Page 42
y14. Equity Correlations and Volatility15. Stock Market Since 1900
16. Economic Growth and the Composition of GDP17. Consumer Finances18. Credit Conditions
g46. Sovereign Debt Stresses47. Europe: Cyclical Headwinds and Tailwinds48. Europe: Unemployment, Inflation, and Credit Markets49. Japan: Economic Snapshot50. China: Economic and Credit Growth51. Demographics and Development52. Emerging Market Currencies
Economy Page 16
18. Credit Conditions19. Cyclical Sectors20. Residential Real Estate21. Long-term Drivers of Economic Growth22. Federal Finances23. Unemployment and Wages24. Labor Market Perspectives25 Employment and Income by Educational Attainment
52. Emerging Market Currencies53. Emerging Market Equities54. Global Equity Valuations: Developed Markets55. Global Equity Valuations: Emerging Markets
56. Asset Class Returns57 Correlations and Volatility
Asset Class Page 56
25. Employment and Income by Educational Attainment26. Inflation27. Trade and the U.S. Dollar28. Energy: Supply, Demand and Prices29. Energy Price Impacts30. Consumer Confidence and the Stock Market
57. Correlations and Volatility58. Alternative Asset Class Returns59. Fund Flows60. Yield Alternatives: Domestic and Global61. Global Real Assets62. Global Commodities63. Life Expectancy and Pension Shortfall64 Historical Returns by Holding PeriodFixed Income Page 31
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31. Interest Rates and Inflation32. The Fed and Interest Rates33. Shape of the Yield Curve34. Global Monetary Policy35. Sources of Bond Returns
64. Historical Returns by Holding Period65. Diversification and the Average Investor66. Cash Accounts67. Corporate DB Plans and Endowments
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S&P 500 Index at Inflection Points
2,200Index level 1,527 1,565 2,059P/E ratio (fwd ) 25 6x 15 2x 16 2x
S&P 500 Index
Dec. 31, 2014 P/E (fwd.) = 16.2x
2 059
Characteristic Mar-2000 Oct-2007 Dec-2014
E
q
u
i
t
i
e
s
1,800
2,000
P/E ratio (fwd.) 25.6x 15.2x 16.2xDividend yield 1.1% 1.8% 1.9% 10-yr. Treasury 6.2% 4.7% 2.2%
E
q
u
i
t
i
e
s
Mar 24 2000
2,059
Oct. 9, 2007 P/E (fwd ) = 15 2x
1,400
1,600
Mar. 24, 2000 P/E (fwd.) = 25.6x
1,527
+101%
P/E (fwd.) = 15.2x 1,565
+204%+106%
1,000
1,200
-49%
-57%+106%
'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14600
800 Oct. 9, 2002 P/E (fwd.) = 14.1x
777
Dec. 31, 1996 P/E (fwd.) = 16.0x
741 Mar. 9, 2009
P/E (fwd.) = 10.3x 677
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97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14Source: Standard & Poors, First Call, Compustat, FactSet, J.P. Morgan Asset Management.Dividend yield is calculated as the annualized dividend rate divided by price, as provided by Compustat. Forward Price to Earnings Ratio is a bottom-up calculation based 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 future returns.Guide to the Markets U.S. Data are as of 12/31/14.
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Returns and Valuations by Style
Value Blend Growth Value Blend Growth
4Q14 2014 Current P/E vs. 20-year avg. P/E
15.5 16.2 18.7
Value Blend Growth
e
L
a
r
g
e
5.0% 4.9% 4.8%
L
a
r
g
e
13.5% 13.7% 13.0%
M
i
d 6.1% 5.9% 5.8%
M
i
d 14.7% 13.2% 11.9%Eq
u
i
t
i
e
s
15.5 16.2 18.7
14.0 16.1 21.0
16.4 18.6 20.0
14.2 16.5 21.9
L
a
r
g
M
i
d
S
m
a
l
l
9.4% 9.7% 10.1%S
m
a
l
l
4.2% 4.9% 5.6%
Since Market Low (March 2009)Since Market Peak (October 2007)Current P/E as % of 20-year avg. P/E
E.g.: Large Cap Blend stocks are fairly
16.4 18.1 20.0
14.5 17.3 21.5Sm
a
l
l
Value Blend Growth Value Blend Growth
L
a
r
g
e
42.1% 54.0% 70.1%
L
a
r
g
e
254.4% 244.2% 246.9%
d 68 5% 70 0% 69 6% d 330 1% 310 3% 292 0%
valued compared to historical average.Value Blend Growth
L
a
r
g
e
110.1% 100.6% 89.0%
M
i
d 68.5% 70.0% 69.6%
M
i
d 330.1% 310.3% 292.0%
S
m
a
l
l
48.1% 57.6% 66.7%
S
m
a
l
l
266.2% 279.9% 293.3%
M
i
d 118.1% 112.7% 94.5%
S
m
a
l
l
113.1% 104.4% 93.3%
5
Source: Russell Investment Group, Standard & Poors, FactSet, J.P. Morgan Asset Management.All calculations are cumulative total return, including dividends reinvested for the stated period. Since Market Peak represents period 10/9/07 12/31/14, illustrating market returns since the S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 12/31/14, illustrating market returns since the S&P 500 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 the large blend category, which is reflected by the S&P 500 Index. Past performance is not indicative of future returns. P/E ratios reflectlatest available data. Earnings estimates are as of November for Russell Indexes and as of December for Standard & Poors.Guide to the Markets U.S. Data are as of 12/31/14.
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Returns and Valuations by Sector
Finan
cials
Tech
nolog
yHe
alth C
areInd
ustri
als
Energ
y
Cons
. Disc
r.Co
ns. S
taples
Telec
om
Utilit
ies
Mater
ials
S&P 5
00 In
dex
E
q
u
i
t
i
e
s
F T H In E C C T U M S
S&P Weight 16.6% 19.7% 14.2% 10.4% 8.4% 12.1% 9.8% 2.3% 3.2% 3.2% 100.0%Russell Growth Weight 5.3% 28.3% 14.2% 12.2% 4.5% 18.7% 10.5% 2.1% 0.1% 4.0% 100.0%
Russell Value Weight 29.9% 9.5% 13.7% 10.1% 11.3% 6.6% 7.4% 2.1% 6.4% 3.0% 100.0%
2014 15.2 20.1 25.3 9.8 -7.8 9.7 16.0 3.0 29.0 6.9 13.7
4Q14 7.2 5.2 7.5 6.8 -10.7 8.7 8.2 -4.2 13.2 -1.8 4.9
W
e
i
g
h
t
%
)
Since Market Peak (October 2007)
-19.6 78.6 118.7 52.4 16.9 115.8 112.3 22.5 54.0 33.5 54.0
Since Market Low (March 2009)
338.7 274.2 252.6 318.9 114.1 399.5 197.7 133.9 169.5 217.9 244.2
Beta to S&P 500 1.44 1.10 0.70 1.20 0.99 1.13 0.57 0.63 0.50 1.27 1.00
C l T Yi ld 0 20 0 03 0 16 0 17 0 29 0 06 0 19 0 21 0 50 0 12 0 04
R
e
t
u
r
n
(
Correl to Treas. Yields 0.20 0.03 -0.16 0.17 0.29 0.06 -0.19 -0.21 -0.50 0.12 0.04
Forward P/E Ratio 13.6x 15.9x 17.2x 16.3x 16.5x 18.4x 19.1x 13.5x 17.4x 16.1x 16.2x15-yr avg. 12.7x 20.6x 17.3x 17.0x 13.6x 18.5x 18.4x 16.9x 14.0x 16.0x 16.1x
Trailing P/E Ratio 16.8x 19.3x 24.4x 17.9x 12.8x 21.0x 22.5x 10.9x 19.9x 19.1x 18.6x20-yr avg. 16.5x 26.0x 24.1x 20.3x 17.1x 19.3x 21.3x 19.8x 15.0x 19.5x 19.5x
Dividend Yield 1.8% 1.5% 1.4% 2.1% 2.9% 1.4% 2.5% 4.7% 3.5% 2.1% 1.9%
P
/
E
v
Source: Standard & Poors, Russell Investment Group, FactSet, J.P. Morgan Asset Management.All calculations are cumulative total return, not annualized, including dividends for the stated period. Since Market Peak represents period 10/9/07 12/31/14. Since Market Low represents period 3/9/09 12/31/14. Correlation to Treasury Yields are trailing 2-year monthly correlations between S&P 500 sector price returns and 10-year Treasury yield movements. Forward P/E Ratio is a bottom-up calculation based 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. Trailing P/E ratios are bottom-up values defined as month-end price divided by the last 12 months of available reported earnings. Historical data can change as new information becomes available. Note that P/E ratios for the S&P 500 may differ from estimates elsewhere in this book due to the use of a bottom-up calculation of constituent earnings (as
Dividend Yield 1.8% 1.5% 1.4% 2.1% 2.9% 1.4% 2.5% 4.7% 3.5% 2.1% 1.9%20-yr avg. 2.1% 0.7% 1.4% 1.7% 1.7% 0.9% 2.1% 4.2% 4.3% 2.1% 1.7% D
i
v
6
Note that P/E ratios for the S&P 500 may differ from estimates elsewhere in this book due to the use of a bottom up calculation of constituent earnings (as described) rather than a top-down calculation. This methodology is used to allow proper comparison of sector level data to broad index level data. Dividend yields are bottom-up values defined as the annualized value of the most recent cash dividend as a percent of month-end price. Beta calculations are based on 10 years of monthly price returns for the S&P 500 and its sub-indices. Betas are calculated on a monthly frequency over the past 10-years.Past performance is not indicative of future returns.
Guide to the Markets U.S.Data are as of 12/31/14.
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Stock Valuation Measures: S&P 500 Index
U.S. Equity: Valuation Measures Historical AveragesValuation Measure Description
Latest 1-year ago5-year
avg10-year
avg25-year
avg *Measure Description ago avg. avg. avg.P/E Price to Earnings 16.2x 15.4x 13.5x 13.8x 15.6xCAPE Shiller's P/E 27.3 25.5 22.5 22.9 25.3Div. Yield Dividend Yield 1.9% 1.9% 2.0% 2.0% 2.1%REY Real Earnings Yield 3.7% 3.7% 4.3% 3.3% 2.3%P/B P i t B k 2 9 2 7 2 3 2 4 2 9
E
q
u
i
t
i
e
s
P/B Price to Book 2.9 2.7 2.3 2.4 2.9P/CF Price to Cash Flow 11.4 10.8 9.3 9.7 11.3EY Spread EY Minus Baa Yield 1.5% 1.6% 2.2% 1.3% -0.7%
S&P 500 Earnings Yield vs. Baa Bond YieldS&P 500 Index: Forward P/E Ratio
18x
20x
22x
24x
26x
8%
10%
12%
14%
S&P 500 Earnings Yield (Inverse of fwd. P/E): 6.2%
Current: 16.2x
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '148x
10x
12x
14x
16x
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '142%
4%
6%
8%
Moodys Baa Yield: 4.7%
Average: 15.6x
7
90 92 94 96 98 00 02 04 06 08 10 12 14 90 92 94 96 98 00 02 04 06 08 10 12 14Source: Standard & Poors, FactSet, Robert Shiller Data, FRB, J.P. Morgan Asset Management. Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months. Shillers P/E uses trailing 10-years of inflation adjusted earnings as reported by companies. Dividend Yield is calculated as the trailing 12-month average dividend divided by price. Real Earnings Yield is defined as (trailing four quarters of reported earnings/price) - year over year core CPI inflation. Price to Book Ratio is the price divided by book value per share. Price to Cash Flow is price divided by NTM cash flow. EY Minus Baa Yield is the forward earnings yield (consensus analyst estimates of EPS over the next 12 months divided by price) minus the Moodys Baa seasoned corporate bond yield. *P/CF is a 20-year avg. due to cash flow data availability.Guide to the Markets U.S. Data are as of 12/31/14.
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Corporate Profits and Leverage
$31
S&P 500 Earnings Per Share and PerformanceIndex level and quarterly operating earnings
Profit Margins
4Q14*: $30.50 10%
11%
S&P 500 Operating EPS % of Sales per Share**After-Tax Adj Corp Profits % of GDP
3Q14*:10.1%
$23
$27
E
q
u
i
t
i
e
s
2Q07: $24.06
6%
7%
8%
9%
3Q14:8.8%
After-Tax, Adj. Corp. Profits, % of GDP
$15
$19
Total LeverageS&P 500 ratio of total debt to total equity quarterly
4%
5%
'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
$7
$11
160%
180%
200%
220%S&P 500, ratio of total debt to total equity, quarterly
A 162%
-$1
$3
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14'96 '98 '00 '02 '04 '06 '08 '10 '12 '14
80%
100%
120%
140%4Q14: 100%
Average: 162%
8
Source: BEA, Standard & Poors, Compustat, J.P. Morgan Asset Management.EPS levels are based on operating earnings per share. *Most recently available data is 3Q14 as 4Q14 is a Standard & Poors preliminary estimate. **S&P 500 Operating EPS % of Sales per Share fell to 0% in 4Q2008 and is adjusted on the chart. Past performance is not indicative of future returns. Guide to the Markets U.S.Data are as of 12/31/14.
96 98 00 02 04 06 08 10 12 14
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Sources of Earnings per Share Growth
50%
S&P 500 Year-Over-Year EPS GrowthGrowth broken into revenue, changes in profit margin & changes in share count
Share of EPS Growth 3Q14*
20%
30%
40%
E
q
u
i
t
i
e
s
QMargin 3.6%Revenue 6.3%Share count 0.1%
0%
10%
20%
-30%
-20%
-10%
-50%
-40%
3Q143Q123Q103Q083Q063Q043Q023Q003Q983Q963Q94
9
Source: Standard & Poors, Compustat, J.P. Morgan Asset Management.EPS levels are based on operating earnings per share. *Most recently available data is 3Q14. Past performance is not indicative of future returns. 4Q2008, 1Q2010 and 2Q2010 reflect -101%, 92% and 51% growth in operating earnings, and are adjusted on the chart. Guide to the Markets U.S.Data are as of 12/31/14.
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Equity Performance in Bull Markets
300%
83% 84%90%% of days during bull markets the S&P 500 is at and near record highs
S&P 500 Performance and Average Valuation S&P 500 Levels Near Market HighsPrice returns to peak after crossing average real earnings yield
Returns to peak price after average valuation
0%
240%
83% 84%
78%
70%
80%
E
q
u
i
t
i
e
s
1991-2000
2002-20072009-Today
p p gReturns before markets pass average valuation
*
Average valuation is defined as the average real earnings yield of the S&P
49%
83%180%
36%
42%40%
50%
60%500 from 1963 until today
16%
30%4%
0%
60%
120%
13%
33%
11%
36%
17%20%
30%
29% 49% 73% 121% 59% 180% 101% 204%
15%
0%'66 '70 '74 '82 '87 '90 '02 '09
13% 11%
0%
10%
New High Within 1% Within 5%
Start of Bull MarketPercent of days during a Bull Market
spent at record highs or within a 1% or 5% range of the record high
10
Source: Standard & Poors, J.P. Morgan Asset Management. Valuations are based on real earnings yield for the S&P 500 which is defined as (trailing four quarters of reported earnings/price) - year over year core CPI inflation. Period after average valuation defined by 15-day moving average passing below average real earnings yield. *As depicted on the left hand chart, the return to peak price for the current bull market is 0% as the S&P 500 has yet to cross its long run average real earnings yield. The S&P 500 would need to appreciate over 22% to reach its long-term average real earnings yield of 2.5%.Guide to the Markets U.S. Data are as of 12/31/14
Start of Bull Market spent at record highs, or within a 1% or 5% range of the record high
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Interest Rates and Equities
0.8
Correlations Between Weekly Stock Returns and Interest Rate Movements Weekly S&P 500 returns, 10-year Treasury yield, rolling 2-year correlation, May 1963 Dec. 2014
When yields are below 5% rising
0.4
0.6
E
q
u
i
t
i
e
s
Positive relationship between yield movements and stock
below 5%, rising rates are generally associated with rising stock prices
Last 12 Months1963 12 Months Ago
Graph Key
0
0.2
and stock returns
e
l
a
t
i
o
n
C
o
e
f
f
i
c
i
e
n
t
-0.4
-0.2
Negative relationship between yield
t d
C
o
r
r
e
-0.8
-0.6
0% 2% 4% 6% 8% 10% 12% 14% 16%
movements and stock returns
10-Year Treasury Yield
11
Source: Standard & Poors, U.S. Treasury, FactSet, J.P. Morgan Asset Management.Returns are based on price index only and do not include dividends. Markers represent monthly 2-year correlations only. Guide to the Markets U.S.Data are as of 12/31/14.
10 Year Treasury Yield
-
Deploying Corporate Cash
$1,600
$1,800
$1,700
$1,800
30%
32%
Corporate Cash as a % of Current AssetsS&P 500 companies cash and cash equivalents, quarterly
Corporate Growth
Capital Expenditures M&A Activity $bn, nonfarm nonfinancial capex, quarterly value of deals completed
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,200
$1,300
$1,400
$1,500
$1,600
$1,700
E
q
u
i
t
i
e
s
20%
22%
24%
26%
28%
30%
$0
$200
$400
$900
$1,000
$1,100
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '1414%
16%
18%
Dividend Payout RatioS&P 500 companies LTM
Cash Returned to Shareholders$bn S&P 500 companies rolling 4 quarter averages
$100
$120
$140
$160
$27
$30
$33
$36
$39
40%
50%
60%S&P 500 companies, LTM $bn, S&P 500 companies, rolling 4-quarter averages
Dividends per Share
$20
$40
$60
$80
$15
$18
$21
$24
$27
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '1420%
30%
40%
Share Buybacks
12
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14Source: 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 officially agreed transactions and capital expenditures are for nonfarm nonfinancial corporate business. (Bottom left) Standard & Poors, FactSet, J.P. Morgan Asset Management. (Bottom right) Standard & Poors, Compustat, FactSet, J.P. Morgan Asset Management.
Guide to the Markets U.S. Data are as of 12/31/14.
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Annual Returns and Intra-year Declines
3440%
S&P 500 Intra-year Declines vs. Calendar Year ReturnsDespite average intra-year drops of 14.2%, annual returns positive in 27 of 35 years*
2014
26
1517
26
1512
27 26
34
20
31
27
20
26
9
14
23
13 13
30
11
20%
30%
E
q
u
i
t
i
e
s
-10
1 2
-7
47
-2
-10
9
3 4
0
-7 -8 -9-8 -8
-6 -6 -5-9
-3
-811
-8 -7 -8-10 -10
-6 -7-10%
%
10%
-13
-23
-17 -18-17
-13
-34
-20
-11
-19
-12
-17
-30-34
-14
-28
-16-19
40%
-30%
-20%
-38
-49
-60%
-50%
-40%
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
13
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 during the year. For illustrative purposes only. *Returns shown are calendar year returns from 1980 to 2014.Guide to the Markets U.S.Data are as of 12/31/14.
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Equity Correlations and Volatility
60%
70%
Large Cap StocksCorrelations Among Stocks
Sovereign Debt Crisis
Lehman B k t1987 Crash
Great Depression /World War II
20%
30%
40%
50%
60%
E
q
u
i
t
i
e
s
Bankruptcy
Tech Bust & 9/11
1987 CrashWorld War II
OPEC Oil Crisis
Cuban Missile Crisis
0%
10%
20%
'26 '32 '38 '44 '50 '56 '62 '68 '74 '80 '86 '92 '98 '04 '10
Volatility Measure 08 Peak Average Latest Daily Volatility of DJIA
Average: 27.0Dec. 2014: 37.4%
2.0%
2.5%
3.0%
3.5%
45
60
75
90y g
DJIA (Left) 3.30% 0.71% 0.58%VIX (Right) 80.9 20.0 19.2
DJIA vol. shownin 3-month
moving average
'30 '35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '100.0%
0.5%
1.0%
1.5%
0
15
30
14
30 35 40 45 50 55 60 65 70 75 80 85 90 95 00 05 10Source: (Top) Empirical Research Partners LLC, Standard & Poors, J.P. Morgan Asset Management. Capitalization weighted correlation of top 750 stocks by market capitalization, daily returns, 1926 Sep. 1, 2014. (Bottom) CBOE, Dow Jones, J.P. Morgan Asset Management. DJIA volatility 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. Guide to the Markets U.S. Data are as of 12/31/14.
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Stock Market Since 1900
S&P Composite Index
Log Scale
2000 present
1,000
300
2000 present
E
q
u
i
t
i
e
s
100
40
1966 1974
40
101900 1924
1937 1948
'00 '10 '20 '30 '40 '50 '60 '70 '80 '90 '00 '10
15
Source: Robert Shiller, FactSet, J.P. Morgan Asset Management. Data shown in log scale to best illustrate long-term index patterns. Past performance is not indicative of future returns. Chart is for illustrative purposes only.
Guide to the Markets U.S.
Data are as of 12/31/14.
-
Economic Growth and the Composition of GDP
$1810%
Real GDP Year-over-year % chg
3Q14
Components of GDP3Q14 nominal GDP, trillions USD
3.2% HousingReal GDP
m
y
$14
$16
$18
6%
8%
3Q14YoY % chg: 2.7% 13.3% Investment Ex-housing
18.2% Govt SpendingAverage:
QoQ % chg: 5.0%
Real GDP
E
c
o
n
o
m
$8
$10
$12
2%
4%
68 2% Consumption
Average: 3.0%
$4
$6
-2%
0%
68.2% Consumption
Expansion Average:
2.3%
-$2
$0
$2
'65 '70 '75 '80 '85 '90 '95 '00 '05 '10-6%
-4%
- 2.9% Net Exports
16
65 70 75 80 85 90 95 00 05 10Source: BEA, FactSet, J.P. Morgan Asset Management.
Values may not sum to 100% due to rounding. Quarter over quarter percent changes are at an annualized rate. Average represents the annualized growth rate for the full period. Expansion average refers to the period starting in the second quarter of 2009.
Guide to the Markets U.S.
Data are as of 12/31/14.
-
Consumer Finances
$100 14%
Household Debt Service RatioDebt payments as % of disposable personal income, seasonally adjusted
4Q07:13 2%
Consumer Balance Sheet3Q14, Trillions of dollars outstanding, not seasonally adjusted
Total Assets: $95.4tn 3Q-07 Peak: $82.1tnQ $
$80
$90
11%
12%
13%
m
y
1Q80: 10.6%
4Q14**:9.9%
13.2%$
Homes: 24%
1Q-09 Low: $67.0tn
$50
$60
$70
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '149%
10%
E
c
o
n
o
m
9.9%
Household Net WorthBillions USD not seasonally adjusted 4Q14**:
Deposits: 9%
Pension Funds: 21%
Other Tangible: 6%
$30
$40
$50 000
$60,000
$70,000
$80,000
$90,000
Billions USD, not seasonally adjusted Q$82,9072Q07:
$67,874
%
Other Non-revolving: 1%Revolving*: 6%
Auto Loans: 7%Other Liabilities: 9%
Student Debt: 9%
$0
$10
$20
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14$10,000
$20,000
$30,000
$40,000
$50,000
Total Liabilities: $14.1tnOther Financial
Assets: 39%
Mortgages: 68%
17
Source: (Left) FRB, J.P. Morgan Asset Management. Data include households and nonprofit organizations. (Right) BEA, FRB, J.P. Morgan Asset Management. *Revolving includes credit cards. **4Q14 household debt service ratio and 4Q14 household net worth are J.P. Morgan Asset Management estimates. Values may not sum to 100% due to rounding.Guide to the Markets U.S.Data are as of 12/31/14.
90 92 94 96 98 00 02 04 06 08 10 12 14
-
Credit Conditions
14%
Common Equity as a % of Total Assets
2013:
All FDIC insured institutions, 1934 2013 12%
Residential Mortgages
Delinquency RatesAll banks, seasonally adjusted
8%
10%
12%
m
y
11.1%
Average: 7.7%4%
6%
8%
10%Consumer LoansResidential Mortgages
Commercial and Industrial Loans
7.0%
2 2%
4%
6%
'34 '40 '46 '52 '58 '64 '70 '76 '82 '88 '94 '00 '06 '12
E
c
o
n
o
m
'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '140%
2%
0.8%
2.2%
Loan GrowthG th i l t t di t i l b k Y Y ll dj t d
Lending Standards for Approved Mortgage LoansAverage FICO score based on origination date
720
740
760
10%
20%
30%Real Estate Loans Nov. 2014:
12.8%
Growth in loans outstanding at commercial banks, YoY, seasonally adjusted Nov. 2014: 744
Average FICO score based on origination date
660
680
700
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14-30%
-20%
-10%
0%
Commercial and Industrial Loans
Nov. 2014:2.7%
18
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14Source: (Top left) FDIC, J.P. Morgan Asset Management. (Top right) Federal Reserve, FactSet, J.P. Morgan Asset Management. (Bottom left): Federal Reserve, FactSet, J.P. Morgan Asset Management. (Bottom Right) McDash, J.P. Morgan Securitized Product Research, J.P. Morgan Asset Management.
All data reflect most recently available releases.
Guide to the Markets U.S. Data are as of 12/31/14.
-
Cyclical Sectors
22
24Millions, seasonally adjusted annual rateLight Vehicle Sales
46
47
Manufacturing and Trade InventoriesDays of sales, seasonally adjusted
m
y
14
16
18
20
22
Average: 15.3
Dec. 2014:16.8
40
4142
4344
4546
Oct. 2014: 39.5
E
c
o
n
o
m
'96 '98 '00 '02 '04 '06 '08 '10 '12 '148
10
12
Housing StartsTh d ll dj t d l t
Real Capital Goods OrdersN d f it l d d i ft $ b ll dj t d
'96 '98 '00 '02 '04 '06 '08 '10 '12 '143738
3940
1 200
1,600
2,000
2,400Thousands, seasonally adjusted annual rate
A 1 348$60
$65
$70
$75Non-defense capital goods orders ex. aircraft, $ bn, seasonally adjusted
Nov. 2014:61.0
'96 '98 '00 '02 '04 '06 '08 '10 '12 '140
400
800
1,200
Nov. 2014:1,028
Average: 1,348
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14$40
$45
$50
$55
Average: 56.8
19
96 98 00 02 04 06 08 10 12 14Source: (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 2004.Guide to the Markets U.S.Data are as of 12/31/14.
-
Residential Real Estate
3 %
40%125
Indexed to 100, seasonally adjustedHome Prices Housing Affordability Index
Avg. mortgage payment as a % of household income
20%
25%
30%
35%
m
y
115
120Case Shiller 20-cityFHFA Purchase OnlyAverage Existing Home Nov. 2014:
12.1%
Average: 20.3%
10%
15%
'75 '78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08 '11 '14Ec
o
n
o
m
100
105
110Average: 20.3%
Home InventoriesMillions annual rate seasonally adjusted
90
95
3
3.5
4
4.5Millions, annual rate, seasonally adjusted
Nov. 2014: 2.4
'05 '06 '07 '08 '09 '10 '11 '12 '13 '1475
80
85
'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '141.5
2
2.5
3
20
05 06 07 08 09 10 11 12 13 14 94 96 98 00 02 04 06 08 10 12 14Sources: (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 the prevailing 30-year fixed-rate mortgage rates and average new home prices excluding a 20% down payment. (Bottom right) Census Bureau, National Association of Realtors, J.P. Morgan Asset Management.
Guide to the Markets U.S.
Data are as of 12/31/14.
-
Long-term Drivers of Economic Growth
Private nonresidential fixed investment, % of GDP16%
Gross Investment and DepreciationDepreciationGross investment spending
5%
Five year moving average of year-over-year % changeGrowth in Employment and Real Output Per Worker*
A th
8%
12%
m
y
p g
4%
Average growth50 yr. 10 yr. 5 yr.
Employment 1.5% 0.5% 1.1%
Real Output Per Worker 1.5% 1.1% 1.3%
GDP 3.0% 1.6% 2.4%
'90 '95 '00 '05 '100%
4%
E
c
o
n
o
m
Real Capital Stock GrowthNonresidential fixed assets year over year % chg
2%
3%
Real Output Per Worker
3%
4%
5%
2013: 1.6%
Nonresidential fixed assets, year-over-year % chg
1%
Employment Growth
0%
1%
2%
1990 1995 2000 2005 2010 '70 '80 '90 '00 '10-1%
0%
21
1990 1995 2000 2005 2010Source: BEA, BLS, FactSet, J.P. Morgan Asset Management.*Labor Force includes the population age 16+ working or looking for work, Real Output Per Worker is calculated as real GDP growth minus civilian employment growth. Averages are calculated as the annualized growth rate.
Guide to the Markets U.S.
Data are as of 12/31/14.
-
Federal Finances
$4.0
The 2015 Federal BudgetCBO Baseline forecast, trillions USD
T t l S di $3 8t
-12%
10%
Federal Budget Surplus/Deficit% of GDP, 1990 2024, 2014 CBO Baseline
Forecast
$3.0
$3.5
m
y
Total Spending: $3.8tn
Other$550bn (15%)
Net Int.: $251bn (7%)
Borrowing:$469bn (13%)
Other: $302bn (8%)
-10%
-8%
-6%
-4%
-2%
2015: -2.6%
$2.0
$2.5
E
c
o
n
o
m
Defense:$608bn (16%)
Non-defense Disc.:$506bn (13%) Social Insurance:
$1,065bn (28%)'90 '95 '00 '05 '10 '15 '20 '25
0%
2%
4%
Federal Net Debt (Accumulated Deficits)% of GDP 1940 2024 2014 CBO Baseline end of fiscal year
$1.0
$1.5 Social Security:$887bn (24%)
Income:$1 526bn (41%)
Corp.: $389bn (10%)
80%
100%
120%% of GDP, 1940 2024, 2014 CBO Baseline, end of fiscal year
2024: 77.2%2015: 74.0%
Forecast
$0.0
$0.5
Total Government Spending Sources of Financing
Medicare & Medicaid:$948bn (25%)
$1,526bn (41%)
20%
40%
60%
'40 '48 '56 '64 '72 '80 '88 '96 '04 '12 '20
22
Total Government Spending Sources of Financing 40 48 56 64 72 80 88 96 04 12 20Source: U.S. Treasury, BEA, CBO, St. Louis Fed, J.P. Morgan Asset Management.2015 Federal Budget is based on the CBOs August 2014 Baseline Budget Forecast. 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). 2015 numbers are CBO estimates as of August 2014.Guide to the Markets U.S. Data are as of 12/31/14.
-
Unemployment and Wages
Civilian Unemployment Rate and Year-over-Year Growth in Wages of Production and Non-Supervisory Workers
12%Seasonally adjusted, percent
m
y
10%
12%
Oct. 2009: 10.0%
E
c
o
n
o
m
6%
8%
50-yr. Average: 6.1%
Unemployment
4% 49-yr. Average: 4.3%
Nov. 2014: 5.8%
Nov. 2014: 2.2%
'70 '80 '90 '00 '100%
2% Wage Growth
23
70 80 90 00 10Source: BLS, FactSet, J.P. Morgan Asset Management.
Guide to the Markets U.S.
Data are as of 12/31/14.
-
Labor Market Perspectives
Employment Total Private Payroll Total job gain/loss (thousands)
6008.8mm 67%
68%Labor Force Participation Rate
m
y -400
-200
0
200
400 jobs lost
10.9 mm jobs 64%
65%
66%
67%
E
c
o
n
o
m
Net Job Creation Since Feb. 2010 Millions of Jobs
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14-1,000
-800
-600 gained
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '1462%
63%
Nov. 2014: 62.8%
Ratio of Unemployed to Job Openings
4
5
6
7
3.22.9
2.1 1.91 mm
2 mm
3 mm
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '141
2
3
4
Oct. 2014: 1.9
0.9
-0.5
-1 mm
0 mm
Info. Fin & Bus. Svcs.
Mfg. Trade & Trans.
Leisure, Hospt. &
Other Svcs.
Edu. & Health Svcs.
Mining & Construct.
Gov't
24
Source: BLS, FactSet, J.P. Morgan Asset Management.
Guide to the Markets U.S.
Data are as of 12/31/14.
-
Employment and Income by Educational Attainment
18%
Unemployment Rate by Education Level
Less than High School Degree$84,852
$90,000
Average Annual Earnings by Highest Degree EarnedFull-time workers aged 18 and older, 2012, USD
14%
16%
m
y
Nov 2014:
Less than High School DegreeHigh School No CollegeSome CollegeCollege or Greater
$70,000
$80,000
+28K
8%
10%
12%
E
c
o
n
o
m
Nov. 2014:5.6%
Nov. 2014:8.5% $56,665
$50,000
$60,000
+26K
4%
6%
8%
Nov. 2014:4.9%
$30,627
$20,000
$30,000
$40,000
'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '140%
2%Nov. 2014:
3.2%
$0
$10,000
,
High School Graduate Bachelor'sDegree Advanced Degree
25
High School Graduate Bachelors Degree Advanced Degree
Source: BLS, Census Bureau, FactSet, J.P. Morgan Asset Management.
Unemployment rates shown are for civilians aged 25 and older.
Guide to the Markets U.S.
Data are as of 12/31/14.
-
Inflation
15%
CPI and Core CPI% change vs. prior year, seasonally adjusted
50 A N 2014
CPI Components
Weight in CPI 12-month Change
F d & B 14 1% 3 2%
m
y
12%
50-yr. Avg. Nov. 2014Headline CPI 4.2% 1.3%Core CPI 4.1% 1.7%Headline PCE 3.6% 1.2%Core PCE 3.5% 1.4%
Food & Bev. 14.1% 3.2%
Housing 32.3% 3.0%
Apparel 3.5% -0.3%
Transportation 5.6% 1.8%
E
c
o
n
o
m
6%
9%
p
Medical Care 5.8% 2.3%
Recreation 2.0% -2.8%
Edu. & Comm. 0.6% -4.0%
3%
Other 1.6% 1.5%
Headline CPI 100.0% 1.3%
Less:
'65 '70 '75 '80 '85 '90 '95 '00 '05 '10-3%
0%Energy 8.9% -4.8%
Food 14.1% 3.2%
Core CPI 77.1% 1.7%
26
Source: BLS, FactSet, J.P. Morgan Asset Management.CPI used is CPI-U and values shown are % change vs. one year ago and reflect November 2014 CPI data. CPI component weights are as of November 2014. Core CPI is defined as CPI excluding food and energy prices. The Personal Consumption Expenditure (PCE) deflator employs an evolving chain-weighted basket of consumer expenditures instead of the fixed weight basket used in CPI calculations. Guide to the Markets U.S. Data are as of 12/31/14.
-
Trade and the U.S. Dollar
-7%
Current Account Balance and Oil Imports, % of GDP
4Q05:115
U.S. Dollar IndexMonthly average of nominal trade-weighted exchange index: major currencies
F *
-6%
-5%
m
y
4Q05:-6.2%
100
105
110Forecast*
-4%
E
c
o
n
o
m
C t A t B l90
95
100
Mar 2009 Dec 2014**:-3%
-2%
3Q14:-2.3%
Current Account Balance
2Q08 75
80
85
Mar. 2009: 84.0
Dec. 2014 : 84.3
-1%
0%'99 '01 '03 '05 '07 '09 '11 '13 '15
Net Oil Imports
2Q08:-3.1%
3Q14:-1.0%
'96 '98 '00 '02 '04 '06 '08 '10 '12 '1465
70
75
Mar. 2008: 70.3
27
99 01 03 05 07 09 11 13 15Source: BEA, EIA, Federal Reserve, FactSet, J.P. Morgan Asset Management.
*Oil imports as a percent of GDP is an EIA forecast. **December U.S. Dollar index value is a J.P. Morgan Asset Management estimate.
Guide to the Markets U.S.
Data are as of 12/31/14.
-
Energy: Supply, Demand and Prices
$140
$160
Change in Production and Consumption of Oil
2013 2014* 2015* Growth since
Production, consumption and inventories, million barrels per dayPrice of OilBrent crude, nominal prices , USD/bbl
$60
$80
$100
$120
$140
m
y
2013 2014 2015 Growth since 2013Production
U.S. 12.3 13.9 14.9 20.7%
OPEC 36.0 36.0 35.9 -0.3%
'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14$0
$20
$40
E
c
o
n
o
m
Other 41.8 42.1 41.9 0.4%
Global 90.2 92.0 92.8 2.9%
Consumption
Dec. 2014: $57.33
U.S. Natural Gas Production**Trillions of cubic feet USD EIA
20
25
30
35U.S. 19.0 19.0 19.1 0.7%
Europe 13.6 13.5 13.4 -1.9%
Japan 4.5 4.4 4.2 -6.4%
China 10.6 11.0 11.3 6.9%
Gbl. Natural Gas PricesJapan $13.86Germany $10.16U.S. $3.65
Trillions of cubic feet, USD
Shale Gas
Forecast
'95 '00 '05 '10 '15 '20 '250
5
10
15Other 42.8 43.6 44.3 3.6%
Global 90.5 91.4 92.3 2.0%
Inventory Change -0.3 0.5 0.4
Other***
28
95 00 05 10 15 20 25Source: EIA, FactSet, J.P. Morgan Asset Management. *Forecasts are from EIA Annual Energy Outlook and start in 2013. **Production numbers as of 2013. ***Other includes conventional on and offshore natural gas drilling, tight gas, and coalbed methane. Natural gas prices are $/mmbtu and are as of December 2014.
Guide to the Markets U.S.
Data are as of 12/31/14.
-
Energy Price Impacts
12%
14%
8% 6% 4% 2% 0% 2% 4% 6%
Imports as a % of GDP
Percent of Income Spent on Gasoline and Motor Oil Before-tax income quintile, percent of spending, 2013
Oil Importers and ExportersNet imports as a percent of GDP, 2013
-14%
4%
6%
8%
10%
12%
-3.6%
0.9%
1.6%
-8% -6% -4% -2% 0% 2% 4% 6%
Canada
U.K.
U.S.
p
e
d
m
y
-14%
0%
2%
4%
Lowest Second Third Fourth Highest
2.2%
2.4%
2.4%
Italy
France
GermanyGasoline PricesUnited States all city average USD per gallon
D
e
v
e
l
o
p
E
c
o
n
o
m
3.6%
-13.6%
0.7%
Japan
Russia*
Brazil
United States all city average, USD per gallon
$3.00
$4.00
$5.00 Dec. 2014: $2.61
n
g
2.4%
4.8%
5.3%
China
South Africa
India'80 '90 '00 '10
$0.00
$1.00
$2.00D
e
v
e
l
o
p
i
n
29
80 90 00 10Source: (Top left) BEA, (Bottom Left) Department of Labor, FactSet, (Right) EIA, IMF, J.P. Morgan Asset Management.
*Russia imports as a percent of GDP was -13.6% in 2013 and is adjusted on the chart.
Guide to the Markets U.S.
Data are as of 12/31/14.
-
Consumer Confidence and the Stock Market
130Consumer Sentiment Index University of Michigan
0 8 t10% i i li iImpact on Consumer Sentiment from a
m
y
110
120
Mar. 1984
Jan. 2000-2.0%
Jan. 2004+4.4%
Aug 1972
-0.8 pts+1.9+2.8-5.2
10% y-o-y rise in gasoline prices10% y-o-y rise in home prices10% y-o-y rise in the S&P 5001% y-o-y rise in the unemployment rate
Dec 2014:
E
c
o
n
o
m
80
90
100
Average: 84.8
+13.5%May 1977
+1.2%
Aug. 1972-6.2%
Jan. 2007-4.2%
Dec. 2014:93.6
60
70
80
Oct. 1990+29 1%
Mar. 2003+32.8% Oct. 2005
+14.2%
'72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '1440
50
Feb. 1975+22.2%
May 1980+19.2%
+29.1%
Nov. 2008+22.3%
Aug. 2011+15.4%Sentiment Cycle Low and
subsequent 12-month S&P 500 Index return
30
72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14Source: 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 series of higher highs. Subsequent 12-month S&P 500 returns are price returns only, which excludes dividends. Impact on consumer sentiment is based on a multivariate monthly regression between 1/31/2000 5/31/2014.
Guide to the Markets U.S. Data are as of 12/31/14.
-
Interest Rates and Inflation
20%Nominal and Real 10-year Treasury Yields
Sep 30 1981:Average
(1958 2014) 12/31/14
15%
Sep. 30, 1981: 15.84%
(1958 2014) 12/31/14Nominal Yields 6.30% 2.17%Real Yields 2.50% 0.46%Inflation 3.80% 1.71%
10%
n
c
o
m
e
Dec 31 2014: 2 17%
Nominal 10-year Treasury Yield
0%
5%
F
i
x
e
d
I
n
Dec. 31, 2014: 2.17%
Real 10-year Treasury Yield
'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15-5%
0%
Dec. 31, 2014: 0.46%Rising Rate Corp. Bonds S&P 500 1958-1981 3.0% 8.6% Ann. Inflation 5.0% 5.0% Ann. Real Return -2.0% 3.5%
Falling Rate Corp. Bonds S&P 500 1982-2014 9.6% 11.7% Ann. Inflation 3.0% 3.0% Ann. Real Return 6.6% 8.6%
31
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 CPI inflation for that month except for December 2014, where real yields are calculated by subtracting out November 2014 year-over-year core inflation. All returns above reflect annualized total returns, which include reinvestment of dividends. Corporate bond returns are based on a composite index of investment grade bond performance. Guide to the Markets U.S.Data are as of 12/31/14.
-
The Fed and Interest Rates
6%
7%
Feds Balance Sheet: Assets$ trillions
Other
Federal Funds Rate ExpectationsFOMC and market expectations for the Fed Funds rate
$4.0
$4.5Federal Funds Rate
O C
2%
3%
4%
5%
6%U.S. TreasuriesAgency MBS
$1.5
$2.0
$2.5
$3.0
$3.5
$
FOMC Long Run Projection
FOMC Year-End EstimatesMarket Expectations
0%
1%
2%
'99 '01 '03 '05 '07 '09 '11 '13 '15 '17
n
c
o
m
e
Feds Balance Sheet: Liabilities$ trillions
Federal Reserve Summary of Economic Projections
$0.0
$0.5
$1.0
'04 '06 '07 '08 '09 '10 '11 '12 '13 '14
F
i
x
e
d
I
n
$2.5$3.0$3.5$4.0$4.5$ trillions
Excess Reserves
Required Reserves
Other Liabilities
FOMC December 2014 Forecasts* Percent
2014 2015 2016 2017 Long Run
Change in real GDP, Q4 to Q4 2.4 2.8 2.8 2.4 2.2
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14$0.0$0.5$1.0$1.5$2.0
Unemployment Rate, Q4 5.8 5.3 5.1 5.1 5.4
PCE Inflation, Q4 to Q4 1.3 1.3 1.9 1.9 2.0
Federal Funds Rate, end of year 0.13 1.13 2.50 3.63 3.75
32
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 held in the central bank's reserves. Other liabilities of the Federal Reserve primarily consist of currency outstanding. Market expectations are the federal funds rates priced into the fed futures market. *Forecasts of 17 Federal Open Market Committee (FOMC) participants, midpoints of central tendency except for federal funds rate which is a median estimate.
Guide to the Markets U.S. Data are as of 12/31/14.
-
Shape of the Yield Curve
4 0%
4.5%
Yield CurveU.S. Treasury Yield Curve
4.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0% Dec. 31, 2013
Dec. 31, 2014
1.1%1 7%
2.0% 2.2%
2.8%
3.0%
2.5%
1.8%
0.1%
0.0%
0.5%
1.0%
0 8% 3 2%Nominal 2 Year and 10 Year U.S. Treasury Yields Treasuries Outstanding 3Q14
By holder end of period not seasonally adjusted
n
c
o
m
e 3m 1y 2y 3y 7y 10y 30y5y
0.3%0.7% 1.7%
0.8%0.4%
0.5%
0.6%
0.7%
0.8%
2.6%
2.8%
3.0%
3.2% By holder, end of period, not seasonally adjusted
F
i
x
e
d
I
n
Foreign officialState and local
gov'ts
Financial institutions
7%
Households6%
Other1%
Jan '14 Apr '14 Jul '14 Oct '14 Jan '150.2%
0.3%
0.4%
2.0%
2.2%
2.4%
10Y UST (RHS)2Y UST (LHS)
g32%
Federal Reserve
19%Foreign private
15%
Mutual funds9%
g7%
33
Source: Federal Reserve, FactSet, J.P. Morgan Asset Management.Guide to the Markets U.S.Data are as of 12/31/14.
Jan 14 Apr 14 Jul 14 Oct 14 Jan 15
-
Global Monetary Policy
80%
Central Bank Assets Percent of Nominal GDPJPMAM
Forecast* 1
Correlation of Government Bonds6-month rolling correlation of weekly change in USTs and German Bund yields
60%
70%
0.2
0.4
0.6
0.8
10-yr. Bonds
40%
50%
n
c
o
m
e
8%Real Policy Rates Monthly
-0.2
0
'10 '11 '12 '13 '14
2-yr. Bonds
20%
30%
F
i
x
e
d
I
n
2%3%4%5%6%7%8%
E C t l B k
Bank of Japan
Emerging Markets
0%
10%
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15-3%-2%-1%0%1%2%
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
European Central Bank
U.S. Federal Reserve Developed Markets
34
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14Source: J.P. Morgan Global Economics Research, FactSet, J.P. Morgan Asset Management.Real policy rates represent GDP weighted aggregates estimated by J.P. Morgan Global Economics Research. Real policy rates are short-term target interest rates set by central banks minus year-over-year inflation. *Central bank assets as percent of nominal GDP is forecasted through 2015 using J.P. Morgan Global Economics Research nominal GDP forecasts and assumptions for central bank balance sheet size based on statements released by each respective central bank and its governors. Guide to the Markets U.S.Data are as of 12/31/14.
-
Sources of Bond Returns
Coupon Return2014 C
Total Return2014 A + B + C
Treasury Base Rate Return2014 A
Spread to Treasury Return2014 B
20141 3%5-yr. 1 6% 2 9% 5-yr.
20131.3%
8.2%
26.0%
10-yr.
30-yr.
1.6%
2.6%
3.4%
2.9%
10.7%
29.4%
10-yr.
30-yr.
n
c
o
m
e
4.4%
-3.3%
10-yr. Muni
U.S. HY
EM (USD)
-1.1%
4.3%
6.8%
8.7%
2.5%
10-yr. Muni
U.S. HY
EM (USD)
F
i
x
e
d
I
n 0.3%
3.7%
2.0%
EM (USD)
IG Corp.
U.S. MBS
-1.2%
-0.5%
0.4%
5.6%
4.2%
3.7%
4.8%
7.5%
6.1%
EM (USD)
IG Corp.
U.S. MBS
2.7%
-1.4%
20% 10% 0% 10% 20%
U.S. Agg.
FRN (BBB)
0.1%
0.1%
20% 10% 0% 10%
3.2%
1.3%
20% 10% 0% 10%
6.0%
0.1%
20% 10% 0% 10% 20% 30%
U.S. Agg.
FRN (BBB)
35
Source: Federal Reserve, Barclays, J.P. Morgan Asset Management.All returns reflect year to date returns. Treasury base, spread, and coupon returns based on Barclays and J.P. Morgan Asset Management estimates. The sum of charts A and B equate to price return for each sector. 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, Barclays Muni 10-year Index, Barclays US MBS Index, Barclays Floating Rate Index, and Barclays Emerging Markets USD. Guide to the Markets U.S. Data are as of 12/31/14.
-20%-10% 0% 10% 20% -20% -10% 0% 10% -20% -10% 0% 10% -20%-10% 0% 10% 20% 30%
-
Fixed Income Yields and Returns
Price Impact of a 1% Rise/Fall in Interest Rates*
-2.0%5 0%
0.9%2y USTU.S. Treasuries # of issuesCorrelation to
10-yearAvg.
Maturity 12/31/2014 9/30/2014 4Q14 2014
Yield Return
-17.8%
-8.6%
-5.7%
-4.7%
23.2%
9.5%
6.7%
5.0%
30y UST
10y UST
TIPS
5y UST 2-Year 95 0.63 2 years 0.67% 0.58% 0.17% 0.66%
5-Year 97 0.90 5 1.65% 1.78% 1.14% 2.89%
10-Year 17 1.00 10 2.17% 2.52% 3.57% 10.74%
30-Year 20 0.92 30 2.75% 3.21% 10.06% 29.38%
n
c
o
m
e
-3.9%
-3.2%
-0.1%
3.9%
3.6%
0.1%
ABS
Convertibles
Floating Rate
TIPS 35 0.58 10 0.49% 0.55% -0.03% 3.64%
Sector
Broad Market 9,054 0.85 7.7 years 2.25% 2.36% 1.79% 5.97%
MBS 410 0.80 6.5 2.60% 2.88% 1.79% 6.08%
F
i
x
e
d
I
n
-5 7%
-5.6%
-5.5%
-4.3%
5.5%
5.5%
3.4%
4.2%
Munis
US Aggregate
MBS
US HY Municipals 9,080 0.45 10.0 2.04% 2.13% 1.38% 8.72%
Corporates 5,212 0.45 10.7 3.11% 3.10% 1.77% 7.46%
High Yield 2,253 -0.24 6.5 6.61% 6.13% -1.00% 2.45%
Floating Rate 49 -0.21 2.7 1.61% 0.98% -1.43% 0.08%
Source: U.S. Treasury, Barclays Capital, FactSet, J.P. Morgan Asset Management. Fixed income sectors shown above are provided by Barclays Capital and are represented by Broad Market: Barclays U.S. Aggregate; MBS: U.S. Aggregate Securitized - MBS Index; Corporate: U.S. Corporates; Municipals: Muni Bond 10-year Index; High Yield: Corporate High Yield Index; TIPS: Treasury Inflation Protection Securities (TIPS) Floating Rate: Barclays FRN (BBB); Convertibles: Barclays U S Convertibles Composite; ABS: Barclays ABS +
-6.7%
-5.7%7.7%
-30% -10% 10% 30%
IG Corps Convertibles 518 -0.29 -- 1.11% 1.14% 1.06% 8.17%
ABS 1,727 -0.04 4.4 2.15% 2.18% 1.27% 3.44%
36
Yield Index; TIPS: Treasury Inflation Protection Securities (TIPS). Floating Rate: Barclays FRN (BBB); Convertibles: Barclays U.S. Convertibles Composite; ABS: Barclays ABS + CMBS. Treasury securities data for # of issues based on U.S. Treasury benchmarks from Barclays Capital. Yield and return information based on bellwethers for Treasury securities. Sector yields reflect yield to worst, while Treasury yields are yield to maturity. Correlations are based on 10-years of monthly returns for all sectors. Change in bond price is calculated using both duration and convexity according to the following formula: New Price = (Price + (Price * -Duration * Change in Interest Rates))+(0.5 * Price * Convexity * (Change in Interest Rates)^2). *Calculation assumes 2-year Treasury interest rate falls 0.67% to 0.00%, as interest rates can only fall to 0.00%. Chart is for illustrative purposes only. Past performance is not indicative of future results. Guide to the Markets U.S. Data are as of 12/31/14.
-
Global Fixed Income
$100
Global Bond MarketUSD, trillions
12/31/89 6/30/14 EM: $14tn
Yield
Aggregates Correl to 10-year Duration 12/31/2014 9/30/2014 4Q14 2014
Return
$70
$80
$90U.S. 60.7% 36.1%Dev. ex U.S. 38.2% 49.5%EM 1.1% 14.4%
10-year
U.S. 0.83 5.6 Yrs 2.25% 2.36% 1.79% 5.97%
Gbl. ex. U.S. 0.37 7.1 1.29% 1.46% -2.61% -2.21%
Japan 0.49 8.3 0.36% 0.52% -6.38% -8.35%
$50
$60
$70
Developed ex U.S.: $50tn
n
c
o
m
e
Germany 0.25 6.0 0.58% 0.76% -1.87% -3.70%
U.K. 0.17 9.4 1.94% 2.36% 1.57% 5.82%
Italy 0.07 6.6 1.50% 1.67% -1.80% 0.84%
Spain 0 10 5 8 1 17% 1 32% 1 87% 0 67%
$20
$30
$40
U.S.: $35tn
F
i
x
e
d
I
n
Spain 0.10 5.8 1.17% 1.32% -1.87% 0.67%
Sector
Euro Corp. 0.11 4.8 1.04% 1.20% -2.73% -4.82%
Euro HY. -0.39 3.9 4.65% 4.58% -3.27% -6.02%
$0
$10
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
EMD ($) 0.20 6.7 5.62% 5.39% -0.55% 7.43%
EMD (LCL) 0.08 4.9 6.50% 6.74% -5.71% -5.72%
EM Corp. -0.26 5.6 5.56% 5.28% 0.31% 6.74%
37
Source: Barclays Capital, BIS, FactSet, J.P. Morgan Asset Management. All returns are in USD. Fixed income sectors shown above are provided by Barclays Capital and are represented by the global aggregate for each country except where noted. EMD sectors are represented by the J.P. Morgan EMBIG Diversified Index (USD), the J.P. Morgan GBI EM Global Diversified Index (LCL), and the J.P. Morgan CEMBI Broad Diversified Index (Corp). European Corporates are represented by the Barclays Euro Aggregate Corporate Index and the Barclays Pan-European High Yield index. Sector yields reflect yield to worst. Duration is modified duration. Correlations are based on 7-years of monthly returns for the all sectors. Past performance is not indicative of future results. Guide to the Markets U.S. Data are as of 12/31/14.
-
Municipal Finance
12%
9%
10%% of current expenditures
10-Year Muni Taxable Equivalent Yield
3Q14: 7.9%
Taxable equivalent Muni and Treasury yieldsState & Local Government Debt Service
10%
5%
6%
7%
8%
9%Taxable Equivalent 10-yr. Muni Yield
6%
8%
3%
4%
5%
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
Municipal Bond Issuance*Billions USD revenue and GO issues
n
c
o
m
e
4%
Billions USD, revenue and GO issues
10-yr. Treasury Yield
F
i
x
e
d
I
n
$300
$400
$500
0%
2%
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
Spread
$0
$100
$200
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14
38
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.Taxable equivalent yields are calculated for the highest federal marginal tax bracket. 2014 tax rate includes the net investment income tax of 3.8%. *Excludes maturities of 13 months or less and private placements. Interest payments include interest accrued on defined benefit liabilities. 2014 issuance data is as of November 2014.Guide to the Markets U.S. Data are as of 12/31/14.
-
High Yield Bonds
15%
20% Average Latest HY Spreads 5.9% 5.7%HY Defaults Rates 4.0% 3.0%
U.S. High Yield Spreads and Defaults
HY D f lt R tHY Spreads
5%
10%
15% HY Default Rates
0%'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
n
c
o
m
e
Global High Yield SpreadsSpread over Treasuries
Sector WeightsOther 7%
Other 5%100%
7%
9%
F
i
x
e
d
I
n
p
Euro HY
EM HY T l 10%
Telecom 18% Telecom 21%Industrial 20%
Industrial 29% Industrial 24%Energy 17%
Energy 2% Energy 11%Other 17%Other 7%
40%
60%
80%
3%
5%
'12 '13 '14
EM HYU.S. HY
Consumer 28% Consumer 31%Consumer 17%
Financial 7%Financial 13%
Financial 22%
Telecom 10%
0%
20%
40%
U.S. HY Euro HY EM HY
39
Source: 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. Spreads indicated are benchmark yield to worst less comparable maturity Treasury yields. Yield to worst is defined as the lowest potential yield that can be received on a bond without the issuer actually defaulting and reflects the possibility of the bond being called at an unfavorable time for the holder. J.P. Morgan Domestic HY, J.P. Morgan Euro HY, and J.P. Morgan CEMBI Non-IG indexes were used for Spreads and Industry Weights. Past performance is not indicative of comparable future results. Guide to the Markets U.S. Data are as of 12/31/14.
-
Emerging Market Debt
1,317Russia
Local denominated debt, 5 years, spread to Treasuries, basis pointsEMD Indices by Region EMD Sovereign Spreads
Brazil 27% Latin America 35%
Latin America 30%80%
100%
1,089Brazil
India
TurkeyS. Africa 9%Turkey 10%
Poland 11%
Mexico 20%
Asia 21%
Asia 39%
Europe 31%
Europe 13%
35% 30%
40%
60%
80%
592
Turkey
Indonesia
ColombiaEMD Indices by Credit Ratings
n
c
o
m
e
Other 23% Middle East & Africa 13%
Middle East & Africa 18%
Asia 21%
0%
20%
Local Sovereign USD Sovereign USD Corporate
Mexico
China
Philippines
5 year average
F
i
x
e
d
I
n
Current spread
Graph Key
Investment Grade 85%
Investment Grade 65%
Investment Grade 69%60%
80%
100%
146
49
0 200 400 600 800 1,000 1,200 1,400
Hungary
PolandNon Investment
Grade 15%
Non Investment Grade 35%
Non Investment Grade 31%
0%
20%
40%
Local Sovereign USD Sovereign USD Corporate
40
Source: J.P. Morgan Global Economic Research, FactSet, 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 Emerging Bond Index Broad (CEMBI) is a USD-denominated external debt index tracking bonds issued by corporations in developing nations. The J.P. Morgan Government Bond Index EM (GBI-EM) is a local currency denominated index tracking bonds issued by emerging market sovereigns. Past performance is not indicative ofComparable future results. Index breakdown may not equate to 100% due to rounding.Guide to the Markets U.S. Data are as of 12/31/14.
g g p
633
626288
428
348
181
168
-
Fixed Income Sector Returns
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 4Q14 Cum. Ann.
EMD USD EMD LCL. EMD LCL. Treas. Gbl. HY EMD LCL. TIPS Gbl. HY Gbl. HY Muni Treas. Gbl. HY Gbl. HY
10.2% 15.2% 18.1% 13.7% 59.4% 15.7% 13.6% 19.6% 7.3% 8.7% 1.9% 115.3% 8.0%Barclays
10-yrs. '05 - '14
EMD LCL. Gbl. HY TIPS Gbl. Sov. EMD USD Gbl. HY Muni EMD USD Gbl. Corp. EMD USD Barclays Agg EMD USD EMD USD
6.3% 13.7% 11.6% 9.4% 29.8% 14.8% 12.3% 17.4% 1.8% 7.4% 1.8% 111.5% 7.8%
Gbl. HY EMD USD Gbl. Sov. MBS Gbl. Corp. EMD USD Treas. EMD LCL. Asset Alloc. MBS MBS EMD LCL. EMD LCL.
3.6% 9.9% 10.9% 8.3% 23.7% 12.2% 9.8% 16.8% -1.3% 6.1% 1.8% 90.4% 6.7%
TIPS Gbl. Corp. Treas. Barclays Agg EMD LCL. Asset Alloc.Barclays
Agg Gbl. Corp. MBSBarclays
Agg Muni Asset Alloc. Asset Alloc.
2 8% 8 3% 9 0% 5 2% 22 0% 7 5% 7 8% 12 5% 1 4% 6 0% 1 4% 67 4% 5 3%2.8% 8.3% 9.0% 5.2% 22.0% 7.5% 7.8% 12.5% -1.4% 6.0% 1.4% 67.4% 5.3%
Treas. Gbl. Sov. Asset Alloc. Muni Asset Alloc. Gbl. Corp. EMD USD Asset Alloc. Barclays Agg Treas. Asset Alloc. Muni Muni
2.8% 7.3% 7.2% 1.5% 16.2% 7.0% 7.3% 8.3% -2.0% 5.1% 0.1% 64.4% 5.1%
Muni Asset Alloc. Barclays Agg Asset Alloc. TIPSBarclays
Agg Asset Alloc. TIPS Muni Asset Alloc. TIPS Gbl. Corp. Gbl. Corp.
2.7% 6.9% 7.0% -1.5% 11.4% 6.5% 6.9% 7.0% -2.2% 3.9% 0.0% 60.5% 4.8%
MBS MBS MBS TIPS M i TIPS MBS M i T TIPS Gbl C MBS MBS
n
c
o
m
e
MBS MBS MBS TIPS Muni TIPS MBS Muni Treas. TIPS Gbl. Corp. MBS MBS
2.6% 5.2% 6.9% -2.4% 9.9% 6.3% 6.2% 5.7% -2.7% 3.6% -0.3% 59.0% 4.7%Barclays
Agg Muni EMD USD EMD LCL.Barclays
Agg Gbl. Sov. Gbl. Sov.Barclays
Agg Gbl. Sov. Gbl. Corp. EMD USDBarclays
AggBarclays
Agg2.4% 4.7% 6.2% -5.2% 5.9% 6.1% 5.2% 4.2% -4.9% 2.5% -0.6% 58.4% 4.7%
Asset Alloc. Barclays Agg
Gbl. Corp. Gbl. Corp. MBS Treas. Gbl. Corp. MBS EMD USD Gbl. HY Gbl. HY Treas. Treas.
1 7% 4 3% 6 1% 11 2% 5 9% 5 9% 4 0% 2 6% 5 3% 0 0% 2 5% 53 5% 4 4%
F
i
x
e
d
I
n
1.7% 4.3% 6.1% -11.2% 5.9% 5.9% 4.0% 2.6% -5.3% 0.0% -2.5% 53.5% 4.4%
Gbl. Corp. Treas. Muni EMD USD Gbl. Sov. MBS Gbl. HY Treas. TIPS Gbl. Sov. Gbl. Sov. TIPS TIPS
-2.7% 3.1% 4.3% -12.0% 4.3% 5.4% 3.1% 2.0% -8.6% -2.8% -3.1% 53.4% 4.4%
Gbl. Sov. TIPS Gbl. HY Gbl. HY Treas. Muni EMD LCL. Gbl. Sov. EMD LCL. EMD LCL. EMD LCL. Gbl. Sov. Gbl. Sov.
-8.8% 0.4% 3.2% -26.9% -3.6% 4.0% -1.8% 1.8% -9.0% -5.7% -5.7% 30.3% 2.7%Source: Barclays Capital FactSet J P Morgan Asset Management Past performance is not indicative of future returns Fixed income sectors shown above are provided by Barclays
41
Source: Barclays Capital, FactSet, J.P. Morgan Asset Management. Past performance is not indicative of future returns. Fixed income sectors shown above are provided by Barclays Capital unless otherwise noted and are represented by Broad Market: Barclays Capital U.S. Aggregate Index; MBS: Fixed Rate MBS Index; Corporate: Gbl. Corporates; Municipals: Muni Bond 10-Year Index; Emerging Debt USD: J.P. Morgan EMBIG Diversified Index; Emerging Debt LCL: J.P. Morgan EM Global Index; Gbl. High Yield: Global Corporate High Yield Index; Treasuries: Barclays Capital; U.S. Treasury; TIPS: Barclays Capital TIPS; Gbl. Sovereigns: Global Treasury ex U.S.. The Asset Allocation portfolioassumes the following weights: 20% in MBS, 20% in Gbl. Corporate,15% in Municipals, 5% in Emerging Debt USD, 5% in Emerging Debt LCL, 10% in Gbl. High Yield, 15% in Treasuries, 5% in TIPS, 5% in Gbl. Sovereigns. Asset allocation portfolio assumes annual rebalancing. Guide to the Markets U.S. Data are as of 12/31/14.
-
Global Equity Markets
Weights in MSCI All Country World Index% global market capitalization, float adjusted
Country / Region
4Q14 2014
Local USD Local USD
United States51%
Europe ex-U.K.16%
U.K. 7%EmergingMarkets
%
y g
Regions / Broad IndexesU.S. (S&P 500) - 4.9 - 13.7
EAFE 1.8 -3.5 6.4 -4.5
Europe ex-U K 0 2 -4 3 7 4 -5 811%
Japan7%
C
a
n
a
d
a
4
%
Global Equity Market CorrelationsRolling 1 year correlations 30 countries
Europe ex-U.K. 0.2 -4.3 7.4 -5.8
Pacif ic ex-Japan 3.1 -1.5 5.8 -0.3
Emerging Markets 0.1 -4.4 5.6 -1.8
MSCI: Selected Countries
0.50
0.60
0.70
0.80
0.90Rolling 1-year correlations, 30 countries
o
n
a
l
United Kingdom -0.4 -4.2 0.5 -5.4
France -1.7 -5.8 3.6 -9.0
Germany 4.0 -0.4 2.8 -9.8
Japan 6.7 -2.4 9.8 -3.7
0.00
0.10
0.20
0.30
0.40
'95 '97 '99 '01 '03 '05 '07 '09 '11 '13
Dec. 2014: 0.44
I
n
t
e
r
n
a
t
i
o China 7.0 7.2 8.3 8.3
India 1.5 -0.7 26.4 23.9
Brazil -7.5 -14.8 -2.8 -13.7
Russia -5.9 -32.8 -12.1 -45.9
42
95 97 99 01 03 05 07 09 11 13Source: Standard & Poors, MSCI, FactSet, J.P. Morgan Asset Management.All return values are MSCI Gross Index (official) data. Chart is for illustrative purposes only. Past performance is not indicative of future results. Please see disclosure page for index definitions. Countries included in global correlations include Argentina, South Africa, Japan, UK, Canada, France, Germany, Italy, Australia, Austria, Brazil, China, Colombia, Denmark, Finland, Hong Kong, India, Malaysia, Mexico, Netherlands, New Zealand, Peru, Philippines, Portugal, Korea, Spain, Taiwan, Thailand, Turkey, United States.Guide to the Markets U.S. Data as of 12/31/14.
-
International Equity Earnings and Valuations
18x
Forward Price to EarningsEarnings per Share
26007/08 Peak Current % Change
EPS for next 12-month consensus, local currency, rebased to 100 P/E ratios for next 12-month consensus EPSAverage Current
16x
220
240
gMSCI EM 217 167 -23%S&P 500 150 179 19%MSCI Europe 161 123 -24%
MSCI EM 11.3x 11.0xS&P 500 13.8x 16.2xMSCI Europe 12.0x 14.1x
12x
14x
180
200
10x
o
n
a
l
120
140
160
6x
8x
'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
I
n
t
e
r
n
a
t
i
o
'05 '06 '07 '08 '09 '10 '11 '12 '13 '1480
100
43
04 05 06 07 08 09 10 11 12 13 14Source: MSCI, FactSet, J.P. Morgan Asset Management. Forward Price to Earnings Ratio is based on each index price, divided by consensus estimates for earnings per share (EPS) in the next 12 months (NTM), and is provided by FactSet Market Aggregates. Past performance is not indicative of future returns.
Guide to the Markets U.S.
Data are as of 12/31/14.
05 06 07 08 09 10 11 12 13 14
-
Global Economic Growth
Year-over-year % chg. forecasts from JPMSIEmerging Market Country Real GDP Growth
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15
Historical
3Q15
JPMSI Forecast
8%
10%
0%
2%
4%
6%
8%
Year over year % chg forecasts from JPMSIDeveloped Market Country Real GDP Growth
Hi t i l JPMSI F t
-4%
-2%
0%
Emerging Markets China India Korea Mexico South Africa Russia Brazil
o
n
a
l
Year-over-year % chg. forecasts from JPMSI
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15
Historical
3Q15
JPMSI Forecast
4%
6%
8%
10%
I
n
t
e
r
n
a
t
i
o
-4%
-2%
0%
2%
Developed Countries U S U K Canada Germany France Italy Japan
44
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.
Guide to the Markets U.S.
Data are as of 12/31/14.
Developed Countries U.S. U.K. Canada Germany France Italy Japan
-
Manufacturing Momentum
Global Purchasing Managers Index for Manufacturing
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Global 51.4 50.8 51.0 50.1 50.4 50.4 50.6 51.5 51.7 51.9 52.9 52.9 53.0 53.2 52.4 51.9 52.2 52.6 52.4 52.6 52.2 52.2 51.8 51.6U.S. 55.8 54.3 54.6 52.1 52.3 51.9 53.7 53.1 52.8 51.8 54.7 55.0 53.7 57.1 55.5 55.4 56.4 57.3 55.8 57.9 57.5 55.9 54.8 53.9Canada 50.5 51.7 49.3 50.1 53.2 52.4 52.0 52.1 54.2 55.6 55.3 53.5 51.7 52.9 53.3 52.9 52.2 53.5 54.3 54.8 53.5 55.3 55.3 53.9U.K. 51.0 48.2 50.1 50.4 51.9 52.5 54.5 58.0 57.0 56.4 57.9 57.0 56.5 56.5 55.5 57.0 56.4 56.7 54.9 52.6 51.6 53.3 53.3 52.5Euro Area 47.9 47.9 46.8 46.7 48.3 48.8 50.3 51.4 51.1 51.3 51.6 52.7 54.0 53.2 53.0 53.4 52.2 51.8 51.8 50.7 50.3 50.6 50.1 50.8Euro Area 47.9 47.9 46.8 46.7 48.3 48.8 50.3 51.4 51.1 51.3 51.6 52.7 54.0 53.2 53.0 53.4 52.2 51.8 51.8 50.7 50.3 50.6 50.1 50.8Germany 49.8 50.3 49.0 48.1 49.4 48.6 50.7 51.8 51.1 51.7 52.7 54.3 56.5 54.8 53.7 54.1 52.3 52.0 52.4 51.4 49.9 51.4 49.5 51.2France 42.9 43.9 44.0 44.4 46.4 48.4 49.7 49.7 49.8 49.1 48.4 47.0 49.3 49.7 52.1 51.2 49.6 48.2 47.8 46.9 48.8 48.5 48.4 47.5Italy 47.8 45.8 44.5 45.5 47.3 49.1 50.4 51.3 50.8 50.7 51.4 53.3 53.1 52.3 52.4 54.0 53.2 52.6 51.9 49.8 50.7 49.0 49.0 48.4Spain 46.1 46.8 44.2 44.7 48.1 50.0 49.8 51.1 50.7 50.9 48.6 50.8 52.2 52.5 52.8 52.7 52.9 54.6 53.9 52.8 52.6 52.6 54.7 53.8Greece 41.7 43.0 42.1 45.0 45.3 45.4 47.0 48.7 47.5 47.3 49.2 49.6 51.2 51.3 49.7 51.1 51.0 49.4 48.7 50.1 48.4 48.8 49.1 49.4I l d 50 3 51 5 48 6 48 0 49 7 50 3 51 0 52 0 52 7 54 9 52 4 53 5 52 8 52 9 55 5 56 1 55 0 55 3 55 4 57 3 55 7 56 6 56 2 56 9
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Ireland 50.3 51.5 48.6 48.0 49.7 50.3 51.0 52.0 52.7 54.9 52.4 53.5 52.8 52.9 55.5 56.1 55.0 55.3 55.4 57.3 55.7 56.6 56.2 56.9Australia 40.2 45.6 44.4 36.7 43.8 49.6 42.0 46.4 51.7 53.2 47.7 47.6 46.7 48.6 47.9 44.8 49.2 48.9 50.7 47.3 46.5 49.4 50.1 46.9Japan 47.7 48.5 50.4 51.1 51.5 52.3 50.7 52.2 52.5 54.2 55.1 55.2 56.6 55.5 53.9 49.4 49.9 51.5 50.5 52.2 51.7 52.4 52.0 52.0China 52.3 50.4 51.6 50.4 49.2 48.2 47.7 50.1 50.2 50.9 50.8 50.5 49.5 48.5 48.0 48.1 49.4 50.7 51.7 50.2 50.2 50.4 50.0 49.6Indonesia 49.7 50.5 51.3 51.7 51.6 51.0 50.7 48.5 50.2 50.9 50.3 50.9 51.0 50.5 50.1 51.1 52.4 52.7 52.7 49.5 50.7 49.2 48.0 47.6Korea 49.9 50.9 52.0 52.6 51.1 49.4 47.2 47.5 49.7 50.2 50.4 50.8 50.9 49.8 50.4 50.2 49.5 48.4 49.3 50.3 48.8 48.7 49.0 49.9
I
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Taiwan 51.5 50.2 51.2 50.7 47.1 49.5 48.6 50.0 52.0 53.0 53.4 55.2 55.5 54.7 52.7 52.3 52.4 54.0 55.8 56.1 53.3 52.0 51.4 50.0India 53.2 54.2 52.0 51.0 50.1 50.3 50.1 48.5 49.6 49.6 51.3 50.7 51.4 52.5 51.3 51.3 51.4 51.5 53.0 52.4 51.0 51.6 53.3 54.5Brazil 53.2 52.5 51.8 50.8 50.4 50.4 48.5 49.4 49.9 50.2 49.7 50.5 50.8 50.4 50.6 49.3 48.8 48.7 49.1 50.2 49.3 49.1 48.7 50.2Mexico 55.0 53.4 52.2 51.7 51.8 51.3 49.7 50.8 50.0 50.2 51.9 52.6 54.0 52.0 51.7 51.8 51.9 51.8 51.5 52.1 52.6 53.3 54.3 55.3Russia 52.0 52.0 50.8 50.6 50.4 51.7 49.2 49.4 49.4 51.8 49.4 48.8 48.0 48.5 48.3 48.5 48.9 49.1 51.0 51.0 50.4 50.3 51.7 48.9
45
Source: Markit, J.P. Morgan Asset Management.
Heatmap colors are based on PMI relative to the 50 level, which indicates acceleration or deceleration of the sector, for the time period shown.
Guide to the Markets U.S.
Data are as of 12/31/14.
-
Sovereign Debt Stresses
China
10%Bubble size = 10-year
government bond yield
GDP Growth, Gross Debt to GDP and Borrowing Costs
Turkey
China
India
IndonesiaMalaysia
10%
5%
4%
6%
8%
2
0
1
4
F
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BrazilSouth Africa
Mexico
U.S.
y
Korea
France
GermanyJapanRussia
Singapore
P t l
EU
Australia
U.K.
0%
2%
4%
G
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2
0
1
2
2
Greece
ItalySpain
Portugal
-4%
-2%
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-8%
-6%
0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200%
I
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Gross Debt-to-GDP Ratios (2013)245%
Developed MarketsEmerging Markets
46
G oss ebt to G at os ( 0 3)Source: IMF, FactSet, Bloomberg, J.P. Morgan Economics, Barclays, J.P. Morgan Asset Management.Growth and debt data are based on the October 2014 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.Guide to the Markets U.S. Data are as of 12/31/14.
-
Europe: Cyclical Headwinds and Tailwinds
13.9%14%35%12/31/14
Government Fiscal DragEuropean Sovereign Funding Costs10-year benchmark bond yield % of potential GDP, reduction in structural deficits from one period to the next
10%
12%
25%
30%
Greece 9.42%Portugal 2.67%Italy 1.86%Spain 1.61%Ireland 1.24%Germany 0.53%
2010-2013
2013-2016
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6.0%
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6%
8%
20%
25%
M
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3.5%4.0%
3.3% 3.1%2.7%
0.5%1.2% 1.1% 1.4%
0.5% 0.8%
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2%
4%
o
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15%
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I
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n
a
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'08 '09 '10 '11 '12 '130%
5%
L
e
s
47
08 09 10 11 12 13Source: Tullett Prebon, FactSet, IMF, J.P. Morgan Asset Management. Data are based on the October 2014 World Economic Outlook. Government deficits are calculated by the IMF as the general government structural balance. The structural balance excludes the normal impact of the business cycle, providing a clearer measure of the independent impact of changes in government spending and taxation on demand in the economy.*Eurozone includes a J.P. Morgan Asset Management estimate for the 2016 structural deficit as a % of GDP. Guide to the Markets U.S. Data are as of 12/31/14.
-
Europe: Unemployment, Inflation and Credit Markets
20%
10%
12%
Euro Area
Oct. 2014: 11.5%Unemployment Rates Euro Area Credit Growth
Nonfinancial Corporations
% year-over-year loan growth
5%
10%
15%
4%
6%
8%
10%
U.S.
Nov. 2014: 5.8%
Nonfinancial Corporations
Nov. 2014: -1.6%Households Nov. 2014: -0.4%
-5%
%
'06 '07 '08 '09 '10 '11 '12 '13 '14'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '140%
2%
Europe Inflation
U.S.
Euro Area Asset-Backed Securities OutstandingYear over year % change billions
o
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l
CoreEuro AreaPeriphery
Year-over-year % change billions
2%
3%
4%
5%
2 000
2,500
3,000
I
n
t
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r
n
a
t
i
o
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14-1%
0%
1%
2%
1,000
1,500
2,000
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
48
Source: Eurostat, BLS, SIFMA, ECBC, FactSet, IMF, J.P. Morgan Asset Management.(Top left) Unemployment rate levels for the U.S. and Euro Area are not directly comparable due to calculation differences. (Bottom right) Euro Area securitization outstanding includes Covered Bonds, Asset-Backed Securities, Residential Mortgage-Backed Securities, Commercial Real Estate Mortgage-Backed Securities, and Small and Medium-Sized Enterprise Asset-Backed Securities.Guide to the Markets U.S.Data are as of 12/31/14.
03 04 05 06 07 08 09 10 11 12 13
-
Japan: Economic Snapshot
120
130
18,000
20,000Inflation and Japanese Government Bond Yields Year-over-year % change for inflation Japanese Yen per U.S. Dollar Nikkei 225
Japanese Yen and the Stock Market
6%
8%
90
100
110
120
10,000
12,000
14,000
16,000Owners of Japanese Gov. BondsOther Domestic 74%Bank of Japan 21%Foreign 4%
4%'05 '06 '07 '08 '09 '10 '11 '12 '13 '14
70
80
6,000
8,000
10,000
Government Fiscal Balance% of GDP IMF
0%
2%
o
n
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l
Nominal 10-year Yield % of GDP-12%-10%
-8%
-6%
-4%
IMFforecast
'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
-2%
I
n
t
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n
a
t
i
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Core CPI
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
-2%
0%
2%
4%
49
88 90 92 94 96 98 00 02 04 06 08 10 12 14
Source: (Left) Bank of Japan, 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, insurance and pensions, public pensions, and households. Values may not sum to 100% due to rounding. Government bond data is calculated from the Bank of Japans December 2014 flow of funds.
Guide to the Markets U.S. Data are as of 12/31/14.
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
-
China: Economic and Credit Growth
16% 40%
China Real GDP ContributionYear-over-year % change Year-over-year % change, 3-month moving average for credit
Credit* vs. GDP Growth
12%30%
35%InvestmentConsumptionNet Exports
9.6%
9.2%
10.4%9.3%
Credit
Real GDP
GDP Deflator
4.5%
8.1%
5.5% 4.5%
3.9% 4.2%
8%
15%
20%
25%7.7% 7.7%
0.9% 0 4%
4.2%4.6% 4.5% 5.2% 4.1% 3.8%
0%
4%
5%
10%
15%
o
n
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l
-3.5%
0.4%
-0.4% -0.2% -0.3%
-4%
0%
2008 2009 2010 2011 2012 2013-5%
0%
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
I
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t
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n
a
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50
03 04 05 06 07 08 09 10 11 12 13 14Source: National Bureau of Statistics of China, The Peoples Bank of China, EM Advisors Group, FactSet, CEIC, J.P. Morgan Asset Management.Values may not sum to 100% due to rounding. *As defined by Total Social Financing: RMB bank loans, bankers acceptance bills, trust loans, entrusted loans, corporate bond financing, foreign currency loans, and non-financial equity financing. TSF data uses an assumption of outstanding credit in Dec. 2001.Guide to the Markets U.S. Data are as of 12/31/14.
-
Demographics and Development
$60,000
The Impact of UrbanizationUrbanization ratios and GDP per capita (current USD), 1961 2013
Demographic Snapshot
Investment(% of GDP)
GDP Per Capita
Population % of Pop. under 20
$50,000 Japan
U.S.2013: $53,142 Developed
U.S. $53,101 316 mm 26% 20%
Canada 51,990 35 22 24
U.K. 39,567 64 24 14
( )
$30,000
$40,000
D
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a
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South
Germany 44,999 81 18 17
France 43,000 64 24 19
Japan 38,491 127 18 21
Italy 34,715 60 19 17
$10,000
$20,000
G
China
South Korea
o
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a
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y ,
Emerging
Korea 24,329 50 22 26
India 1,505 1,243 38 35
Brazil 11,311 198 33 18
$-
,
15% 25% 35% 45% 55% 65% 75% 85% 95%
Urbanization Ratio
India
I
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,
Mexico 10,630 118 38 22
Russia 14,819 143 21 24
China 6,747 1,361 20 48
51
Urbanization RatioSource: FactSet, World Bank, United Nations, J.P. Morgan Global Economics Research, OECD, Bureau of Statistics of China, Ministry of Statistics & Programme Implementation of India, J.P. Morgan Asset Management.
GDP per capita and Investment as % of GDP in the Demographic Snapshot table are IMF estimates for 2014.
Guide to the Markets U.S.
Data are as of 12/31/14.
-
Emerging Market Currencies
Russia
25%
2014 Currency PerformancePerformance of foreign currency versus USD
s
Commodity Exposure and External Vulnerability
ChileIndonesia
Russia
Colombia Depreciation (-0% to -10%)
17%
m
m
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E
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s
2014Currency Performance
-13.4%
-18.7%
-45.2%
Chile
Colombia
Russia
Brazil MexicoSouth Africa
( )
Depreciation (over -10%)
1%
9%
-8% -6% -4% -2% 0% 2% 4% 6% 8%
N
e
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C
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-9.5%
-11.1%
-11.2%
South Africa
Mexico
Brazil
ChinaIndia
Turkey-7%
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I
m
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s
-2.4%
-4.0%
-8.1%
China
Korea
Turkey
Korea
-23%
-15%
I
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n
a
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N
e
t
C
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Current Account SurplusCurrent Account Deficit
-1.7%
-2.0%
-50% -40% -30% -20% -10% 0% 10% 20%
Indonesia
India
52
Current Account SurplusCurrent Account DeficitSource: IMF, U.N. Commodity Trade Statistics Database, FactSet, J.P. Morgan Asset Management.Commodities defined by SITC codes 0-4. Net commodity exporters/importers plotted as a % of GDP. Current accounts as a percentage of GDP are IMF estimates for 2014.Guide to the Markets U.S. Data are as of 12/31/14.
-
Emerging Market Equities
350
400
EM Earnings by RegionMSCI EM Index by RegionEPS for next 12-month consensus, local currency, rebased to 100
EuropeAfrica/Mideast
8%Latin America
ex Brazil7%
Brazil12%
150
200
250