jpm guide to the markets 3q 2014

4Q | 20133Q | 20144Q | 2013As of September 30, 2013

3Q | 2014As of June 30, 2014

Guide to the MarketsGuide to the MarketsGuide to the MarketsGuide to the Markets

1

Global Market Insights Strategy Team

Americas Europe Asia

Dr. David P. Kelly, CFANew York

Stephanie H. FlandersLondon

Tai HuiHong Kong

Joseph S. Tanious, CFALos Angeles

Andrew D. GoldbergLondon

Geoff LewisHong Kong

Andrs D. Garcia-Amaya, CFANew York

Maria Paola ToschiMilan

Yoshinori ShigemiTokyo

Anastasia V. Amoroso, CFAHouston

Vincent JuvynsLuxembourg

Grace Tam, CFAHong Kong

James C. Liu, CFAChicago

Manuel Arroyo Ozores, CFAMadrid

Ian HuiHong Kong

Julio C. Callegari Lucia Gutierrez Ben LukgSo Paulo Madrid Hong Kong

Brandon D. Odenath, CFANew York

Tilmann Galler, CFAFrankfurt

Gabriela D. SantosNew York

Kerry Craig, CFALondonNew York London

Anthony M. WileNew York

David M. LebovitzLondon

Ainsley E. WoolridgeNew York

Alexander W. DrydenLondon

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 June 30, 2014 or most recently available.

Page Reference

4. S&P 500 Index at Inflection Points5. Returns and Valuations by Style6. Returns and Valuations by Sector

35. Owners of Treasury Securities36. Credit Conditions37. High Yield Bonds38. Municipal Finance39. Global Fixed Income

Equities Page 4

7. Stock Valuation Measures: S&P 500 Index8. Corporate Profits and Leverage9. Sources of Earnings per Share Growth10. Sources of Total Return11. Multiples, Confidence, Style and Interest Rates12. Interest Rates and Equities13. Deploying Corporate Cash

40. Emerging Market Debt

41. Global Equity Markets42. Global Economic Growth43. Manufacturing Momentum44. The Importance of Exports

International Page 41

p y g p14. Annual Returns and Intra-year Declines15. Equity Correlations and Volatility16. Stock Market Since 1900

17. Economic Growth and the Composition of GDP18. Consumer Finances

p p45. Sovereign Debt Stresses46. Global Monetary Policy47. MSCI EAFE Index at Inflection Points48. Europe: Cyclical Headwinds and Tailwinds49. Europe: Unemployment and Inflation50. Europe: Economy and Earnings51. Japan: Economic Snapshot

Economy Page 17

18. Consumer Finances19. Cyclical Sectors20. Residential Real Estate21. Commercial Real Estate22. Long-term Drivers of Economic Growth23. Federal Finances24. Employment25 Labor Market Perspectives

51. Japan: Economic Snapshot52. International Equity Earnings and Valuations53. Demographics and Development54. Emerging Market Currencies55. China: Economic and Credit Growth56. Global Equity Valuations Developed Markets57. Global Equity Valuations Emerging Markets

25. Labor Market Perspectives26. Employment and Income by Educational Attainment27. Consumer Price Index28. Energy and the Economy29. Consumer Confidence and the Stock Market

30 Fixed Income Sector Returns

58. Asset Class Returns59. Correlations and Volatility60. Alternative Asset Class Returns61. Mutual Fund Flows62. Yield Alternatives: Domestic and Global63 Global Commodities

Fixed Income

Asset Class

Page 30

Page 58

3

30. Fixed Income Sector Returns31. Interest Rates and Inflation32. Fixed Income Yields and Returns33. Sources of Bond Returns34. The Fed and Interest Rates

63. Global Commodities64. Historical Returns by Holding Period65. Diversification and the Average Investor66. Cash Accounts67. Corporate DB Plans and Endowments

S&P 500 Index at Inflection Points

2,000Index level 1,527 1,565 1,960P/E ratio (fwd.) 25.6x 15.2x 15.6xDividend yield 1 1% 1 8% 2 0%

S&P 500 Index Jun. 30, 2014 P/E (fwd.) = 15.6x

1,960

Characteristic Mar-2000 Oct-2007 Jun-2014

1,600

1,800Dividend yield 1.1% 1.8% 2.0% 10-yr. Treasury 6.2% 4.7% 2.5%

E

q

u

i

t

i

e

s

Mar. 24, 2000 P/E (fwd.) = 25.6x

1,527

Oct. 9, 2007 P/E (fwd.) = 15.2x

1,565

1,200

1,400

+101% +190%+106%

800

1,000-49%

Dec 31 1996

-57%

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14600

Source: 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

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

4

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 6/30/14.

Returns and Valuations by Style

2Q 2014 Year to Date Current P/E vs. 20-year avg. P/E

Value Blend Growth Value Blend Growth

g

e

g

e

15.0 15.6 18.3

Value Blend Growth

r

g

e

E

q

u

i

t

i

e

s

L

a

r

g 5.1% 5.2% 5.1%

L

a

r

g 8.3% 7.1% 6.3%

M

i

d 5.6% 5.0% 4.4%

M

i

d 11.1% 8.7% 6.5%

14.0 16.2 21.0

17.0 18.4 19.8

14.1 16.4 21.8

16 7 18 5 20 7

L

a

r

M

i

d

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 3.4% cheaper than their historical average.

S

m

a

l

l

2.4% 2.0% 1.7%S

m

a

l

l

4.2% 3.2% 2.2%16.7 18.5 20.7

14.4 17.2 21.4Sm

a

l

l

Value Blend Growth

L

a

r

g

e

107.4% 96.6% 87.1%

M

i

d 120.1% 111.7% 90.7%

Value Blend Growth Value Blend Growth

L

a

r

g

e

35.7% 45.2% 59.9%

L

a

r

g

e

238.2% 224.4% 226.2%

M

i

d 63.2% 63.2% 61.4%

M

i

d 316.6% 293.9% 273.1%

M

120.1% 111.7% 90.7%

S

m

a

l

l

116.1% 107.6% 96.5%

Source: Russell Investment Group Standard & Poors FactSet J P Morgan Asset Management

M

63.2% 63.2% 61.4%

M

316.6% 293.9% 273.1%

S

m

a

l

l

48.1% 55.0% 61.3%

S

m

a

l

l

266.2% 273.8% 280.7%

5

Source: Russell Investment Group, Standard & Poor s, 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 6/30/14, illustrating market returns since the S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 6/30/14, 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.Guide to the Markets U.S.


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 I E C C T U M S

S&P Weight 16.1% 18.8% 13.3% 10.5% 10.9% 11.8% 9.5% 2.4% 3.2% 3.5% 100.0%Russell Growth Weight 5.2% 27.7% 12.8% 12.3% 6.4% 18.4% 10.5% 2.3% 0.1% 4.3% 100.0%

Russell Value Weight 28.5% 8.9% 13.1% 10.5% 13.9% 6.3% 6.9% 2.3% 6.3% 3.4% 100.0%

YTD 5.0 8.9 10.6 4.0 13.0 0.6 5.2 4.3 18.7 8.6 7.1

2Q14 2.3 6.5 4.5 3.9 12.1 3.5 4.7 3.8 7.8 5.6 5.2

W

e

i

g

h

t

(

%

)

Since Market Peak (October 2007)

-26.8 62.0 93.0 44.3 43.2 97.9 92.5 24.0 41.6 35.6 45.2

Since Market Low (March 2009)

299.8 239.4 211.1 296.7 162.3 358.1 170.0 136.8 147.9 223.0 224.4

Beta to S&P 500 1.43 1.12 0.70 1.20 0.99 1.13 0.57 0.63 0.48 1.28 1.00

Correl to Treas Yields 0 33 0 09 0 08 0 29 0 23 0 18 0 15 0 35 0 43 0 16 0 11

R

e

t

u

r

n

Correl to Treas. Yields 0.33 0.09 -0.08 0.29 0.23 0.18 -0.15 -0.35 -0.43 0.16 0.11

Forward P/E Ratio 13.1x 15.2x 16.7x 16.2x 14.7x 17.7x 17.7x 13.4x 16.6x 17.1x 15.6x15-yr avg. 12.4x 21.8x 17.0x 16.5x 13.7x 18.0x 17.3x 16.6x 13.6x 15.8x 15.8x

Trailing P/E Ratio 15.9x 19.0x 24.1x 18.0x 16.2x 21.1x 20.0x 10.8x 20.4x 19.4x 18.5x20-yr avg. 16.3x 26.3x 24.4x 20.3x 17.4x 19.2x 21.2x 20.0x 14.8x 19.3x 19.5x

Dividend Yield 1.8% 1.6% 1.7% 2.1% 2.3% 1.5% 2.7% 4.9% 3.7% 2.1% 1.9%

P

/

E

i

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 6/30/14. Since Market Low represents period 3/9/09 6/30/14. 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

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

6

y p g (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 6/30/14.

Stock Valuation Measures: S&P 500 Index

U.S. Equity: Valuation Measures Historical AveragesValuation Measure Description

Latest 1-year ago5-year

avg.10-year

avg.25-year

avg.*P/E Price to Earnings 15.6x 13.8x 13.4x 13.8x 15.5xCAPE Shiller's P/E 25.6 24.4 21.7 22.9 25.1Div. Yield Dividend Yield 1.9% 2.0% 2.0% 2.0% 2.1%PEG Price/Earnings to Growth 1.5 0.8 1.1 1.7 1.4P/B Price to Book 2 8 2 6 2 2 2 4 2 9

E

q

u

i

t

i

e

s

P/B Price to Book 2.8 2.6 2.2 2.4 2.9P/CF Price to Cash Flow 11.0 10.3 8.9 9.5 10.6EY Spread EY Minus Baa Yield 1.7% 1.5% 2.0% 1.2% -0.7%

14%S&P 500 Earnings Yield vs. Baa Bond Yield

26xS&P 500 Index: Forward P/E Ratio

8%

10%

12%S&P 500 Earnings Yield:

(Inverse of fwd. P/E) 6.4%

16x

18x

20x

22x

24x

Current: 15.6x

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '142%

4%

6%

Moodys Baa Yield: 4.7%

Source: Standard & Poors, FactSet, Robert Shiller Data, FRB, J.P. Morgan Asset Management. Price to Earnings is price divided by consensus analyst estimates of earnings

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '148x

10x

12x

14x Average: 15.6x

7

Source: Standard & Poor s, 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. Price/Earnings to Growth Ratio is calculated as NTM P/E divided by NTM earnings growth. 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.Latest reflects data as of 6/30/14.Guide to the Markets U.S. Data are as of 6/30/14.

Corporate Profits and Leverage

10%

12%S&P 500 Earnings Per ShareOperating basis, quarterly

Profit Margins

S&P 500 Operating EPS % of Sales per Share1Q14*: $27.32 1Q14:

9.8%

$23

$27

4%

6%

8%

10%

E

q

u

i

t

i

e

s

p g p

1Q14:8.9%

2Q07: $24.06

After Tax Adj Corp Profits % of GDP

$15

$19

0%

2%

'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10

Total Leverage

After-Tax, Adj. Corp. Profits, % of GDP

$7

$11

180%

200%

220%

240%S&P 500, ratio of total debt to total equity, quarterly

-$1

$3

'01 '02 '03 '04 '0 '06 '0 '08 '09 '10 '11 '12 '13 '14 80%

100%

120%

140%

160%

1Q14: 102%

Average: 171%

8

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14Source: BEA, Standard & Poors, Compustat, J.P. Morgan Asset Management.EPS levels are based on operating earnings per share. *Most recently available data is 4Q13 as 1Q14 are Standard & Poors preliminary estimates. Past performance is not indicative of future returns.



'96 '98 '00 '02 '04 '06 '08 '10 '12 '1480%

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 1Q14

20%

30%

40%

E

q

u

i

t

i

e

s

Share of EPS Growth 1Q14Margin 2.6%Revenue 3.6%Share count -0.1%

0%

10%

20%

30%

-20%

-10%

-50%

-40%

-30%

1Q141Q121Q101Q081Q061Q041Q021Q001Q981Q961Q94

9

Source: Standard & Poors, Compustat, J.P. Morgan Asset Management.EPS levels are based on operating earnings per share. Most recently available data is 4Q13 as 1Q14 are Standard & Poors preliminary estimates. 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.



Sources of Total Return

50%

S&P 500 Year-Over-Year Total ReturnTotal return broken into multiples, earnings and dividends, quarterly

20%

30%

40%

E

q

u

i

t

i

e

s

0%

10%

20%

30%

-20%

-10%

Share of Total Return 2Q14

-50%

-40%

-30%

2Q142Q122Q102Q082Q062Q042Q022Q002Q982Q962Q94

QMultiples 12.4%Earnings 9.6%Dividends 2.6%

10

Source: Standard & Poors, IBES, J.P. Morgan Asset Management.Earnings contribution is the measured change in forward earnings per share estimates.



Multiples, Confidence, Style and Interest Rates

27x

110

120

Multiple Expansion and Contraction

Consumer Sentiment Forward P/ES&P 500 forward P/E based on consensus EPS estimates Est. impact of a 10pt. rise in sentiment: +2.0 multiple points*

15x

18x

21x

24x

80

90

100

110

E

q

u

i

t

i

e

s

'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '149x

12x

50

60

70

Correlation Coefficient: 0.52

Relative Performance and Interest Rates Cumulative 5-yrs

20%

30%

40%

3%

4%

5%Relative Performance and Interest Rates Cumulative 5-yrs.

Cyclical vs. Defensive Sectors (LHS)

0%

10%

1%

2%Growth vs. Value Styles (LHS)

10-yr. Treasury Yield (RHS)

11

'10 '11 '12 '13-10% 0%

Source: (Top) Standard & Poors, FactSet, J.P. Morgan Asset Management. *Estimated impact based on coefficients from regression analysis. (Bottom) Standard & Poors, Russell, J.P. Morgan Asset Management. Cyclical sectors include consumer discretionary, financials, technology, industrials, energy and materials of the S&P 500, while defensive sectors include health care, consumer staples, telecom and utilities.Guide to the Markets U.S. Data are as of 6/30/14.

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 Jun. 2014

When yields are

0.4

0.6

E

q

u

i

t

i

e

s

Positive relationship between yield movements and stock

When yields are below 5%, rising rates are generally associated with rising stock prices

Last 12 Months1963 12 Months Ago

Graph Key

0

0.2

returns

o

n

C

o

e

f

f

i

c

i

e

n

t

-0.4

-0.2

Negative relationship between yield movements and

C

o

r

r

e

l

a

t

i

-0.8

-0.6

0% 2% 4% 6% 8% 10% 12% 14% 16%

movements and stock returns

12

0% 2% 4% 6% 8% 10% 12% 14% 16%

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 6/30/14.

10-Year Treasury Yield

Deploying Corporate Cash

$1 400

$1,600

$1 600

$1,700

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

$1,200

$1,300

$1,400

$1,500

$1,600

20%

22%

24%

26%

28%

30%

E

q

u

i

t

i

e

s

$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 '1314%

16%

18%

Cash Returned to ShareholdersDividend Payout Ratio

$100

$120

$140

$160

$27

$30

$33

$36

50%

60%

y$bn, S&P 500 companies, rolling 4-quarter averagesS&P 500 companies, LTM

Dividends per Share

$20

$40

$60

$80

$100

$15

$18

$21

$24

$27

20%

30%

40%

Share Buybacks

13

$20$15'00 '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

20%

Source: 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 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 6/30/14.

Annual Returns and Intra-year Declines

3431

40%

S&P 500 Intra-year Declines vs. Calendar Year ReturnsDespite average intra-year drops of 14.4%, annual returns positive in 26 of 34 years*

YTD 2014

26

1517

26

1512

27 26

7

20

3127

20

26

914

23

13 13

30

610%

20%

30%

E

q

u

i

t

i

e

s

-101 2

-7

4

-2 -10 -13 -233 4

-38 0

6

-7

-13

-8 -9 -8-8

-6 -6 -5-9

-3

-8-11 -12

14

-8 -7 -8-10 -10

-6 -6-10%

%

-17 -18 -17-13

-34

-20 -19-17

-30-34

-14

-28

-16-19

-40%

-30%

-20%

-49

-60%

-50%

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

14

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 2013 excluding 2014 which is year-to-date.Guide to the Markets U.S.Data are as of 6/30/14.

Equity Correlations and Volatility

60%

70%

Large Cap StocksCorrelations Among Stocks

Sovereign Debt Crisis

Lehman Bankruptcy

Great Depression /World War II

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

Daily Volatility of DJIA

Average: 26.9% Jun. 2014: 28.2%

2 0%

2.5%

3.0%

3.5%

60

75

90Volatility Measure 08 Peak Average Latest DJIA (Left) 3.30% 0.72% 0.41%VIX (Right) 80.9 20.0 11.6

Daily Volatility of DJIA

DJIA vol. shownin 3-month

moving average

0.5%

1.0%

1.5%

2.0%

15

30

45

15

'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 top 750 stocks by market capitalization, daily returns, 1926 Jun. 30, 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 6/30/14.

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

16

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.



Economic Growth and the Composition of GDP

10% $18

Real GDP Year-over-year % chg

1Q14

Components of GDP1Q14 nominal GDP, trillions USD

3.2% HousingReal GDP

6%

8%

$12

$14

$16

m

y

1Q14YoY % chg: 1.5% 12.7% Investment Ex-housing

18.3% Govt SpendingAverage:

QoQ % chg: -2.9%

2%

4%

$8

$10

$12

E

c

o

n

o

m 3.0%

-2%

0%

$2

$4

$6 68.9% Consumption

Expansion Average:

2.1%

'65 '70 '75 '80 '85 '90 '95 '00 '05 '10-6%

-4%

-$2

$0

Source: 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

- 3.1% Net Exports

17

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 and the period starting in the second quarter of 2009.



Consumer Finances

13 0%

13.5%$100

Household Debt Service RatioDebt payments as % of disposable personal income, seasonally adjusted

4Q07:13 2%

Consumer Balance Sheet1Q14, Trillions of dollars outstanding, not seasonally adjusted

Total Assets: $95.5tn 3Q-07 Peak: $83.1tn$

10 %

11.0%

11.5%

12.0%

12.5%

13.0%

$80

$90

m

y

1Q80: 10.6%

13.2%Total Assets: $95.5tn

Homes: 24%

1Q-09 Low: $69.7tn

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '129.5%

10.0%

10.5%

$50

$60

$70

E

c

o

n

o

m

2Q14*:9.9%

Household Net WorthBillions USD, not seasonally adjusted 2Q14*:

Deposits: 10%

Pension Funds: 21%

Other Tangible: 6%

$20

$30

$40

$50,000

$60,000

$70,000

$80,000

$90,000y j Q

$83,5472Q07:

$68,901

Other Financial

Other Non-revolving: 1%Revolving (e.g.: credit cards): 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

$40,000Total Liabilities: $13.8tnOther Financial

Assets: 39%

Mortgages: 68%

18

Source: (Left) FRB, J.P. Morgan Asset Management. Data includes households and nonprofit organizations. (Right) BEA, FRB, J.P. Morgan Asset Management. *2Q14 household debt service ratio and 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 6/30/14.

Cyclical Sectors

24

Millions, seasonally adjusted annual rateLight Vehicle Sales

46

47

Manufacturing and Trade InventoriesDays of sales, seasonally adjusted

14

16

18

20

22

m

y

Average: 15.3

Jun. 2014:16.9

40

4142

4344

4546

Apr. 2014: 39.2

'96 '98 '00 '02 '04 '06 '08 '10 '12 '148

10

12

E

c

o

n

o

m

Real Capital Goods OrdersNon defense capital goods orders ex aircraft $ bn seasonally adjusted

Housing StartsTh d ll dj t d l t

'96 '98 '00 '02 '04 '06 '08 '10 '12 '143738

3940

$60

$65

$70

$75

1 200

1,600

2,000

2,400

Non-defense capital goods orders ex. aircraft, $ bn, seasonally adjusted

May 2014:1,001

Thousands, seasonally adjusted annual rate

May 2014:60.9

Average: 1 355

'96 '98 '00 '02 '04 '06 '08 '10 '12 '14$40

$45

$50

$55

'96 '98 '00 '02 '04 '06 '08 '10 '12 '140

400

800

1,200

Average: 56.6

Average: 1,355

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.


Residential Real Estate

40%

Housing Affordability IndexAvg. mortgage payment as a % of household income

130Indexed to 100, seasonally adjustedHome Prices

Case Shiller 20-city

20%

25%

30%

35%

m

y

May 2014: 13.4%

Average: 20 4%115

120

125

Case Shiller 20-cityFHFA Purchase OnlyAverage Existing Home

10%

15%

'75 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10 '12

E

c

o

n

o

m

Average: 20.4%

105

110

115

Home InventoriesMilli l t ll dj t d

90

95

100Millions, annual rate, seasonally adjusted

3 0

3.5

4.0

4.5

May 2014: 2.3

'04 '05 '06 '07 '08 '09 '10 '11 '12 '1380

85

90

'96 '98 '00 '02 '04 '06 '08 '10 '12 '141.5

2.0

2.5

3.0

20

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 the prevailing 30-year fixed-rate mortgage rates and average new home prices excluding a 20% downpayment. (Bottom right) Census Bureau, National Association of Realtors, J.P. Morgan Asset Management. Guide to the Markets U.S.Data are as of 6/30/14.

Commercial Real Estate

25%

10%

Commercial Vacancy Rates by SectorPercent at year end

Cap. Rates, REIT Div. Yields & Treasury Yields

S t 2013Cap. Rates

20%4%

6%

8% Apr. 2014: 6.61%

m

y

Sector 2013 Office 16.7%Retail 10.1%Industrial 9.5%Apartment 4.2%

Apr. 2014: 4.14%

REIT Div. Yield


15% 0%

2%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Commercial Mortgage-Backed Security Issuance

Apr. 2014: 2.65%

E

c

o

n

o

m

y

10%

80

100

120

g g y$ bn, quarterly

U.S. IssuanceForeign Issuance

0%

5%

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '120

20

40

60

21

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14Source: Reis, Inc., PREA, FactSet, J.P. Morgan Asset Management. Cap rate is the rate of return on a real estate investment property based on the expected return that the property will generate. It is calculated by dividing annual income by the total value of the property. Cap rate is for U.S. core properties limited to deal transactions of $2.5 million or greater. Vacancy rate data provided by Reis, Inc. Guide to the Markets U.S.


Long-term Drivers of Economic Growth

16% 5%

ProductivityOutput per hour, nonfarm private business, year-over-year % chg.

Gross Investment and DepreciationPrivate nonresidential fixed investment, % of GDP

Gross investment spending Depreciation

4%

8%

12%

2%

3%

4%

m

y

2013: 0.5%

0%

4%

1990 1995 2000 2005 20100%

1%

1990 1995 2000 2005 2010Ec

o

n

o

m

Real Capital Stock GrowthN id ti l fi d t % h

Labor Force GrowthY % h i l ti d 16+ ki l ki f k

3%

4%

5%

1%

2%

3%Nonresidential fixed assets, year-over-year % chg.

2013 JPMAM

Est: 1.5%

Year-over-year % chg. in population aged 16+ working or looking for work

0%

1%

2%

1990 199 2000 200 2010-1%

0%

1%

1990 1995 2000 2005 2010

2013: -0.4%

22

1990 1995 2000 2005 2010 1990 1995 2000 2005 2010Source: BEA, BLS, FactSet, J.P. Morgan Asset Management.



Federal Finances

-12%

-10%

The 2014 Federal BudgetCBO Baseline forecast, trillions USD

Federal Budget Surplus/Deficit% of GDP, 1990 2024, 2014 CBO Baseline

Forecast$4.0

-8%

-6%

-4%

-2%

0%

m

y

2014: -2.8%

$3.0

$3.5Total Spending: $3.5tn

Other$360bn (10%)

Non defense Disc :

Net Int.: $227bn (6%)

Borrowing:$492bn (14%)

Other: $265bn (8%)

2%

4%'90 '95 '00 '05 '10 '15 '20

E

c

o

n

o

m

Federal Net Debt (Accumulated Deficits)% of GDP, 1940 2024, 2014 CBO Baseline, end of fiscal year

$2.0

$2.5

Defense:$596bn (17%)

Non-defense Disc.:$584bn (17%)

Social Insurance:$1,033bn (29%)

80%

100%

120%y

$1.0

$1.5Social Security:$845bn (24%)

Income:

Corp.: $351bn (10%)

2024: 78.1%

2014:

20%

40%

60%

'40 '44 '48 '52 '56 '60 '64 '68 '72 '76 '80 '84 '88 '92 '96 '00 '04 '08 '12 '16 '20 '24$0.0

$0.5

Total Government Spending Sources of Financing

Medicare & Medicaid:$911bn (26%)

Income:$1,382bn (39%)

Forecast

2014: 73.8%

23

Source: U.S. Treasury, BEA, CBO, St. Louis Fed, J.P. Morgan Asset Management.2014 Federal Budget is based on the CBOs April 2014 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). 2014 numbers are CBO estimates as of April 2014.Guide to the Markets U.S.Data are as of 6/30/14.

Employment

60012%

Civilian Unemployment Rate Employment Total Private Payroll Seasonally adjusted Total job gain/loss (thousands)

200

400

10%

11%

m

y

8.8mmjobs lost

Oct. 2009: 10.0%

-200

0

8%

9%

E

c

o

n

o

m

jobs lost

9.4mm jobs

gained

-600

-400

5%

6%

7%

May 2014: 6.3%

gained

-1,000

-800

3%

4%

5% 50-yr. avg.: 6.1%

24

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13,

'70 '80 '90 '00 '10

Source: BLS, FactSet, J.P. Morgan Asset Management.



Labor Market Perspectives

Job Gains and Losses May 2013 to Apr. 2014Millions of jobs

Total Separations: 52.8mmTotal Hires: 55.1mm68%

Labor Force Participation Rate% of population aged 16+ working or looking for work

20

30

40

50

m

y

Other Separations: 4.4mm

Quits:28.5 mm

p

64%

65%

66%

67%

0

10

E

c

o

n

o

m

Layoffs and Discharges:19.9mm

Average Hourly Earnings Growth

'96 '98 '00 '02 '04 '06 '08 '10 '12 '1462%

63%

May 2014: 62.8%

Year-over-year % chg for production and nonsupervisory workers Net Job Creation Since Feb. 2010 Millions of Jobs 3 mm

3%

4%

5%

May 2014: 2.4%

Year-over-year % chg. for production and nonsupervisory workers 2.7

2.4

1.9 1.7

0.7

1 mm

2 mm

3 mm

'96 '98 '00 '02 '04 '06 '08 '10 '12 '140%

1%

2%

S BLS F tS t J P M A t M t

0.7

-0.6

-1 mm

0 mm

Info. Fin & Bus. Svcs.

Mfg. Trade & Trans.

Leisure, Hospt. &

Other Svcs.

Educ. & Health Svcs.

Mining & Construct.

Gov't

25




Employment and Income by Educational Attainment

18%$89,253$90,000

Average Annual Earnings by Highest Degree EarnedFull-time workers aged 18 and older, 2012, USD

Unemployment Rate by Education Level

14%

16%

$70,000

$80,000

m

y

+29K

Less than High School DegreeHigh School No CollegeSome CollegeCollege or Greater

10%

12% $60,159

$50,000

$60,000

E

c

o

n

o

m

+28KMay 2014:

6.5%

May 2014:9.1%

4%

6%

8%

$32,630

$30,000

$40,000

May 2014:5.5%

0%

2%

4%

$0

$10,000

$20,000

May 2014:3.2%

26

%'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

$0High School Graduate Bachelor's Degree Advanced Degree

Source: BLS, Census Bureau, FactSet, J.P. Morgan Asset Management.

Unemployment rates shown are for civilians aged 25 and older.



Consumer Price Index

15%

CPI and Core CPI50-yr. Avg. May 2014

Headline CPI: 4.2% 2.1%

% change vs. prior year, seasonally adjustedCPI Components

Weight in CPI

12-month change (sa)

Food & Bev. 14.9% 2.4%

12%

m

y

Core CPI: 4.1% 1.9%Housing 41.4% 2.6%

Apparel 3.4% 0.7%

Transportation 16.4% 1.8%

6%

9%

E

c

o

n

o

m Medical Care 7.6% 2.8%

Recreation 5.8% 0.4%

Educ. & Comm. 7.1% 1.5%

Other 3 4% 1 8%

0%

3%

Other 3.4% 1.8%

Headline CPI 100.0% 2.1%

Less:

Energy 9.0% 3.4%

'65 '70 '75 '80 '85 '90 '95 '00 '05 '10-3%


Food 13.9% 2.5%

Core CPI 77.1% 1.9%

27

CPI used is CPI-U and values shown are % change vs. 1 year ago and reflect May 2014 CPI data. CPI component weights are as of December 2013. Core CPI is defined as CPI excluding food and energy prices.



Energy and the Economy

Gbl. Natural Gas PricesJapan $17 7530

35Kuwait

%Syria

Middle East Energy Production & Chokepoints Percent of global liquid fuel production, 2012*

U.S. Natural Gas ProductionTrillions of cubic meters, USD EIA

Forecast

Japan $17.75Germany $10.64U.S. $4.59

15

20

25

30

m

y

Iran3.9%

Iraq3.9%

3.4%Syria0.2%Suez Canal

2.2%

Other

Shale Gas

0

5

10

1990 1995 2000 2005 2010 2015 2020 2025

E

c

o

n

o

m

Libya1.8%

Egypt0.8%

Sudan

Saudi Arabia12.9%

Strait of Hormuz17 0% U.S. Sources of Oil and Liquid Fuels

15

20

25

U.S. consumption, millions of barrels per daySudan0.1%

UAE3.5%

17.0%

Bab el-Mandeb

U.S. Sources of Oil and Liquid Fuels

Net Imports U.S. ProductionEIA Forecast

5

10

153.4%

Major ProducersPercent of global total, 2012

Saudi Arabia 13% China 5%United States 12% Canada 4%

Major ConsumersPercent of global total, 2012

United States 21% India 4%China 11% Russia 4%

28

02000 2002 2004 2006 2008 2010 2012 2014

Source: (Left) EIA, J.P. Morgan Asset Management. (Top right) EIA, IMF, FactSet, J.P. Morgan Asset Management. (Bottom right) EIA, J.P. Morgan Asset Management. Forecasts are from EIA Annual Energy Outlook and start in 2013. *Production numbers as of 2012, while chokepoints are 2011 data. Natural gas prices are as of May 2014. Guide to the Markets U.S. Data are as of 6/30/2014.

United States 12% Canada 4%Russia 12% Iran 4%

China 11% Russia 4%Japan 5% Saudi Arabia 3%

Consumer Confidence and the Stock Market

130Consumer Sentiment Index University of Michigan

0 8 t10% i i li iImpact on Consumer Sentiment from a

110

120

m

y

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

80

90

100

Average: 85.3

E

c

o

n

o

m

Mar. 1984+13.5%

May 1977+1.2%

Aug. 1972-6.2% Jan. 2007-4.2%

60

70

80

Oct. 1990

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

29

'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.


Fixed Income Sector Returns

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD 2Q14 Cum. Ann.

EMD LCL. EMD USD EMD LCL. EMD LCL. Treas. Gbl. HY EMD LCL. TIPS Gbl. HY Gbl. HY EMD USD EMD USD EMD LCL. EMD LCL.

23.0% 10.2% 15.2% 18.1% 13.7% 59.4% 15.7% 13.6% 19.6% 7.3% 8.7% 4.8% 148.3% 9.5%

10-yrs. '04 - '13

Gbl. HY EMD LCL. Gbl. HY TIPS Gbl. Sov. EMD USD Gbl. HY Muni EMD USD Gbl. Corp. Gbl. HY EMD LCL. Gbl. HY Gbl. HY

13.2% 6.3% 13.7% 11.6% 9.4% 29.8% 14.8% 12.3% 17.4% 1.8% 6.1% 4.0% 143.6% 9.3%

Gbl. Sov. Gbl. HY EMD USD Gbl. Sov. MBS Gbl. Corp. EMD USD Treas. EMD LCL. Asset Alloc. EMD LCL. TIPS EMD USD EMD USD

12.1% 3.6% 9.9% 10.9% 8.3% 23.7% 12.2% 9.8% 16.8% -1.3% 6.0% 3.8% 119.7% 8.2%

EMD USD TIPS Gbl. Corp. Treas. Barclays Agg EMD LCL. Asset Alloc.Barclays

Agg Gbl. Corp. MBS Gbl. Sov. Gbl. HY Asset Alloc. Asset Alloc.gg gg11.6% 2.8% 8.3% 9.0% 5.2% 22.0% 7.5% 7.8% 12.5% -1.4% 6.0% 3.0% 75.4% 5.8%

Gbl. Corp. Treas. Gbl. Sov. Asset Alloc. Muni Asset Alloc. Gbl. Corp. EMD USD Asset Alloc. BarclaysAgg TIPS Gbl. Sov. Gbl. Corp. Gbl. Corp.

10.0% 2.8% 7.3% 7.2% 1.5% 16.2% 7.0% 7.3% 8.3% -2.0% 5.8% 2.8% 72.2% 5.6%

TIPS Muni Asset Alloc. BarclaysAgg Asset Alloc. TIPSBarclays

Agg Asset Alloc. TIPS Muni Muni Asset Alloc. TIPS TIPS

8.5% 2.7% 6.9% 7.0% -1.5% 11.4% 6.5% 6.9% 7.0% -2.2% 5.7% 2.7% 60.6% 4.8%Asset

n

c

o

m

e

Asset Alloc. MBS MBS MBS TIPS Muni TIPS MBS Muni Treas. Gbl. Corp. Gbl. Corp. Muni Muni

8.2% 2.6% 5.2% 6.9% -2.4% 9.9% 6.3% 6.2% 5.7% -2.7% 5.4% 2.6% 57.5% 4.6%

MBS Barclays Agg Muni EMD USD EMD LCL.Barclays

Agg Gbl. Sov. Gbl. Sov.Barclays

Agg Gbl. Sov. Asset Alloc. Muni MBS MBS

4.7% 2.4% 4.7% 6.2% -5.2% 5.9% 6.1% 5.2% 4.2% -4.9% 5.1% 2.5% 57.0% 4.6%Barclays

AggAsset Alloc. Barclays

AggGbl. Corp. Gbl. Corp. MBS Treas. Gbl. Corp. MBS EMD USD MBS MBS Barclays

AggBarclays

Agg

F

i

x

e

d

I

n

4.3% 1.7% 4.3% 6.1% -11.2% 5.9% 5.9% 4.0% 2.6% -5.3% 4.0% 2.4% 56.0% 4.5%

Muni Gbl. Corp. Treas. Muni EMD USD Gbl. Sov. MBS Gbl. HY Treas. TIPS Barclays AggBarclays

Agg Treas. Treas.

4.1% -2.7% 3.1% 4.3% -12.0% 4.3% 5.4% 3.1% 2.0% -8.6% 3.9% 2.0% 51.3% 4.2%

Treas. Gbl. Sov. TIPS Gbl. HY Gbl. HY Treas. Muni EMD LCL. Gbl. Sov. EMD LCL. Treas. Treas. Gbl. Sov. Gbl. Sov.

3.5% -8.8% 0.4% 3.2% -26.9% -3.6% 4.0% -1.8% 1.8% -9.0% 2.7% 1.4% 50.2% 4.1%S B l C it l F tS t J P M A t M t P t f i t i di ti f f t t Fi d i t h b id d b B l

30

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: JPMorgan EMBI Diversified; Emerging Debt LCL: JPMorgan 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 6/30/14.

Interest Rates and Inflation

20%Nominal and Real 10-year Treasury Yields

S 30 1981

15%

Sep. 30, 1981: 15.84%

Average(1958 2014) 6/30/14

Nominal Yields 6.34% 2.53%Real Yields 2.52% 0.58%Inflation 3 82% 1 95%

10%

n

c

o

m

e

Nominal 10-year Treasury Yield

Inflation 3.82% 1.95%

5%

F

i

x

e

d

I

n Jun. 30, 2014: 2.53%

Real 10-year Treasury Yield

-5%

0%

Jun. 30, 2014: 0.58%

Treasury Yield

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 1982-2013 9.7% 11.6% Ann. Inflation 3.0% 3.0% Ann. Real Return 6.5% 8.4%

31

'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10-5%

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 June 2014, where real yields are calculated by subtracting out May 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 6/30/14.

Fixed Income Yields and Returns

US Treasuries # of issuesCorrelation to

10-yearAvg.

Maturity 6/30/2014 3/31/2014 2Q14 YTD

2-Year 90 0 64 2 years 0 47% 0 44% 0 26% 0 44%

Yield Return Price Impact of a 1% Rise/Fall in Interest Rates*

+1%-1%-2.0%

5 0%

0.9%2y UST 2-Year 90 0.64 2 years 0.47% 0.44% 0.26% 0.44%

5-Year 96 0.91 5 1.62% 1.73% 1.18% 1.92%

10-Year 18 1.00 10 2.53% 2.73% 2.66% 6.14%

30-Year 20 0.92 30 3.34% 3.56% 5.24% 13.77%-16.9%

-8.5%

-6.7%

-4.7%

21.9%

9.4%

7.7%

5.0%

30y UST

10y UST

TIPS

5y UST

TIPS 35 0.59 10 0.27% 0.60% 3.81% 5.83%

Sector

Broad Market 8,523 0.86 7.7 years 2.22% 2.39% 2.04% 3.93%

MBS 429 0.81 7.2 2.79% 3.11% 2.41% 4.03%

n

c

o

m

e

-3.8%

-3.2%

-0.1%

3.5%

3.5%

0.1%

ABS

Convertibles

Floating Rate

Municipals 9,101 0.47 9.9 2.25% 2.55% 2.49% 5.69%

Corporates 5,039 0.46 10.5 2.91% 3.10% 2.66% 5.68%

High Yield 2,164 -0.24 6.6 4.91% 5.23% 2.41% 5.46%

Floating Rate 47 -0.21 3.1 1.01% 1.17% 0.73% 1.13%

F

i

x

e

d

I

n

-6.1%

-6.0%

-5.6%

-4.1%

5.6%

4.1%

5.6%

4.0%

Munis

MBS

US Aggregate

US HY

Convertibles 514 -0.32 -- 1.19% 1.20% 4.23% 8.80%

ABS 1,358 -0.04 4.1 1.90% 1.90% 1.19% 2.33%

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 + CMBS. Treasury securities data for # of issues based on U.S. Treasury benchmarks from Barclays Capital.

-6.6%7.6%

-30% -10% 10% 30%

IG Corps

32

(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 0.47% 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 6/30/14.

Sources of Bond Returns

Coupon Return2013 C

Total Return2013 A + B + C

Treasury Base Rate Return2013 A

Spread to Treasury Return2013 B

2014 YTD1.2%5-yr. 0.8% 1.9% 5-yr.

20134.8%

12.0%

10-yr.

30-yr.

1.4%

1.8%

6.1%

13.8%

10-yr.

30-yr.

n

c

o

m

e

3.5%

-1.3%

0 5%

10-yr. Muni

U.S. HY

EM (USD)

2.1%

3.4%

2 8%

5.7%

5.5%

7 4%

10-yr. Muni

U.S. HY

EM (USD)

3.4%

4 1%

F

i

x

e

d

I

n

0.5%

2.2%

1.5%

IG Corp.

U.S. MBS

2.8%

2.1%

1.8%

7.4%

5.7%

4.0%

( )

IG Corp.

U.S. MBS

4.1%

1.4%

0.7%

1.7%

-0.7%

-20% -10% 0% 10%

U.S. Agg.

FRN (BBB)

1.6%

0.7%

-20% -10% 0% 10%

3.9%

1.1%

-20% -10% 0% 10% 20%

U.S. Agg.

FRN (BBB)

0.7%

1.1%

-20% -10% 0% 10%

33

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 6/30/14.

The Fed and Interest Rates

Yield Curve Steepness10-yr. U.S. Treasury minus effective Fed Funds rate

Feds Balance Sheet: Assets$ trillions

Oth

4% Jun. 2014: 2 5%$4.0

$4.5

OtherU.S. TreasuriesAgency MBS

1%

2%

3%

Average: 1.6%

2.5%

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

Feds Balance Sheet: Liabilities$ t illi

n

c

o

m

e

Federal Reserve Summary of Economic Projections

'85 '90 '95 '00 '05 '10-1%

0%

$0.0

$0.5

$1.0

'04 '05 '06 '07 '08 '09 '10 '12 '13 '14

$ trillions

F

i

x

e

d

I

n

Other LiabilitiesExcess Reserves

Required Reserves$2.5$3.0$3.5$4.0$4.5 Fed's June 2014 Forecasts*

Percent

2014 2015 2016 Long Run

Change in real GDP, Q4 to Q4 2.2 3.1 2.8 2.2

'05 '06 '07 '08 '09 '10 '11 '12 '13$0.0$0.5$1.0$1.5$2.0

Change in real GDP, Q4 to Q4 2.2 3.1 2.8 2.2

Unemployment Rate, Q4 6.1 5.6 5.3 5.4

PCE Inflation, Q4 to Q4 1.6 1.8 1.8 2.0

Federal Funds Rate, end of year 0.25 1.13 2.50 3.75

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 held in the central bank's reserves. Other liabilities of the Federal Reserve primarily consist of currency outstanding. *Forecasts of 16 FOMC participants, midpoints of central tendency except for federal funds rate which is a median estimate. Guide to the Markets U.S.


05 06 07 08 09 10 11 12 13

Owners of Treasury Securities

1,200

Net Purchases of Treasuries Year Ended 1Q14Billions of dollars

Treasuries Outstanding 1Q14Billions of dollars, end of period, not seasonally adjusted

Total Outstanding Treasury Securities: $12,591

800

1,000 PensionsMutual funds

Other

Foreign privateFinancial

State and local gov'ts

6%

Other1%

400

600

n

c

o

m

e

Foreign official

Total net purchases: $686

Foreign official32%Households

7%

institutions7%

0

200

F

i

x

e

d

I

n Federal Reserve

Federal Reserve18%Foreign private15%

Mutual funds9%

-400

-200

So rce Federal Reser e J P Morgan Asset Management

Households

Financial institutionsState and local govts

35

Source: Federal Reserve, J.P. Morgan Asset Management.Treasuries outstanding include total issues of Treasury securities plus budget agency securities and federal mortgage borrowing. Other includes Nonfinancial corporate business, Nonfinancial noncorporate business, Issuers of asset-backed securities and Holding companies. Net Purchases is the average of the annual rates over the past four quarters. Foreign official reports assets held by official foreign institutions (i.e. Monetary authorities, government agencies), Foreign private reports treasury securities held by other foreigners (i.e. Financial institutions, individuals).



Credit Conditions

760 12%Residential Mortgages

Delinquency RatesAll banks, seasonally adjusted

Lending Standards for Approved Mortgage LoansAverage FICO score based on origination date

May 2014: 741

700

720

740

4%

6%

8%

10% Consumer LoansResidential Mortgages

Commercial and Industrial Loans7.8%

2 3%

660

680

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '140%

2%

n

c

o

m

e

0.9%

2.3%

Common Equity as a % of Total AssetsAll FDIC insured institutions 1934 2013

Mortgage OriginationsP rchase onl $ bn seasonall adj sted

10%

12%

14%

F

i

x

e

d

I

n

All FDIC insured institutions, 1934 2013

2013:11.1%

$250

$300

$350

$400

$450Purchase only, $ bn, seasonally adjusted

4%

6%

8%

'34 '41 '48 '55 '62 '69 '76 '83 '90 '97 '04 '11

Average: 7.7%

'96 '98 '00 '02 '04 '06 '08 '10 '12 '14$50

$100

$150

$200

$250

2Q14: $144bn

36

34 41 48 55 62 69 76 83 90 97 04 11Source: (Top left) McDash, J.P. Morgan Securitized Product Research, 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) FDIC, J.P. Morgan Asset Management.All data reflect most recently available releases. Guide to the Markets U.S.Data are as of 6/30/14.

High Yield Bonds

15%

20% Average Latest HY Spreads 5.9% 4.0%Lev. Loan Spreads 4.9% 3.0%HY Defaults Rates 4.0% 2.1%

High Yield Spreads and Defaults

L L S dHY Spreads

5%

10%

15% Lev. Loan Spreads

HY Default Rates

0%'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

n

c

o

m

e

Historical High Yield Recovery RatesHigh yield bonds, cents on the dollar

Annual Flows into High Yield and Leveraged Loan FundsMutual funds & ETFs, billions USD

$40

$60

$80

F

i

x

e

d

I

n

g y e d bo ds, ce ts o t e do a

Average: 41.1

,YTD 2014: $15.0bn

High YieldLeveraged Loans

40

50

60

70

-$20

$0

$20

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '140

10

20

30

'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

37

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 Asset Management. (Bottom right): Strategic Insight, J.P. Morgan Asset Management. Spreads indicated are benchmark yield to worst less comparable maturity Treasury yields. 2014 recovery rate is a weighted average number as of June 2014. 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. Flows include ETFs and are as of May 2014. Past performance is not indicative of comparable future results. Guide to the Markets U.S.Data are as of 6/30/14.

Municipal Finance

9%

10%12%

State & Local Government Debt Service% of current expenditures

10-Year Muni Taxable Equivalent YieldTaxable equivalent Muni and Treasury yields 1Q14: 8.8%

5%

6%

7%

8%

10%

Taxable Equivalent 10-Yr Muni Yield

3%

4%

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

6%

8%

n

c

o

m

e

Municipal Bond Issuance*Billions USD, revenue and GO issues

4%

$300bn

$400bn

$500bn

F

i

x

e

d

I

n

o s US , e e ue a d GO ssues


0%

2%

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14$0bn

$100bn

$200bn

'96 '98 '00 '02 '04 '06 '08 '10 '12 '14

Spread

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 May 2014. Guide to the Markets U.S.Data are as of 6/30/14.

Global Fixed Income

Aggregates Correl to 10-year Duration Current 2Q14 YTD

ReturnYield

$100

Global Bond MarketUSD, trillions

EM: $14tn

U.S. 0.83 5.6 Yrs 2.22% 2.04% 3.93%

Gbl. ex. U.S. 0.38 6.8 1.56% 2.71% 5.50%

Japan 0.53 8.0 0.53% 2.39% 5.27% $70

$80

$90 12/31/89 12/31/13 U.S. 60.7% 37.9%Dev. ex U.S. 38.2% 48.3%EM 1.1% 13.9%

Germany 0.25 5.8 0.94% 1.44% 3.63%

U.K. 0.17 8.6 2.54% 3.51% 6.35%

Italy 0.07 6.3 2.00% 2.76% 7.93%$50

$60

n

c

o

m

e Developed ex U.S.: $47tn

Spain 0.10 5.5 1.68% 2.38% 7.66%

Sector

EMD ($) 0.18 7.0 5.10% 4.76% 8.66%

EMD (LCL) 0 05 4 6 6 42% 4 02% 5 99%$20

$30

$40

F

i

x

e

d

I

n

U S $3 EMD (LCL) 0.05 4.6 6.42% 4.02% 5.99%

Euro Corp. 0.09 4.6 1.48% 2.39% 4.81%

Euro HY. -0.41 4.0 4.37% 2.66% 6.03% $0

$10

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

Source: Barclays Capital, BIS, FactSet, J.P. Morgan Asset Management. Fixed income sectors shown above are provided by Barclays Capital and are represented by the global

U.S.: $37tn

39

y p , , , g g p y y p p y gaggregate for each country except where noted. EMD sectors are represented by the J.P. Morgan EMBIG Index (USD) and the J.P. Morgan GBI EM Global Diversified Index (LCL). European Corporates are represented by the Barclays Euro Aggregate Credit 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. Current data are as of 6/30/2014 unless otherwise noted. Guide to the Markets U.S. Data are as of 6/30/14.

Emerging Market Debt

10%

12%

Emerging Markets Debt SpreadsSpread to Treasuries of USD-denominated debt, percent

Index Breakdown USD Denominated EMDMiddle East &

Africa 12%Middle East &

Africa 16%

80%

100%Index AverageSpread

Spread(6/30/14)

4%

6%

8%

10%

Asia 38%

Europe 33%Europe 15%

Latin America36%

Latin America30%

20%

40%

60%

80%( )

EMBIG 3.8% 2.8%CEMBI 3.3% 3.0%

0%

2%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

n

c

o

m

e

Annual Flows into EMD Mutual Funds & ETFsBillions USD

Emerging Market Debt Credit RatingEMBIG average monthly credit rating, inverse scale May 2014: BBB-

Asia 19%0%

Sovereigns(EMBIG)

Corporates(CEMBI)

$10

$15

$20

$25

$30

F

i

x

e

d

I

n

g y g May 2014: BBB-

BB+

BBB-

BB

BB- YTD 2014:

'93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13-$5

$0

$5

$10

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

B-

B

B+-$2.0bn

40

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 Emerging Bond Index (CEMBI) is a USD-denominated external debt index tracking bonds issued by corporations in developing nations. Flow data is as of May 2014. Past performance is not indicative of comparable future results. Index breakdown may not equate to 100% due to rounding.Guide to the Markets U.S.Data are as of 6/30/14.

Global Equity Markets

Country / Region

2Q14 YTD 2014

Local USD Local USD

Weights in MSCI All Country World Index% global market capitalization, float adjusted

ERegions / Broad Indexes

U.S. (S&P 500) - 5.2 - 7.1

EAFE 3.7 4.3 3.5 5.1

Europe ex-U K 3 4 2 6 7 1 6 3

United States49%

Europe ex-U.K.17%

U.K. 8%

EmergingMarketsEurope ex U.K. 3.4 2.6 7.1 6.3

Pacif ic ex-Japan 3.0 4.4 3.6 7.5

Emerging Markets 5.2 6.7 4.8 6.3

MSCI: Selected Countries

11%Japan

7%

C

a

n

a

d

a

4

%

Global Equity Market Correlations

0.60

0.70

0.80

0.90United Kingdom 3.4 6.1 1.9 5.2

France 3.1 2.4 6.1 5.4

Germany 2.9 2.3 2.6 2.0

Japan 4.9 6.7 -2.8 0.9

o

n

a

l

Rolling 1-year correlations, 30 countries

0 00

0.10

0.20

0.30

0.40

0.50p

China 5.6 5.7 -0.5 -0.5

India 13.5 12.7 18.5 21.9

Brazil 5.2 7.7 3.5 10.7

Russia 8 1 10 8 -2 4 -5 2

I

n

t

e

r

n

a

t

i

o

Jun. 2014: 0.38

41

0.00'95 '97 '99 '01 '03 '05 '07 '09 '11 '13

Russia 8.1 10.8 -2.4 -5.2Source: 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 6/30/14.

Global Economic Growth

8%

10%Year-over-year % chg. forecasts from JPMSIEmerging Market Country Real GDP Growth

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

Historical

1Q15

JPMSI Forecast

0%

2%

4%

6%

8%

-4%

-2%

0%

Emerging Markets China India Korea Brazil South Africa Mexico Russia

Developed Market Country Real GDP GrowthHi t i l JPMSI F t

4%

6%

8%

10%Year-over-year % chg. forecasts from JPMSI

p y

o

n

a

l

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

Historical

1Q15

JPMSI Forecast

-4%

-2%

0%

2%

4%

Developed U K Japan Germany Canada U S France Italy

I

n

t

e

r

n

a

t

i

42

Developed Countries

U.K. Japan Germany Canada U.S. France Italy

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.


Manufacturing Momentum

Global Purchasing Managers Index for Manufacturing

J

u

l

'

1

2

A

u

g

'

1

2

S

e

p

'

1

2

O

c

t

'

1

2

N

o

v

'

1

2

D

e

c

'

1

2

J

a

n

'

1

3

F

e

b

'

1

3

M

a

r

'

1

3

A

p

r

'

1

3

M

a

y

'

1

3

J

u

n

'

1

3

J

u

l

'

1

3

A

u

g

'

1

3

S

e

p

'

1

3

O

c

t

'

1

3

N

o

v

'

1

3

D

e

c

'

1

3

J

a

n

'

1

4

F

e

b

'

1

4

M

a

r

'

1

4

A

p

r

'

1

4

M

a

y

'

1

4

J

u

n

'

1

4

A S

O

N D J F

M

A

M

J

A S

O

N D J F

M

A

M

J

Global 48.6 48.6 48.7 48.9 49.7 50.1 51.4 50.8 51.0 50.2 50.4 50.4 50.6 51.5 51.6 51.9 52.9 52.9 53.0 53.2 52.4 51.9 52.1 52.7U.S. 51.4 51.5 51.1 51.0 52.8 54.0 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 57.3Canada 53.0 53.0 52.4 51.4 50.4 50.4 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 53.5U.K. 45.6 49.2 48.0 47.7 48.0 50.6 51.0 48.1 50.2 50.7 52.4 53.1 54.7 57.3 56.3 56.0 57.8 56.9 56.5 56.5 55.7 57.3 57.0 57.5Euro Area 44.0 45.1 46.1 45.4 46.2 46.1 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 51.8Germany 43.0 44.7 47.4 46.0 46.8 46.0 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 52.0France 43.4 46.0 42.7 43.7 44.5 44.6 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 48.2Italy 44.3 43.6 45.7 45.5 45.1 46.7 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 52.6Spain 42.3 44.0 44.5 43.5 45.3 44.6 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 54.6Greece 41.9 42.1 42.2 41.0 41.8 41.4 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 49.4Ireland 53.9 50.9 51.8 52.1 52.4 51.4 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

o

n

a

l

Australia 40.3 45.3 43.0 42.8 44.3 44.3 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 48.9Japan 47.9 47.7 48.0 46.9 46.5 45.0 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 51.5China 49.3 47.6 47.9 49.5 50.5 51.5 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 50.7Indonesia 51.4 51.6 50.5 51.9 51.5 50.7 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 52.7Korea 47.2 47.5 45.7 47.4 48.2 50.1 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 48.4T i 47 5 46 1 45 6 47 8 47 4 50 6 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

Source: Markit J P Morgan Asset Management

I

n

t

e

r

n

a

t

i Taiwan 47.5 46.1 45.6 47.8 47.4 50.6 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 54.0India 52.9 52.8 52.8 52.9 53.7 54.7 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 51.5Brazil 48.7 49.3 49.8 50.2 52.2 51.1 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 48.7Mexico 55.2 55.1 54.4 55.5 55.6 57.1 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 51.8Russia 52.0 51.0 52.4 52.9 52.2 50.0 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

43

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.



The Importance of Exports

Exports as a % of GDP2013, goods exported Estimated increase in quarterly real GDP reflecting stronger DM exports

Emerging Market Real GDP Growth Sensitivity to DM

10 8% B ilBrazil 10.8%

16.0%

24.9%

26 2%

Turkey

S. Africa

Brazil

Russia

China

India

U.S.

Europe Europe

U.S.

26.2%

9.4%

Russia

Mexico

Chile

J

U.S.

Russia

Europe

Other

BRIC Japan14.6%

19.6%

18.5%

o

n

a

l

Singapore

Korea

Hungary

UK

Eurozone

Japan

20.7%

24.6%

37.6%

I

n

t

e

r

n

a

t

i

Thailand

Taiwan

Singapore

Germany

Italy

France

44

Source: IMF, MacData, J.P. Morgan Securities, J.P. Morgan Asset Management.Values may not sum to 100% due to rounding. (Right chart) Assumes a 1% increase in GDP growth from Japan, Europe, and the U.S., and estimates a reaction function through a multistage regression measuring emerging market economies sensitivity to export volumes. Developed market imports are used as a proxy for developed demand and estimated from a 1% pick up in domestic GDP. Increases in industrial production are estimated while controlling for emerging market domestic demand in order to limit feedback loops and isolate the impulse from developed market demand only. The sample period tested ranges between 1993 and 2013 reflecting quarterly data. Guide to the Markets U.S. Data are as of 6/30/14.

0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6%0% 5% 10% 15% 20% 25% 30% 35% 40%

Sovereign Debt Stresses

China

10%

Bubble size = 10-year government bond yield

GDP Growth, Gross Debt to GDP and Borrowing Costs

China

India

IndonesiaMalaysia

10%

5%

4%

6%

8%

0

1

4

F

)

g y

BrazilSouth Africa

Mexico

U.S.

Turkey

Korea

France

GermanyJapanRussia

Singapore

EU

Australia

U.K.

0%

2%

4%

G

r

o

w

t

h

(

2

0

1

2

2

Greece

ItalySpain

Portugal

-4%

-2%

R

e

a

l

G

D

P

G

o

n

a

l

Greece

-8%

-6%

0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200%

Developed MarketsEmerging Markets

I

n

t

e

r

n

a

t

i

245%

45

Gross Debt-to-GDP Ratios (2013F)Source: IMF, FactSet, Bloomberg, J.P. Morgan Economics, Barclays, J.P. Morgan Asset Management.Growth and debt data are based on the April 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.


Global Monetary Policy

4%60%

Central Bank Assets Percent of Nominal GDP Real Policy Rates Monthly

2%

3%

%

50%

Emerging Markets

0%

1%

30%

40%

Bank of Japan

-1%

0%

20%

o

n

a

l

Developed MarketsEuropean Central Bank

-3%

-2%

'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 '130%

10%

I

n

t

e

r

n

a

t

i

U.S. Federal Reserve

46

Source: J.P. Morgan Global Economics Research, 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. Guide to the Markets U.S.Data are as of 6/30/14.

MSCI EAFE Index at Inflection Points

1,400 Index level 1,136 1,212 969P/E ratio (fwd.) 28.7x 14.5x 14.2xDividend yield 1 4% 2 7% 3 1%

MSCI EAFE Index Characteristic Mar-2000 Jul-2007 Jun-2014

1,100

1,200

1,300Dividend yield 1.4% 2.7% 3.1% 10-yr. German Bunds 5.3% 4.6% 1.2%

Mar. 29, 2000 P/E (fwd.) = 28.7x

1,136

J n 30 2014

Jul. 16, 2007 P/E (fwd.) = 14.5x

1,212

800

900

1,000

-56%

Jun. 30, 2014 P/E (fwd.) = 14.2x

969

+141%-57% +87%

+70%

600

700

800 56%

Dec. 31, 1996 P/E (fwd.) = 19.5x

670

o

n

a

l

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13400

500

Source: MSCI, FactSet, J.P. Morgan Asset Management.

I d l l i l l Di id d i ld i l l t d th li d di id d t di id d b i id d b MSCI F d P i t E i R ti i

Mar. 12, 2003 P/E (fwd.) = 13.2x

503

Mar. 9, 2009 P/E (fwd.) = 10.2x

518

I

n

t

e

r

n

a

t

i

47

Index levels are in local currency. Dividend yield is calculated as the annualized dividend rate divided by price, as provided by MSCI. Forward Price to Earnings Ratio is a bottom-up calculation based on the most recent MSCI EAFE 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 MSCI EAFE 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.


Europe: Cyclical Headwinds and Tailwinds

16%35% 6/27/14

Government Fiscal Drag% of potential GDP, reduction in structural deficits from one period to the next

European Sovereign Funding Costs10-year benchmark bond yield

14.4%

12%

14%

10%

15%

20%

25%

30% Greece 5.87%Portugal 3.56%Spain 2.63%Italy 2.72%Ireland 2.33%Germany 1.26%

2010-2013

2013-2016

o

r

e

f

i

s

c

a

l

d

r

a

gLTRO

OMT

5.9%6%

8%

10%

'08 '09 '10 '11 '12 '130%

5%

10%

M

o

Euro Area Credit Growth% l th

3.4%

4.7%

3.5% 3.5% 3.3%2.9%

0.7%1.5% 1.5%

1.9%

0.3%

1.2%2%

4%

10%

15%

20%

o

n

a

l

s

s

f

i

s

c

a

l

d

r

a

g

% year-over-year loan growth

Nonfinancial Corporations

-1.0%-0.1%

-2%

0%

-5%

%

5%

'06 '07 '08 '09 '10 '11 '12 '13 '14

I

n

t

e

r

n

a

t

i

L

e

s

Households

May 2014: -2.6%May 2014:

-0.7%

48

'06 '07 '08 '09 '10 '11 '12 '13 '14Source: Eurostat, Tullett Prebon, FactSet, IMF, J.P. Morgan Asset Management. Data are based on the April 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 6/30/14.

Europe: Unemployment and Inflation

11%

13% May 2014: 11.6%

Unemployment Rates Latest Unemployment Rates for European CountriesLatest available, seasonally adjusted

3.3%Norway

7%

9%

11%

U S

Euro Area-16

6.6%

6.5%

5.1%

4.7%

U.K.

Denmark

Germany

Austria

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '133%

5%

Europe InflationYear over year % change

U.S.May 2014: 6.3%

10 1%

8.5%

8.5%

7.8%

7.0%

F

Belgium

Finland

Sweden

Netherlands

2%

3%

4%

5%Year-over-year % change

o

n

a

l

CoreEuro AreaPeriphery

12.6%

12.0%

11.6%

10.3%

10.1%

Italy

Ireland

Euro Area

European Union

France

-1%

0%

1%

2%

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14

I

n

t

e

r

n

a

t

i

27.4%

25.1%

14.3%

0% 5% 10% 15% 20% 25% 30%

Greece

Spain

Portugal

y

49

Source: Eurostat, BLS, FactSet, IMF, J.P. Morgan Asset Management.(Top left) Unemployment rate levels for the U.S. and Euro Area-16 are not directly comparable due to calculation differences. Guide to the Markets U.S.Data are as of 6/30/14.

Europe: Economy and Earnings

7015% 13 $130

Economic Growth and Revenue Growth Estimates12- month revenue growth & manufacturing PMI (advanced 12-months)

Earnings Per ShareNext 12- month consensus EPS

S&P 500

40

50

60

-10%

-5%

0%

5%

10%

11

12

$110

$120

20

30

-20%

-15%

10%

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 9

10

$90

$100Manufacturing PMIRevenue Growth

U.S. and European Operating Profit MarginsLTM EPS/SPS

6

7

8

$60

$70

$80

9%

10%

11%

o

n

a

l

LTM, EPS/SPS

S&P 500

'00 '02 '04 '06 '08 '10 '12 '144

5

$40

$50

'04 '05 '06 '07 '08 '09 '10 '11 '12 '136%

7%

8%

I

n

t

e

r

n

a

t

i

MSCI Europe

MSCI Europe

50

04 05 06 07 08 09 10 11 12 13Source: Markit, MSCI, FactSet, J.P. Morgan Asset Management.

Revenue growth reflects next twelve month forward estimates from FactSet for the MSCI Europe Index.


Japan: Economic Snapshot

9%120

130

18,000

20,000

Inflation 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

7%

90

100

110

120

10,000

12,000

14,000

16,000

Other Domestic 72%Bank of Japan 20%Foreign 8%

Owners of Japanese Gov. Bonds

3%

5%

'04 '05 '06 '07 '08 '09 '10 '11 '12 '1370

80

6,000

8,000

Nominal 10-year Yield Government Fiscal Balance% of GDP IMF

-12%

-10%

-8%

-6%

-4%

1%

o

n

a

l

% of GDP IMFforecast

-2%

0%

2%

4%'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18'87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13

-3%

-1%

I

n

t

e

r

n

a

t

i

o

Core CPI

51

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 June 2014 flow of funds.



International Equity Earnings and Valuations

18x

Forward Price to EarningsP/E ratios for next 12-month consensus EPS

Earnings per ShareEPS for next 12-month consensus, local currency, rebased to 100

260 07/08 Peak Current % ChangeMSCI EM 217 202 7%

Average CurrentMSCI EM 11 0 10 9

16x

220

240

MSCI EM 217 202 -7%S&P 500 150 182 21%MSCI Europe 161 125 -22%

MSCI EM 11.0x 10.9xS&P 500 13.8x 15.6xMSCI Europe 11.7x 14.3x

12x

14x

160

180

200

o

n

a

l

8x

10x

120

140

160

Source: MSCI FactSet J P Morgan Asset Management

I

n

t

e

r

n

a

t

i

o

'04 '05 '06 '07 '08 '09 '10 '11 '12 '136x

8x

'04 '05 '06 '07 '08 '09 '10 '11 '12 '1380

100

52

Source: 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.



Demographics and Development

Demographic SnapshotThe Impact of UrbanizationUrbanization ratios and GDP per capita (current USD), 1961 2012

$60,000 Investment(% of GDP)

GDP Per Capita

Population % of Pop. under 20

$50,000 Japan

U.S.2012: $51,749

Developed

U.S. $53,101 316 mm 26% 20%

Canada 51,990 35 22 24

U.K. 39,567 64 24 14

(% of GDP)p

$30,000

$40,000

G

D

P

p

e

r

C

a

p

i

t

a

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

o

n

a

l

$10,000

$20,000

ChinaIndia

Korea

1961: $2,935

Emerging

Korea 24,329 50 22 26

India 1,505 1,243 38 35

Brazil 11,311 198 33 18

Source: 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

I

n

t

e

r

n

a

t

i

$-15% 25% 35% 45% 55% 65% 75% 85% 95%

Urbanization Ratio

Mexico 10,630 118 38 22

Russia 14,819 143 21 24

China 6,747 1,361 20 48

53

Programme Implementation of India, J.P. Morgan Asset Management.

GDP per capita and Investment as % of GDP are IMF estimates for 2014.



Emerging Market Currencies

China (Mainland)6%

EM Current Accounts and Currency Performance

g

e

r

e

n

c

y

Mexico

China (Mainland)

Korea

Taiwan

-3%

-9% -6% -3% 0% 3% 6% 9%

c

e

14%

S

t

r

o

n

C

u

r

r

e

Brazil

India

Russia

-12%

c

y

P

e

r

f

o

r

m

a

n

c

2013 Currency Performance& 2013 Current Account

Brazil

South Africa

Turkey

-21%

o

n

a

l

C

u

r

r

e

n

c

Graph Key

Currency Performance since Jan. 2013 &

2014 Current AccountIndonesia

-30%Current Account (% of GDP)

I

n

t

e

r

n

a

t

i

W

e

a

k

e

r

C

u

r

r

e

n

c

y

Current Account SurplusCurrent Account Deficit

54

Source: IMF World Economic Outlook, FactSet, J.P. Morgan Asset Management.

Current accounts as a percentage of GDP are IMF figures for full year 2

jpm guide to the markets 3q 2014

Documents

global economic growth43

global equity markets42

economic snapshoteconomy

economic snapshot52

equity correlations

emerging market debt41

emerging market currencies55

page reference4