jpm guide to the markets - q1 2014

8/13/2019 JPM Guide to the Markets - Q1 2014

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As of September 30, 2013

As of December 31, 2013

i h M rk i h M rk

1


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Table of Contents

EQUITIES

ECONOMY

4

18

INTERNATIONAL

ASSET CLASS

39

58

U.S. Market Strategy TeamDr. David P. Kelly, CFA [email protected]

Joseph S. Tanious, CFA [email protected]

-. , . . .

Anastasia V. Amoroso, CFA [email protected]

James C. Liu, CFA [email protected]

Brandon D. Odenath, CFA [email protected]

Gabriela D. Santos [email protected]

2

. . . .

Past performance is no guarantee of comparable future results. For China and Australia distribution, please note thiscommunication is for intended recipients only and is for wholesale clients only in Australia. For details, please refer to the fulldisclaimer at the end. Unless otherwise stated, all data is as of December 31, 2013 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

35. High Yield Bonds36. Municipal Finance37. Global Fixed Income38. Emerging Market Debt

Equities

7. Stock Valuation Measures: S&P 500 Index8. Corporate Profits and Leverage9. Sources of Earnings per Share Growth10. Sources of Total Return11. Confidence, Earnings and Multiples12. Interest Rates and Equities13. De lo in Cor orate Cash

39. Global Equity Markets: Returns40. Global Equity Market: Returns to Prior Peaks41. MSCI EAFE Index at Inflection Points42. Global Economic Growth43. Manufacturing Momentum44. The Im ortance of Ex orts

14. P/E Ratios and Equity Returns15. Real Earnings Yield and Bull Market Cycles16. Annual Returns and Intra-year Declines17. Equity Correlations and Volatility

45. The Impact of Global Consumers46. Global Demographics and Equity Investment47. Emerging Market Currencies48. Sovereign Debt Stresses

49. Global Monetary Policy50. Europe: Unemployment, Inflation and AusterityEconomy

.19. Cyclical Sectors20. The Aftermath of the Housing Bubble21. Consumer Finances22. Federal Finances23. Employment

24. Alternative Measures of Labor Utilization

.52. Japan: Economic Snapshot53. China: Economic and Credit Growth54. Global Equity Markets55. Emerging Market Equity: Composition56. Global Equity Valuations Developed Markets

57. Global Equity Valuations Emerging Markets.26. Consumer Price Index27. Energy and the Economy28. Consumer Confidence and the Stock Market

29. Fixed Income Sector Returns

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

Fixed Income

Asset Class

3

30. Interest Rates and Inflation31. Fixed Income Yields and Returns32. Sources of Bond Returns33. The Fed and the Money Supply34. Credit Conditions

63. Global Commodities64. Historical Returns by Holding Period65. Diversification and the Average Investor 66. Cash Accounts67. Corporate DB Plans and Endowments


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S&P 500 Index at Inflection Points

1,800Index level 1,527 1,565 1,848P/E ratio (fwd.) 25.6x 15.2x 15.4x

S&P 500 Index Dec. 31, 2013P/E (fwd.) = 15.4x

1,848

Characteristic Mar-2000 Oct-2007 Dec-2013

1,600

. . .10-yr. Treasury 6.2% 4.7% 3.0%

E q u

i t i e s

Mar. 24, 2000

P/E (fwd.) = 25.6x1,527

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

1,565

1,200

1,400

+101%

-57%+173%

+106%

800

1,000-49%

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13600

Source: Standard & Poors, First Call, Compustat, FactSet, J.P. Morgan Asset Management.

Oct. 9, 2002P/E (fwd.) = 14.1x

777

. ,P/E (fwd.) = 16.0x

741Mar. 9, 2009

P/E (fwd.) = 10.3x677

4

, . -

on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates.Returns are cumulative and based on S&P 500 Index price movement only, and do not include the reinvestment of dividends. Past performance is not indicative of futurereturns.

Guide to the Markets U.S.

Data are as of 12/31/13.


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Returns and Valuations by Style

4Q 2013 2013 Current P/E vs. 20-year avg. P/E

Value Blend Growth Value Blend Growth

e e 14.1 15.4 17.9

Value Blend Growth

g e

E q u i t i e s

L a r 10.0% 10.5% 10.4%

L a r 32.5% 32.4% 33.5%

M i d 8.6% 8.4% 8.2% M

i d 33.5% 34.8% 35.7%

13.9 16.2 20.9

15.5 17.5 19.5

14.0 16.4 21.8

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/EE.g.: Large Cap Blend sto cks are 4.9%cheaper th an their hi storical average.

S m a l l

9.3% 8.7% 8.2% S m a l l

34.5% 38.8% 43.3%16.8 19.2 22.0

14.3 17.1 21.4 S m a l l

Value Blend Growth

L a r g e

101.6% 95.1% 85.7%

i d 110.5% 106.8% 89.4%

Value Blend Growth Value Blend Growth

L a r g e

25.3% 35.5% 50.4% L a r g e

212.4% 202.8% 206.8%

i d i d

S m a l l

117.3% 112.2% 102.9%

. . . . . .

S m a l l

42.1% 50.2% 57.8% S m a l l

251.4% 262.2% 272.4%

5

, , , . . .

All calculations are cumulative total return, including dividends reinvested for the stated period. Since Market Peak represents period 10/9/07 12/31/13, illustratingmarket returns since the S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 12/31/13, illustrating market returns since the S&P 500 Indexlow on 3/9/09. Returns are cumulative returns, not annualized. For all time periods, total return is based onRussell-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.



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Stock Valuation Measures: S&P 500 Index

S&P 500 Index: Valuation Measures Historical AveragesValuationMeasure Description

Latest*1-year

ago3-year avg.

5-yearavg.

10-year avg.

15-yearavg.

E q u i t i e s P/E Price to Earnings 15.4x 12.6x 13.0x 13.1x 13.9x 16.2x

P/B Price to Book 2.7 2.1 2.2 2.2 2.5 2.9P/CF Price to Cash Flow 10.6 8.7 8.9 8.6 9.5 10.8P/S Price to Sales 1.6 1.2 1.3 1.2 1.3 1.5PEG Price/Earnin s to Growth 1.5 1.3 1.2 2.1 1.7 1.6

12%

14%50x

S&P 500 Shiller Cyclically Adjusted P/E Adjusted using trailing 10-yr. avg. inflation adjusted earnings

S&P 500 Earnings Yield vs. Baa Bond Yield

S&P 500 Earnings Yield:

Div. Yield Dividend Yield 2.1% 2.4% 2.2% 2.2% 2.1% 1.9%

6%

8%

10%

20x

30x

40x . .

4Q13:25.4x

Average: 19.1x

'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '142%

4%

'55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '100x

10xMoodys Baa Yield: 5.3%

Source: (Top) Standard & Poors, FactSet, Robert Shiller Data, J.P. Morgan Asset Management.Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months. Price to Book is price divided by book value per share. Data

-

7

.

months. Price to Sales is calculated as price divided by consensus analyst estimates of sales per share for the next 12 months. PEG Ratio is calculated as NTM P/E divided byNTM earnings growth. Dividend Yield is calculated as consensus analyst estimates of dividends for the next 12 months divided by price. All consensus analyst estimates areprovided by FactSet. (Bottom left) Cyclically adjusted P/E uses as reported earnings throughout. *Latest reflects data as of 12/31/2013.(Bottom right) Standard & Poors, IBES, Moodys, FactSet, J.P. Morgan Asset Management.Guide to the Markets U.S.Data are as of 12/31/13.


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Corporate Profits and Leverage

$2710%

S&P 500 Earnings Per ShareOperating basis, quarterly

Profit MarginsS&P 500 operating earnings per share / sales per share

3Q13:9.6%3Q13*: $26.92

$23

4%

6%

8%

E q u

i t i e s 2Q07: $24.06

$15

$19

0%

2%

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

Total Leverage

$7

$11

180%

200%

220%

240%

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

-$1

$3

100%

120%

140%

160%

3Q13:104%

Average: 171%

8

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

Source: Standard & Poors, Compustat, J.P. Morgan Asset Management.EPS levels are based on operating earnings per share. *Most recently available data is 2Q13 as 3Q13 are Standard & Poors preliminary estimates.Past performance is not indicative of future returns.



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


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Sources of Earnings per Share Growth

50%

S&P 500 Year-Over-Year EPS GrowthGrowth broken into revenue, changes in profit margin & changes in share count

30%

40%

E q u

i t i e s

Share of EPS Growth 3Q13Margin 8.0%

Revenue 3.3%Share count 0.6%

10%

20%

-20%

-10%

-40%

-30%

3Q133Q113Q093Q073Q053Q033Q013Q993Q973Q95

9

Source: Standard & Poors, Compustat, J.P. Morgan Asset Management.EPS levels are based on operating earnings per share. Most recently available data is 2Q13 as 3Q13 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, andare adjusted on the chart.




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Sources of Total Return

50%

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

30%

40%

E q u

i t i e s

0%

10%

-30%

-20%

-10%

Share of Total Return 4Q13

-50%

-40%

4Q134Q114Q094Q074Q054Q034Q014Q994Q974Q95

Multiples 18.4%Earnings 11.2%Dividends 2.8%

10

Source: Standard & Poors, J.P. Morgan Asset Management.Guide to the Markets U.S.



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Confidence, Earnings and Multiples

27x120

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

E q u

i t i e s

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

9x

12x

50

60

70

Correlation Coefficient: 0.52

S&P 500 Index: Forward P/E Ratio S&P 500 O eratin Earnin s Estimates

$80

$100

$120

$140

18x

20x

22x

24x

26x

4Q13: $120.31

$0

$20

$40

$60

8x

10x

12x

14x

16x

Average: 14.9x

. .

11

Source: (Top) Standard & Poors, FactSet, J.P. Morgan Asset Management. (Bottom) Standard & Poors, IBES, J.P. Morgan Asset Management.Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next twelve months. *Estimated impact based oncoefficients from regression analysis. Guide to the Markets U.S. Data are as of 12/31/13.

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


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Interest Rates and Equities

Correlations Between Weekly Stock Returns and Interest Rate MovementsWeekly S&P 500 returns, 10-year Treasury yield, rolling 2-year correlation, 1963-2013

0.8

E q u

i t i e s

Positiverelationshipbetween yieldmovementsand stock

below 5%, risingrates aregenerallyassociated withrising stockprices

0.4

0.6

returns

o n

C o e

f f i c i e n

t

0

0.2

Negativerelationship

between yield

C o r r e

l a t i

-0.4

-0.2

stock returns

-0.8

-0.6

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

12

Source: Standard & Poors, US Treasury, FactSet, J.P. Morgan Asset Management.Returns are based on price index only and do not include dividends.Guide to the Markets U.S.Data are as of 12/31/13.

10-Year Treasury Yield


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Deploying Corporate Cash

30%

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$1,600$1,700

20%

22%24%

26%

E q u

i t i e s

$600

$800$1,000

$1,200

,

$1,200

$1,300$1,400

$1,500

,

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '1314%

16%

18%

Cash Returned to ShareholdersDividend Payout Ratio

$0

$200

$400

$900

$1,000

$1,100

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

50%

60%$bn, S&P 500 companies, rolling 4-quarter averagesS&P 500 companies, LTM

Dividends per Share

$100

$120

$140

$160

$27

$30

$33

30%

40%

Share Buybacks$20

$40

$60

$80

$15

$18

$21

$24

13

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13Source: 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 fornonfarm 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 12/31/13.

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13


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P/E Ratios and Equity Returns

60% 60%

P/E and Total Return Over 5-yr. Annualized PeriodsP/E and Total Return Over 1-yr. PeriodsQuarterly, 1Q 1952 to 3Q 2008Quarterly, 1Q 1952 to 3Q 2012

40% 40% E q u

i t i e s

20% 20%

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

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

-40%

-20%

-40%

-20%

14

Source: BEA, FRB, J.P. Morgan Asset Management. Prices are based on the market value of all U.S. corporations and include quarterlydividends. Valuation based on long-term P/E ratio.Note: Orange line denote results of linear regression with R-squared of 0.13 for 1-yr. returns (left) and 0.27 for 5-yr. returns (right).Guide to the Markets U.S.Data are as of 12/31/13.


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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 14.4%, annual returns positive in 26 of 34 years

26

1517

26

1512

27 26

7

20

27

20

26

9

14

23

13 13

30

10%

20%

30%

E q u

i t i e s

-101 2 -7

4

-2 -10 -13 -233 4

-38 0

-7

-

-8-9

-8 -8 -6 -6 -5 -9

-3

-8-11 -12

-8 -7 -8-10 -10

-6-10%

%

-17 -18 -17

-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

16

Source: Standard & Poors, FactSet, J.P. Morgan Asset Management.Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough duringthe year. For illustrative purposes only. Returns shown are calendar year returns from 1980 to 2013.Guide to the Markets U.S.Data are as of 12/31/13.


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Equity Correlations and Volatility

70%

Large Cap StocksCorrelations Among Stocks

Sovereign DebtCrisis

LehmanGreat Depression /

30%

40%

50%

E q u

i t i e s

Tech Bust & 9/11

1987 Crash

OPEC OilCrisis

Cuban Missile Crisis

0%

10%

20%

'26 '32 '38 '44 '50 '56 '62 '68 '74 '80 '86 '92 '98 '04 '10

Average: 26.9% Dec. 2013: 32.7%

2.5%

3.0%

3.5%

60

75

90Volatility Measure 08 Peak Average LatestDJIA (Left) 3.30% 0.72% 0.47%VIX (Right) 80.9 20.2 13.7

DJIA vol. shownin 3-month

moving average

0.5%

1.0%

1.5%

.

15

30

45

17

'30 '35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '100.0% 0

Source: (Top) Empirical Research Partners LLC, Standard & Poors, J.P. Morgan Asset Management. Capitalization weighted correlation of top750 stocks by market capitalization, daily returns, 1926 Dec. 31, 2013. (Bottom) CBOE, Dow Jones, J.P. Morgan Asset Management. DJIAvolatility 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 12/31/13.


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Economic Growth and the Composition of GDP

10% $18,000

Real GDPYear over year % chg 50-yr avg. 3Q13

Components of GDP3Q13 nominal GDP, billions USD

3.2% HousingReal GDP

6%

8%

$14,000

$16,000

y

. .

13.0% Investment ex-housing

18.6% Govt Spending$1,482 bnof outputrecovered

Average:

QoQ % chg: 3.1% 4.1%

2%

4%

$8,000

$10,000

,

E c o n o

.

-2%

0%

$2,000

$4,000

$6,000 68.2% Consumption

$639 bn ofoutput lost

-6%

-

'63 '68 '73 '78 '83 '88 '93 '98 '03 '08 -$2,000

$0

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

- 3.0% Net Exports

18

a ues may no sum o ue o roun ng. uar er over quar er percen c anges are a an annua ze ra e.

Guide to the Markets U.S.Data are as of 12/31/13.


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Cyclical Sectors

24Millions, seasonally adjusted annual rateLight Vehicle Sales

46

47

Manufacturing and Trade InventoriesDays of sales, seasonally adjusted

14

1618

20

y Average: 15.2

Nov. 2013:

16.3

41

4243

44

45

Oct. 2013:39.2

'94 '96 '98 '00 '02 '04 '06 '08 '10 '128

10

12

E c o n o

Real Capital Goods Orders

Housing Starts

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '1437

38

39

$6 0

$6 5

$7 0

$7 5

1,600

2,000

2,400

- . , ,ousan s, seasona y a us e annua rae

Nov. 2013:60.5

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12$4 0

$4 5

$5 0

$5 5

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

400

800

, .1,091

Average: 56.2

,

19

Source: (Top left) BEA, FactSet, J.P. Morgan Asset Management. (Top right) Census Bureau, FactSet, J.P. Morgan Asset Management. (Bottom left) Census Bureau,FactSet, J.P. Morgan Asset Management. (Bottom right) Census Bureau, FactSet, J.P. Morgan Asset Management.Capital goods orders deflated using the producer price index for capital goods with a base year of 2004.Guide to the Markets U.S.



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The Aftermath of the Housing Bubble

40%140

Housing Affordability Index Avg. mortgage payment as a % of household incomeIndexed to 100, seasonally adjusted

Home Prices

-

20%

25%

30%

130

y

Nov. 2013:13.2%

FHFA Purchase Only

Average Existing Home

10%

15%

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

110

120

E c o n o

Home Inventories

.

100

ons, annua rae, seasona y a us e

3.5

4.0

4.5

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

90

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '141.5

2.0

2.5

.

Nov. 2013: 2.3

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) CensusBureau, National Association of Realtors, J.P. Morgan Asset Management. Guide to the Markets U.S.



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Consumer Finances

$100 14%

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

4Q07:

Consumer Balance SheetTrillions of dollars outstanding, not seasonally adjusted

$80

$90

11%

12%

13%

y

1Q80:11.0%

.Total Assets: $90.9tn

Homes: 24%

- .1Q-09 Low: $69.8tn

$50

$60'80 '85 '90 '95 '00 '05 '10

9%

10%

E c o n o

4Q13*:10.0%

Household Net WorthBillions USD, not seasonally adjusted *

Deposits: 10%

Other Tangible: 6%

$30

$40

$50,000

$60,000

$70,000

$80,000

$90,000$79,7653Q07:

$69,094

ens on un s:Other Non-revolving: 1%

Revolving (e.g.: credit cards): 6%Auto Loans: 6%

Other Liabilities: 8%Student Debt: 9%

$0

$10

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14$10,000

$20,000

$30,000

$40,000Total Liabilities: $13.7tn

Assets: 39%

Mortgages: 70%

21

Source: (Left) FRB, J.P. Morgan Asset Management. Data includes households and nonprofit organizations. (Right) BEA, FRB, J.P. Morgan AssetManagement. *4Q13 household debt service ratio and household net worth are J.P. Morgan Asset Management estimates. Values may not sum to100% due to rounding.Guide to the Markets U.S.Data are as of 12/31/13.


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Federal Finances

-12%

-

$4.0

The 2013 Federal BudgetCBO Baseline forecast, trillions USD

Federal Budget Surplus/Deficit% of GDP, 1975 2023, 2013 CBO Baseline

Forecast2013:-4.1%

-8%

-6%

-4%

-2%

0%

$3.0

$3.5

y

Total Spending: $3.5tnOther

$359bn (10%)

Net Int.: $223bn (6%)

Borrowing:$642bn (19%)

2%

4%'75 '79 '83 '87 '91 '95 '99 '03 '07 '11 '15 '19 '23

$2.0

$2.5

E c o n o

Defense:$751bn (22%)

on- e ense sc.:$461bn (13%)

Social Insurance:$952bn (28%)

Other: 237bn (7%)

Federal Net Debt (Accumulated Deficits)% of GDP, 1975 2023, 2013 CBO Baseline, end of fiscal year

50%

60%

70%

80%

$1.0

$1.5

Social Security:$809bn (23%)

Corp.: $291bn (8%)

2023: 71.4%

2013: 72.8%

20%

30%

40%

'75 '79 '83 '87 '91 '95 '99 '03 '07 '11 '15 '19 '23$0.0

$0.5

Total Government Spending Sources of Financing

Medicare & Medicaid:$852bn (25%)

$1,333bn (39%) Forecast

22

Source: U.S. Treasury, BEA, OMB, CBO, J.P. Morgan Asset Management.

2013 Federal Budget is based on the CBOs May 2013 Baseline Scenario. Other spending includes, but is not limited to, health insurance subsidies, income security,and federal civilian and military retirement.Note: Years shown are fiscal years (Oct. 1 through Sep. 30). 2013 numbers in right hand charts are J.P. Morgan Asset Management estimates.Guide to the Markets U.S.Data are as of 12/31/13.


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Employment

60012%

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

200

400

10%

11%

y 8.8mmOct. 2009: 10.0%

-200

0

8%

9%

E c o n o

8.1mm jobs

-600

-4006%

7% Nov. 2013: 7.0%

-1,000

-800

3%

4%

50-yr. avg.: 6.1%

23

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13'70 '80 '90 '00 '10

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





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Alternative Measures of Labor Utilization

Job Gains and Losses Nov. 2012 to Oct. 2013Millions of jobs

68%

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

50

y

Other Separations: 4.4mm

Total Separations: 51.0mm .

64%

65%

66%

67%

30

E c o n o

Quits:27.0 mm

Average Hourly Earnings Growth

'94 '96 '98 '00 '02 '04 '06 '08 '10 '1262%

63%

Nov. 2013: 63.0%

20

3%

4%

5%

La offs and

Nov. 2013:2.2%

.

0

10

'94 '96 '98 '00 '02 '04 '06 '08 '10 '120%

1%

2%

Discharges:19.6mm

24




25/71

Employment and Income by Educational Attainment

18%$87,981$90,000

Average Annual Earnings by Highest Degree EarnedFull-time workers aged 18 and older, 2011, USD

Unemployment Rate by Education Level

14%

16%

$70,000

$80,000

y

+29K

Nov. 2013:

Less than High School DegreeHigh School No College

Some CollegeCollege or Greater

10%

12% $59,415

$50,000

$60,000

E c o n o

+27KNov.2013:

10.8%

6%

8%

$32,493

$30,000

$40,000

Nov. 2013:6.4%

.

2%

4

$0

$10,000

,

Nov. 2013:3.4%

25

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 High School Graduate Bachelor's Degree Advanced Degree

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

Unemployment rates shown are for civilians aged 25 and older.




26/71

Consumer Price Index

15%

CPI and Core CPI50-yr. Avg. Nov. 2013

Headline CPI: 4.2% 1.2%

% change vs. prior year, seasonally adjustedCPIComponents

Weight inCPI

12-monthChange

Food & Bev. 15.3% 1.2%

12%

y

Core CPI: 4.1% 1.7%Housing 41.0% 2.1%

Apparel 3.6% -0.1%

Transportation 16.8% -0.9%

6%

9%

E c o n o Medical Care 7.2% 2.2%

Recreation 6.0% 0.5%

Educ. & Comm. 6.8% 1.6%

0%

3%

. .

Headline CPI 100.0% 1.2%

Less:

Energy 9.6% -2.5%

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


Food 14.3% 1.2%

Core CPI 76.1% 1.7%

26

CPI used is CPI-U and values shown are % change vs. 1 year ago and reflect November 2013 CPI data. CPI component weights are as of December 2012 and 12-monthchange reflects non-seasonally adjusted data through November 2013. Core CPI is defined as CPI excluding food and energy prices.




27/71

Energy and the Economy

4%

Economic Drag From Oil PricesU.S. petroleum imports as a % of GDP

3Q08: 3.7%Kuwait

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

2%

3%

y

Iran3.9%

Iraq3.9%

3.4%0.2%Suez Canal

2.2%

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

0%

1%

E c o n o 4Q13*: 2.3%

Total U.S. Ener Net Im orts

Libya1.8%

Egypt0.8% Saudi Arabia

12.9%

Strait ofHormuz

Energy Spending by Income Level% of after-tax income

25%

30%

35%

% of total energy consumption

EIAforecast

0.1%UAE3.5%

.

Bab el-Mandeb

5%

10%

15%

3.4%

Major Producers Major Consum ers

Percent of global total, 2012 Percent of global total, 2012

Saudi Arabia 13% China 5% United States 21% India 4%

27

Source: (Left) EIA, J.P. Morgan Asset Management. (Top right) BEA, 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. *4Q13 drag on growth is a J.P. Morgan Asset Managementestimate. *Production numbers as of 2012, while chokepoints are 2011 data. Guide to the Markets U.S.. Data as of 12/31/2013.

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

Russia 12% Iran 4% Japan 5% Brazil 3%


28/71

Consumer Confidence and the Stock Market

130Consumer Sentiment Index University of Michigan

Impact on Consumer Sentiment from a

110

120

y

Jan. 2000

-2.0%Jan. 2004

+4.4%

- .+1.8+2.9

-5.3

- -10% y-o-y rise in home prices10% y-o-y rise in the S&P 500

1% y-o-y rise in the unemployment rate

90

100

Average: 85.3

E c o n o

.+13.5%

May 1977+1.2%

.-6.2% Jan. 2007-4.2%

60

70

Oct. 1990

Mar. 2003+32.8% Oct. 2005

+14.2%

' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' '40

50

Feb. 1975+22.2%

May 1980+19.2%

+29.1%

Nov. 2008+22.3%

Aug. 2011+15.4%Sentiment Cycle Low and

subsequent 12-month S&P 500 Indexreturn

28

Source: University of Michigan, FactSet, J.P. Morgan Asset Management.Peak is defined as the highest index value before a series of lower lows, while a trough is defined as the lowest index value before a seriesof higher highs. Subsequent 12-month S&P 500 returns are price returns only, which excludes dividends. Impact on consumer sentiment isbased on a multivariate monthly regression between 1/31/2000 10/31/2013. Guide to the Markets U.S.



29/71

Fixed Income Sector Returns

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 4Q13 Cum. Ann.

EMD EMD High Yield TIPS Treas. High Yield High Yield TIPS EMD High Yield High Yield High Yield High Yield

10-yrs. '04 - '13

. . . . . . . . . . . . .

High Yield Asset

Alloc. EMD Treas. MBS EMD EMD Muni High Yield MBS EMD EMD EMD

11.1% 3.5% 10.0% 9.0% 8.3% 34.2% 12.8% 12.3% 15.8% -1.4% 1.2% 126.9% 8.5%

TIPS TIPS MBS Barclays

AggBarclays

Agg Corp. Corp. Treas. Corp. Corp. Corp.

AssetAlloc.

AssetAlloc.

8.5% 2.8% 5.2% 7.0% 5.2% 18.7% 9.0% 9.8% 9.8% -1.5% 1.1% 72.3% 5.6%AssetAlloc.

Treas. Asset

Alloc. MBS Muni

AssetAlloc.

AssetAlloc.

AssetAlloc.

AssetAlloc.

AssetAlloc.

AssetAlloc.

Corp. Corp.

6.2% 2.8% 5.1% 6.9% 1.5% 15.3% 7.8% 9.1% 7.7% -2.0% 0.3% 68.1% 5.3%

Corp. Muni Muni

Asset

Alloc.

Asset

Alloc. TIPS

Barclays

Agg Corp. TIPS

Barclays

Agg Muni TIPS TIPS5.4% 2.7% 4.7% 6.4% -0.8% 11.4% 6.5% 8.1% 7.0% -2.0% -0.1% 60.6% 4.8% c

o m

e

MBS High Yield Barclays

Agg EMD TIPS Muni TIPS

BarclaysAgg

Muni Muni Barclays

Agg Muni Muni

4.7% 2.7% 4.3% 5.2% -2.4% 9.9% 6.3% 7.8% 5.7% -2.2% -0.1% 57.5% 4.6%Barclays

Agg MBS Corp. Corp. Corp.

BarclaysAgg

Treas. EMD Barclays

Agg Treas. MBS MBS MBS

4.3% 2.6% 4.3% 4.6% -4.9% 5.9% 5.9% 7.0% 4.2% -2.7% -0.4% 57.0% 4.6%

F i x e

d I

Muni Agg

Treas. Muni EMD MBS MBS MBS MBS EMD Treas. Agg

Agg

4.1% 2.4% 3.1% 4.3% -14.7% 5.9% 5.4% 6.2% 2.6% -4.1% -0.8% 56.0% 4.5%

Treas. Corp. TIPS High Yield High Yield Treas. Muni High Yield Treas. TIPS TIPS Treas. Treas.

3.5% 1.7% 0.4% 1.9% -26.2% -3.6% 4.0% 5.0% 2.0% -8.6% -2.0% 51.3% 4.2%Source: Barclays Capital, FactSet, J.P. Morgan Asset Management.

29

Past performance is not indicative of future returns. Fixed income sectors shown above are provided by Barclays Capital and are represented by: Barclays Capital U.S. AggregateIndex; MBS: Fixed Rate MBS Index; Corporate: U.S. Corporates; Municipals: Muni Bond 10-Year Index; Emerging Debt: Emerging Markets USD Index; High Yield: Corporate HighYield Index; Treasuries: Barclays Capital U.S. Treasury; TIPS: Barclays Capital TIPS. The Asset Allocation portfolio assumes the following weights:10% in MBS, 20% in Corporate, 15% in Municipals, 10% in Emerging Debt, 10% in High Yield, 25% in Treasuries, 10% in TIPS.

Asset allocation portfolio assumes annual rebalancing. Guide to the Markets U.S.Data are as of 12/31/13.


30/71

Interest Rates and Inflation

20%Nominal and Real 10-year Treasury Yields

15%

ep. , :15.84%

Average 12/31/13Nominal Yields 6.36% 3.04%Real Yields 2.53% 1.32%

10%

c o m

e Nominal 10-yearTreasury Yield

5%

F i x e

d I Dec. 31, 2013: 3.04%

Real 10-year

-

0%

Dec. 31, 2013: 1.32%

Rising Rate Corp. Bonds S&P 5001958-1981 3.0% 8.6%Ann. Inflation 5.0% 5.0%Ann. Real Return -2.0% 3.5%

Falling Rate Corp. Bonds S&P 5001982-2012 10.1% 11.0%Ann. Inflation 3.1% 3.1%Ann. Real Return 6.8% 7.7%

30

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

-

Source: Federal Reserve, BLS, J.P. Morgan Asset Management.Real 10-year Treasury yields are calculated as the daily Treasury yield less year-over-year core inflation for that month except for December 2013,where real yields are calculated by subtracting out November 2013 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 theMarkets U.S.Data are as of 12/31/13.


31/71


32/71

Sources of Bond Returns

-2.5% 5-yr.1.1%

Coupon Return2013 C

Total Return2013 A + B + C

Treasury Base Rate Return2013 A

Spread to Treasury Return2013 B

-3.5%5-yr.

-7.8%

-15.0%

10-yr.

30-yr.

2.1%

3.3%

-9.9%

-18.4%

10-yr.

30-yr.

-2.2%

7.4%

-4.1%

10-yr. Muni

U.S. HY

EM USD

4.3%

7.3%

5.9% c o m

e 9.4%

-0.3%

-6.5%

-9.3%

-9.7%

10-yr. Muni

U.S. HY

EM USD

-1.5%

-1.4%

IG Corp.

U.S. MBS

4.4%

3.8%

F i x e

d I

3.0%

1.0%

-9.0%

-6.3%

IG Corp.

U.S. MBS

-2.0%

2.4%

-20% -10% 0% 10%

U.S. Agg.

FRN (BBB)

3.2%

1.4%

-20% -10% 0% 10%

1.0%

2.4%

-20% -10% 0% 10%

-6.2%

-1.4%

-20% -10% 0% 10%

U.S. Agg.

FRN (BBB)

32

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 Managementestimates. 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 InvestmentGrade, Barclays US Aggregate Credit Corporate High Yield, Barclays Muni 10-year Index, Barclays US MBS Index, Barclays Floating RateIndex, and Barclays Emerging Markets USD. Guide to the Markets U.S. Data are as of 12/31/13.


33/71


34/71

Credit Conditions

760 12%

Delinquency Rates All banks, seasonally adjusted

Lending Standards for Approved Mortgage Loans Average FICO score based on origination date

700

720

740

4%

6%

8%

10% Consumer Loans

Commercial and Industrial Loans

8.6%

2.4%

Nov. 2013:737

660

680

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '120%

2%

c o m

e1.0%

Common Equity as a % of Total Assets

Mortgage Originations

10%

12%

14%

F i x e

d I ,

2012:11.1%

$300

$350

$400

$450u y, , y u

3Q13:

4%

6%

8%

' ' ' ' ' ' ' ' ' ' ' '

Average: 7.6%

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12$50

$100

$150

$200

$184bn

+77%

34

Source: (Top left) McDash, J.P. Morgan Securitized Product Research, J.P. Morgan Asset Management. (Top right) Federal Reserve, FactSet, J.P. Morgan AssetManagement. (Bottom left): Federal Reserve, FactSet, J.P. Morgan Asset Management. (Bottom right) FDIC, J.P. Morgan Asset Management. All data reflect most recently available releases.Guide to the Markets U.S.Data are as of 12/31/13.


35/71

High Yield Bonds

20% Average LatestHY Spreads 5.9% 4.4%Lev. Loan Spreads 5.0% 3.2%HY Defaults Rates 4.1% 0.7%

High Yield Spreads and Defaults

HY Spreads

5%

10%

ev. oan prea s

HY Default Rates

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

c o m

e

Historical High Yield Recovery RatesHi h ield bonds cents on the dollar

Annual Flows into High Yield and Leveraged Loan FundsMutual funds & ETFs, billions USD YTD 2013: $70.6bn

$30

$40$50$60$70$80

40

50

60

70

F i x e

d I

Average: 40.7 High YieldLeveraged Loans

-$20-$10

$0$10$20

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '130

10

20

30

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

35

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 markettrading at or below 50% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. (Bottom left): J.P Morgan, Fitch, J.P. Morgan AssetManagement. (Bottom right): Strategic Insight, J.P. Morgan Asset Management. Spreads indicated are benchmark yield to worst less comparable maturit y Treasury yields.2013 recovery rate is a weighted average number as of December 2013. Yield to worst is defined as the lowest potential yield that can be receivedon a bond without the issuer actually defaulting and reflects the possibility of the bond being called at an unfavorable time for the holder.Flows include ETFs and are as of November 2013. Past performance is not indicative of comparable future results. Guide to the Markets U.S.Data are as of 12/31/13.


36/71

Municipal Finance

9%

10%

State & Local Government Debt Service% of current expenditures

Muni Taxable Equivalent 10-Year YieldTaxable equivalent Muni and Treasury yields 3Q13: 9.0%

12%

5%

6%

7%

8%Taxable Equivalent 10-Yr Muni Yield

10%

3%

4%

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

c o m

e

Municipal Bond Issuance*Billions USD revenue and GO issues

6%

8%

F i x e

d I

10-Yr Treasury Yield

$300bn

$400bn

$500bn

4%

Spread

$0bn

$100bn

$200bn

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

0%

2%

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

36

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. 2013 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.2013 issuance data is as of November 2013. Guide to the Markets U.S.



37/71

Global Fixed Income

Aggrega te s # of issuesCorrel to10-year Duration Current Spread 4Q13 2013

- -

Return Yield

$90

Global Bond MarketUSD, trillions

EM: $6tn

. . , . . . - . - .

Glbl ex. U.S. 9,755 0.40 6.5 1.92% 53 -0.59% -3.03%

Japan 1,434 0.53 7.8 0.63% 3 -6.35% -15.87%

Germany 892 0.27 5.5 1.34% 23 1.28% 2.59%

$70

$8012/31/89 9/30/13

U.S. 61.9% 42.1%Dev. ex U.S. 37.9% 54.2%

EM 0.1% 3.7%

U.K. 981 0.17 8.3 2.71% 39 1.17% -0.58%

Australia 395 0.14 4.8 3.17% 49 -2.22% -7.99%

France 822 0.25 6.1 1.76% 53 2.20% 4.60%

Italy 254 0.09 6.0 2.99% 172 5.32% 11.56% $40

$50

60

c o m

e Developed ex

U.S.: $50tn

Spain 303 0.12 5.0 2.74% 173 4.07% 15.52%

Sector

EMD ($) 1,214 0.23 5.7 5.25% 313 1.17% -4.12%

EMD (LCL) 465 0.05 4.8 5.69% 78 -0.31% -4.32%$20

$30

F i x e

d I

Euro Corp. 1,388 0.19 4.3 2.07% 115 0.96% 2.37%

Euro HY. 616 -0.36 3.8 5.08% 328 4.00% 9.90%

EM Corp. 434 0.23 6.3 5.60% 251 1.50% -2.39%$0

$10

'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11

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

. .: n

37

the global aggregate for each country. EMD sectors are represented by Barclays Emerging Markets USD Aggregate Index, Barclays Emerging Market Local Currency Government Index, and

JPM CEMBI. European Corporates represent the Barclays Euro Aggregate Credit Corporate Index and the Barclays Pan-European High Yield index. Sector yields reflect yield to worst.Spread is the option adjusted spread to benchmark yields for each respective sector. Duration represents modified duration. Correlations are based on 10-years of monthly returns for the U.S. Aggregate, Japan Aggregate, EMD USD, European Corporates and European High Yield. Correlations for the Barclays Global Aggregate ex U.S. arecalculated from December 2006, EMD (LCL) is calculated from August 2008. All other sector correlations are calculated from March 2007.Past performance is not indicative of future results. Current data are as of 12/31/2013 unless otherwise noted. Guide to the Markets U.S.Data are as of 12/31/13.


38/71

Emerging Market Debt

12%

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

Index Breakdown USD Denominated EMD

Index Average

SpreadSpread

(12/31/13)

Middle East &Africa 12%

Middle East &Africa 15%100%

4%

6%

8%EMBIG 3.8% 3.3%CEMBI 3.3% 3.3%

Asia 41%

Europe 34%Europe 16%

Latin America36%

Latin America28%

20%

40%

60%

80%

0%

2%

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

c o m

e

Annual Flows into EMD Mutual Funds & ETFsBillions USD

Emerging Market Debt Credit RatingEMBIG average monthly credit rating, inverse scale

Asia 18%0%

Sovereigns(EMBIG)

Corporates(CEMBI)

$15

$20

$25

$30

F i x e

d I . -

BB+

BBB-

BB

BB-

: - . n

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

$0

$5

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

B-

B

B+

38

Source: J.P. Morgan, MorganMarkets, FactSet, Strategic Insight, J.P. Morgan Asset Management.

Spreads measure the credit risk premium over comparable maturity U.S. Treasury bonds. The J.P. Morgan EMBI Global (EMBIG) Index is a USD-denominated external debt index tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. The J.P. Morgan Corporate EmergingBond Index (CEMBI) is a USD-denominated external debt index tracking bonds issued by corporations in developing nations. Flow data is as ofNovember 2013. 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 12/31/13.


39/71

Global Equity Markets: Returns

-10% 0% 10% 20% 30% 40%Country / Region

4Q13 2013

Local USD Local USD

Sources of Global Equity Returns 2013Total return, USD

32.4%U.S.(S&P 500)

Regions / Broad Indexes

U.S. (S&P 500) - 10.5 - 32.4EAFE 6.4 5.7 27.5 23.3

-28.7%Europe(ex. U.K.)

. . . . . .

Pacific ex-Japan 3.2 0.3 16.5 5.6

Emerging Markets 3.0 1.9 3.8 -2.3

MSCI: Selected Countries.

20.7%U.K.

United Kingdom 5.0 7.4 18.5 20.7

France 4.3 6.2 22.1 27.7

Germany 11.3 13.3 26.7 32.4

Japan 9.6 2.3 54.8 27.3 o n a

l

-2.3%EM

China 3.8 3.8 4.0 4.0

India 9.0 10.3 8.6 -3.8

Brazil 0.2 -5.5 -3.0 -15.8 I n

t e r n a t i

Dividends

EarningsMultiples

Total Return

39

. . . .

Source: Standard & Poors, MSCI, FactSet, J.P. Morgan Asset Management. All return values are MSCI Gross Index (official) data. Multiples and earnings in sources of return calculation based on consensus expectations.Chart is for illustrative purposes only. Past performance is not indicative of future results. Please see disclosure page for index definitions.Guide to the Markets U.S.Data as of 12/31/13.


40/71

Global Equity Markets: Returns to Prior Peaks

Italy

Returns to Reach 2007 Peak PriceTotal return, local currency, assumes average dividend from 00-12

MSCI EAFE Index: Return Needed to Reach 2007 Peak Analysis as of Dec. 31, 2013, implied average annualized total return

29.6%1 Yr

China

Spain

Russia15.5%

11.1%

2 Yrs

3 Yrs

Europe ex-U.K.

Japan

Brazil

MSCI EME Index: Return Needed to Reach 2007 Peak

9.0%

7.8%

4 Yrs

5 Yrs

German

Emerging Markets

EAFE

Pacific ex-Japan

o n a

l

Analysis as of Dec. 31, 2013, implied average annualized total return

18.8%

10.3%

1 Yr

2 Yrs

U.S.

India

UnitedKingdom

I n t e r n a t i

7.6%

6.3%

3 Yrs

4 Yrs

40

-20% 0% 20% 40% 60% 80% 100% 120%

Source: Standard & Poors, MSCI, IMF, FactSet, J.P. Morgan Asset Management. All return values are MSCI Gross Index (official) data. Data assume dividend yields as of 12/31/13 (MSCI EAFE: 2.9% and MSCI EM: 2.5%).Chart is for illustrative purposes only. Past performance is not indicative of future results. Please see disclosure page for index definitions.Guide to the Markets U.S.Data as of 12/31/13.

180%.


41/71

MSCI EAFE Index at Inflection Points

1,400 Index level 1,136 1,212 956P/E ratio (fwd.) 28.7x 14.5x 13.3x

MSCI EAFE Index Characteristic Mar-2000 Jul-2007 Dec-2013

1,100

1,200

1,300 . . .

10-yr. German Bunds 5.3% 4.6% 1.9%

Mar. 29, 2000

P/E (fwd.) = 28.7x1,136

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

1,212

800

900

1,000

-56%

ec. ,P/E (fwd.) = 13.3x

956

+141%

-57% +85%

+70%

600

700

Dec. 31, 1996P/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.

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

503

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

518

I n t e r n a

t i

41

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 abottom-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 byFactSet 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.



42/71

Global Economic Growth

10%

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

4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14

Historical

3Q14

JPMSI Forecast

0%

2%4%

6%

8%

-4%

-2%

Emerging Markets China India Korea Brazil South Africa Mexico Russia

Developed Market Country Real GDP Growth

4%

6%

8%

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

o n a

l

4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14

3Q14

-4%

-2%

0%

2%

DevelopedCountries

Japan U.S. U.K. Canada Germany France Italy I n t e r n a t i

42

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.




43/71


44/71

The Importance of Exports

Exports as a % of GDP2012, goods exported Estimated increase in quarterly real GDP reflecting stronger DM exports

Emerging Market Real GDP Growth Sensitivity to DM

.

16.1%

24.9%China

India

raz

Turkey

S. Africa

raz

U.S.

Europe

U.S.

5.

9.5%U.S.

uss a

Russia

Mexico

Chile

Other

BRIC Japan13.4%

18.5%

17.4%

o n a

lEurozone

U.K.

Japan

Korea

Hungary

21.3%

24.3%

38.5% I n t e r n a t i

Germany

Italy

France

Thailand

Taiwan

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 estimatesa reaction function through a multistage regression measuring emerging market economies sensitivity to export volumes. Developed market importsare used as a proxy for developed demand and estimated from a 1% pick up in domestic GDP. Increases in industrial production are estimated whilecontrolling for emerging market domestic demand in order to limit feedback loops and isolate the impulse from developed market demand only. Thesample period tested ranges between 1993 and 2013 reflecting quarterly data. Guide to the Markets U.S. Data are as of 12/31/13.

0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6%


45/71

The Impact of Global Consumers

Share of Global Nominal ConsumptionThe Impact of UrbanizationUrbanization ratios and GDP per capita (current USD), 1961 2012

$60,000

40%

$50,000Japan

U.S.

35%

$30,000

,

G D P

p e r

C a p

i t a

South 25%

30%

o

n a

lU.S. Consumption % of Global

EM Consumption % of Global

$10,000

$20,000

ChinaIndia

orea

20%

Source: FactSet, United Nations, J.P. Morgan Global Economics Research, J.P. Morgan Asset Management. I n t e r n a

t i$-

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

Urbanization Ratio15%

1990 1995 2000 2005 2010

45

.



46/71

Global Demographics and Equity Investment

GDP USD(Bns)

GDP PerCapita Population

Economic and Demographic Snapshot Value of Public Companies as a % of GDPIncludes companies with market value greater than $1bn and 2013 GDP

Developed

U.S. $16,724 $52,839 317 mm

Canada 1,825 51,871 35

U.K. 2,490 39,049 64

141%

77% 74% 49%39% 38%50%

100%

Germany 3,593 43,952 82

France 2,739 42,991 64

Japan 5,007 39,321 127

22%

0%U.K. U.S. Japan Korea India Mexico Brazil Russia China

Private Equity Investment as a % of GDP ta y , ,

Emerging

Korea 1,198 23,838 50

India 1,758 1,414 1,243

o

n a

l

nnua prva e equ y nves men , o ,

1.05%

0.86%

0.8%

1.0%

1.2%

Brazil 2,190 10,958 200

Mexico 1,327 11,224 118

Russia 2,118 14,973 141

China 8,939 6,569 1,361

I n t e r n a t i

0.22% 0.18% 0.14%0.08% 0.08% 0.06% 0.01%

0.0%

0.2%

0.4%

.

U.K. U.S. Korea Brazil India China Ja an Russia Mexico

46

Source: IMF, J.P. Morgan Global Economics Research, FactSet, EMPEA (Emerging Markets Private Equity Association), J.P. Morgan AssetManagement.

Number of listed companies excludes secondary listings, non-equity securities, and companies with market capitalization of less than $1 billion.




47/71

Emerging Market Currencies

8%

EM Sensitivity to Capital Flows and Currency Performance

China (Mainland)

Korea

Mexico

Hungary

-2%

3%

-8% -4% 0% 4% 8% r f o r m a n c e

20%

ChileMalaysia

Russia

ThailandColombia

SingaporeTaiwan

Philippines

-7%

e C u r r e n c y

P

Brazil

India

Appreciation

Between 0% to -5%

-17%

-

o

n a

l Y e a r -

t o - D a

Currency Performance Key

Indonesia

South Africa

Less than -5%

-27%

-22%

Current Account % of GDP

I n t e r n a t i

47

Source: IMF World Economic Outlook, FactSet, J.P. Morgan Asset Management.Current accounts as a percentage of GDP are IMF estimates for 2013. Guide to the Markets U.S.

Data reflect most recently available as of 12/31/13.


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Sovereign Debt Stresses

10%Bubble size = 10-year

government bond yield

GDP Growth, Gross Debt to GDP and Borrowing Costs

IndonesiaMalaysia

10%

5%

6%

8%

0 1 4 F )

BrazilSouth Africa

Mexico

U.S.

Turkey

Korea

France

Germany

JapanRussia

Singapore Aust ralia

U.K.

0%

2%

r o w

t h ( 2 0 1 2

2

Greece

Italy

Spain

Portugal

-4%

-2%

R e a

l G D P

o

n a

l

-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%

48

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 October 2013 World Economic Outlook.Borrowing costs based on local currency debt. EU overall borrowing cost based on Barclays Capital Euro-Aggregate 7-10 year treasury. South Africasborrowing cost is based on 7-year government bond yield due to data availability. Guide to the Markets U.S.

Data as of 12/31/13.


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Global Monetary Policy

40%

50%

3%

4%

Central Bank Assets Percent of Nominal GDP Real Policy Rates Monthly

20%

30%

-1%

0%

1%

2%

European Central Bank

Bank of Japan

0%

10%

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13-3%

-2%

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

Developed Markets

Country Level Monetary Policy and Inflation

Emerging Markets

Inflation Rate Real Polic RateTar et Polic Rate

U.S. Federal Reserve

o

n a

l

0.0%

2.5%

5.0%

7.5%

10.0%

I n t e r n a t i

-5.0%

-2.5%

H o n g

K o n g

U . K .

J a p a n

U . S .

E u r o a r e a

A u s

t r a

l i a

C a n a

d a

I n d i a

R u s s

i a

I n d o n e s i a

S o u

t h A f r i c a

T u r k e y

M e x

i c o

T h a

i l a n

d

C o

l o m

b i a

T a

i w a n

K o r e a

P o

l a n

d

C h i n a

B r a z i

l

49

Source: J.P. Morgan Global Economics Research, J.P. Morgan Asset Management.(Top charts) Emerging and Developed Economy GDP growth and real policy rates represent GDP weighted aggregates estimated by J.P. MorganGlobal Economics Research. (Bottom chart) Target policy rates are the short-term target interest rates set by central banks. Inflation rates shownrepresent year-over-year quarterly rates for 4Q13. Real policy rates are short-term target interest rates set by central banks minus year-over-yearinflation. Guide to the Markets U.S.Data are as of 12/31/13.

Developed Markets Emerging Markets


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Europe: Unemployment, Inflation and Austerity

13%

7%7%

Government Fiscal Drag% of GDP, fiscal drag = reduction in deficits from one period to the next

Unemployment Rate - Quarterly12.0%

7%

9%

5%

6%

2010-2013

2013-2016

r e f i s c a

l d r a g

Europe

7.3%

3%

5%

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

3%

4%

4% 4%

3% 3%

3% 3%

3%

4%

Europe Inflation

Avg. Since Nov. 2013

M

U.S.

1%

1%

2%

2%2%

2%

ear-over-year c ange

3%

4%

5% Headline CPI 2.1% 0.9%

Core CPI 1.7% 1.1%

o

n a

l

s f i s c a

l d r a g

1%

0%

'99 '01 '03 '05 '07 '09 '11

0%

1%

I n t e r n a t i L e

50

Source: Eurostat, OECD, FactSet, IMF, J.P. Morgan Asset Management.

Government deficits calculated by the IMF as general government net lending/borrowing (revenue minus total expenditure).Data are based on the October 2013 World Economic Outlook. Unemployment rates are OECD estimates as of September 2013.




51/71

Eurozone: Sovereign Bond Yields

European Sovereign Funding Costs10-year benchmark bond yield35%

12/31/13Greece 8.26%

30%

or uga .Spain 4.18%

Ireland 4.2%Germany 1.94%Ireland 3.44%

Euro launch

Italy 4.11%

20%

LTRO

10%

15%

OMT

o

n a

l

'95 '97 '99 '01 '03 '05 '07 '09 '110%

5%

I n t e r n a

t i

51

Source: Tullett Prebon, FactSet, J.P. Morgan Asset Management.

Note: The ECB announced the second round of Long Term Refinancing Operations (LTRO) in February 2012. The Outright Monetary Transaction (OMT) program was announced in September 2012.




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Japan: Economic Snapshot

9%13 0

18,000

20,000

Inflation and Japanese Government Bond YieldsYear-over-year % change for inflation

Japanese Yen per U.S. Dollar Nikkei 225

Japanese Yen and the Stock Market

7%

90

10 0

11 0

10,000

12,000

14,000

16,000

Bank of Japan 13%

Other Domestic 79%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

-12%

-10%

-8%

-6%

-4%

1%

o

n a

l

forecast

-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

Core CPI

52

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 (34%), insurance and pensions (23%), public pensions (7%),households (3%), and others (11%). Values may not sum to 100% due to rounding. Government bond data is calculated from the Bank of JapansJune 2013 flow of funds. Guide to the Markets U.S.



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China: Economic and Credit Growth

40%16%

China Real GDP ContributionYear-over-year % change Year-over-year % change, 3-month moving average for credit

Credit* vs. GDP Growth

30%

35%

12%

Investment

Consumption

Net Exports9.1%

10.4%

Credit

Real GDP

GDP Deflator

20%

25%

4.5%

8.1%

5.5% 4.5%

3.9%

8%

. .

7.8%

10%

15%

4.2%4.6%

4.5% 5.2%4.1%

4%

o

n a

l

-5%

0%

' ' ' ' ' ' ' ' ' ' '

.

-3.5%

.

-0.4% -0.2%

-4%

0%

I n t e r n a t i

53

Source: 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 (61%), bankers acceptance bills (-9%),trust loans (8%), entrusted loans (17%), corporate bond financing (18%), foreign currency loans (3%), and non-financial equity financing (2%).TSF data uses an assumption of outstanding credit in Dec. 2001. Guide to the Markets U.S.Data are as of 12/31/13.


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Global Equity Markets

0.80

0.90

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

-

Global Equity Market CorrelationsRolling 1-year correlations, 30 countries

0.30

0.400.50

0.60

0.70

UnitedStates

48%

U.K.16%

U.K. 8%EmergingMarketsDec. 2013:

0.00

0.10

0.20

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

Share of Global GDP

Japan8%

Emerging Market Share of MSCI ACWI

.

10%

12%

14%

16%

o

n a

l

OtherDeveloped

5%

Europe ex-U.K.16%

U.K. 3%

Share of ACWI earnings

Share of ACWI market cap

2%

4%

6%

Canada 2% I n t e r n a t i Markets

51%

UnitedStates

19%

Japan 5%

54

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

Source: MSCI, IMF, FactSet, J.P. Morgan Asset Management.Share of global market capitalization is based on float adjusted MSCI data. Share of global GDP based on purchasing power parity (PPP) ascalculated by the IMF for 2013. Definition of emerging markets is based on MSCI and IMF data sources.Percentages may not sum to 100% due to rounding. Guide to the Markets U.S.Data as of 12/31/13.


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Emerging Market Equity: Composition

MSCI EM Index by Sector MSCI EM Index by Region

Africa/Mideast8%

Latin Americaex Brazil

7%Brazil12%

19%

Commodities21%

Tech16%

onsumer 17%

Asia ex China& Korea

28%Korea

Europe10%

MSCI EM Country Index by Sector

Financials27%China

19%

14%33%

63%

19%17%

18%

12%

13% 10% 18% 22%31%

15%

60%

80%

100%

Other

Commodities

o

n a

l

22% 17%

34%22%

3%23%

11%

37%29%

19%

23%

38% 17%

20%

40%Financials

Tech

Consumer I n

t e r n a t i

55

7%0%

Brazil Russia India China Mexico* Korea

Source: MSCI, FactSet, J.P. Morgan Asset Management. Other is comprised of Healthcare, Industrials, Telecom, and Utilities sectors.*Mexican Telecom sector accounts for 19% of the countrys market capitalization. Values may not sum to 100% due to rounding.

Guide to the Markets U.S. Data are as of 12/31/13.


56/71

Global Equity Valuations Developed Markets

Developed Market Countries

v e r a g e Expensive

relative toworld

Example

+5 Std Dev

+4 Std Dev

+6 Std Dev

d D e v

f r o m

G l o b a

l

Expensiverelative to own

history

Cheap relative toown history

Average

Current

+3 Std Dev

+2 Std Dev

+1 Std Dev Average

-1 Std Dev

-2 Std Dev

-3 Std Dev

CurrentComposite Current 10-year avg.

S t

relative toworld

-4 Std Dev

-5 Std Dev

World(ACWI)

EAFEIndex

France U.K. Germany Australia Canada Japan Switzerland UnitedStates

. . . . . .

World (ACWI) 0.39 13.8 2.0 8.6 2.5% 13.1 2.0 7.4 2.5% EAFE Index -0.45 13.3 1.7 7.9 3.1% 12.6 1.7 6.6 3.1%

France -1.13 12.5 1.5 6.8 3.4% 11.3 1.6 5.8 3.3%

U.K. -0.53 12.3 1.9 8.5 3.6% 11.5 1.5 5.5 3.0%

Germ any -0.51 12.5 1.7 7.2 2.7% 11.2 2.0 7.6 3.7%

o

n a

l

us ra a - . . . . . . . . .Canada -0.02 14.2 1.9 8.0 2.9% 13.7 2.1 8.6 2.2%

Japan 0.66 14.1 1.4 7.8 1.7% 16.5 1.4 6.4 1.5%

Sw itzerland 0.82 14.6 2.5 9.7 3.0% 13.3 2.4 9.6 2.6% United States 1.99 15.4 2.7 10.1 1.9% 14.0 2.5 8.6 1.9%

Source: MSCI, FactSet, J.P. Morgan Asset Management.Note: Each valuation index shows an e uall wei hted com osite of four metrics: rice to forward earnin s Fwd. P/E rice to current book P/B rice to last 12 months

I n t e r n a

t i

56

. , ,cash flow (P/CF) and price to last 12 months dividends. Results are then normalized using means and average variability over the last 10 years. The grey bars represent

valuation index variability relative to that of the MSCI All Country World Index (ACWI). See disclosures page at the end for metric definitions.Guide to the Markets U.S.



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59/71

Correlations and Volatility

U.S.LargeCap EAFE EME Bonds

Corp.HY Munis Currcy. EMD Cmdty. REITs

HedgeFunds

EqMarket

Neutral*Ann.

Volatility

. . . . . - . . - . - . . . . . .

EAFE 1.00 0.90 -0.16 0.77 - 0.03 -0.57 0.66 0.20 0.70 0.88 0.54 20%

EME 1.00 -0.03 0.81 0.10 -0.62 0.79 0.09 0.62 0.90 0.54 25%

Bonds 1.00 -0.02 0.84 0.02 0.35 -0.17 0.03 - 0.21 -0.33 4%

Corp. HY 1.00 0.19 -0.55 0.85 0.11 0.71 0.77 0.63 12%

Munis 1.00 -0.02 0.54 -0.26 0.09 - 0.04 -0.12 4%

Currencies 1.00 -0.48 -0.39 -0.47 -0.65 -0.67 6%

EMD 1.00 0.05 0.65 0.65 0.49 9%

Commodities 1.00 0.49 0.18 0.47 21%

REITs 1.00 0.57 0.61 26%

Source: Standard & Poors, FRB, Barclays Capital Inc., MSCI Inc., Credit Suisse/Tremont, NCREIF, DJ UBS, J.P. Morgan Asset Management.

Indexes used Large Cap: S&P 500 Index; Currencies: Federal Reserve Trade Weighted Dollar; EAFE: MSCI EAFE; EME: MSCI EmergingMarkets; Bonds: Barclays Capital Aggregate; Corp HY: Barclays Capital Corporate High Yield; EMD: Barclays Capital Emerging Market; Cmdty.: s

e t C l a s s

Hedge Funds 1.00 0.64 8%

Eq Market Neutral* 1.00 14%

59

DJ UBS Commodity Index; Real Estate: NAREIT Equity REIT Index; Hedge Funds: CS/Tremont Multi-Strategy Index; Equity Market Neutral:CS/Tremont Equity Market Neutral Index. *Market Neutral returns include estimates found in disclosures.

All correlation coefficients and annualized volatility calculated based on quarterly total return data for period 12/31/03 to 12/31/13.

This chart is for illustrative purposes only. Guide to the Markets U.S.

Data as of 12/31/13.

A s


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61/71

Mutual Fund Flows

Billions, USD AUM YTD 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998

Domestic E uit 5 592 28 156 132 81 29 149 65 0 18 101 120 26 55 261 176 149

Fund Flows

World Equity 1,993 131 3 4 58 28 (80) 139 149 106 71 24 (3) (22) 53 11 8

Taxable Bond 2,824 (10) 254 137 224 310 21 98 45 27 5 40 125 76 (36) 8 59

Tax-exempt Bond 510 (48) 50 (12) 11 69 8 11 15 5 (15) (7) 17 11 (14) (12) 15

Hybrid 1,222 73 46 29 29 12 (25) 41 18 37 48 38 8 9 (36) (14) 10

1 400

$1,600 $80

Difference In Flows Into Stock and Bond FundsBillions, USD, U.S. and international funds, monthly

Equity flows exceeded bond flows

Cumulative Flows Into Stock & Bond FundsBillions, USD, includes both mutual funds and ETFs

Nov 13: $1,346 billion into bond fundsand fixed income ETFs since 07

,

$800

$1,000

$1,200

,

$0

$20

$40

.

Nov. 13: $498 billion

$0

$200

$400

'07 '08 '09 '10 '11 '12 '13-$60

-$40

-$20

Feb '09 Dec '09 Oct '10 Au '11 Jun '12 A r '13 s e t C l a s s Bonds

Stocks

equity ETFs since 07

61

Source: Investment Company Institute, J.P. Morgan Asset Management.Data include flows through November 2013 and exclude ETFs except for the bottom left chart. ICI data are subject to periodic revisions. Worldequity flows are inclusive of emerging market, global equity and regional equity flows. Hybrid flows include asset allocation, balanced fund,flexible portfolio and mixed income flows.Guide to the Markets U.S.Data are as of 12/31/13.

A s


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Yield Alternatives: Domestic and Global

S&P 500 Total Return: Dividends vs. Capital Appreciation Average annualized returns Capital Appreciation

Dividends20%

4.7% 5.4% 6.0% 5.1% 3.3% 4.2% 4.4% 2.5%1.8%

4.0%

13.9%

3.0%

13.6%

4.4%

1.6%

12.6% 15.3%

-2.7%

5.8%

0%

5%

10%

Equity Dividend Yields REIT Yields

- .

-10%

-5%

1926 - 1929 1930's 1940's 1950's 1960's 1970's 1980's 1990's 2000's 1926 to 2013

,10-year governmentbond yield

10-year governmentbond yield

,

4.2%

3.2%

3.5%

2.8% 2.9%

3%

4%

5%

4.1%

5.8% 5.8% 5.9%5.6%

4.4%

4%

5%

6%

7%

s e t C l a s s 1.9%

.

1.7%

1%

2%

3.3% .

1%

2%

3%

62

Source: (Top chart) Standard & Poors, Ibbotson, J.P. Morgan Asset Management. (Bottom left) FactSet, NAREIT, J.P. Morgan Asset Management.Dividend vs. capital appreciation returns are through 12/31/12. Yields shown are that of the appropriate FTSE NAREIT REIT index, which excludesproperty development companies. (Bottom right) FactSet, MSCI, J.P. Morgan Asset Management. Yields shown are that of the appropriate MSCIindex. Guide to the Markets U.S.


A s

U. S. Aus tralia F ranc e U .K. Sw it zerland C anada ACW I J apan U .S. Aus tralia Singapore Canada Franc e J apan Global U .K.


63/71

Global Commodities

450

Commodity PricesWeekly index prices rebased to 100

Precious Metals

Gold Prices$ / oz$3,000

350

400

Industrial Metals $1,000

$1,500

$2,000

$2,500 Dec. 2013:$1,204.50

,Gold

250

300

Commodit Prices and Inflation

'75 '80 '85 '90 '95 '00 '05 '10$0

$500

4%

6%

8%

40%

60%

80%

150

200 Energy

Grains

Year-over-year % chg.DJ-UBS Commodity Index

(Y/Y % chg.)

-4%

-2%

0%

2%

-40%

-20%

0%

20%

50

100

s e

t C l a s s

LivestockHeadline CPI(Y/Y % chg.)

63

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

-6% -60%'04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Source: Dow Jones/UBS, EcoWin, BLS, U.S. Department of Energy, FactSet, J.P. Morgan Asset Management. CPI adjusted gold values are calculatedusing monthly averages of gold spot prices divided by the CPI value for that month. CPI is rebased to 100 at the end of the chart. Returns based onnominal prices. Commodity prices represented by the appropriate DJ/UBS Commodity sub-index. Guide to the Markets U.S.


A s


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Historical Returns by Holding Period

60% Annual total returns, 1950 2013Range of Stock, Bond and Blended Total Returns

Annual Avg. Growth of $100,000

51%

43%

30%

40%

50%

50/50 Portfolio 9.0% $564,491Bonds 6.1% $327,240Stocks 11.1% $827,444

o a e urn over 20 years

28%

23% 21% 19%16% 17% 18%

12% 14%10%

20%

-8%

-15%

-2% -2% 1% -1% 1% 2%6%

1%5%

-

-10%

0%

Stocks

-37%

-40%

-30%

1- r. 5- r. 10- r. 20- r. s e

t C l a s s 50/50 Portfolio

Bonds

64

rolling rolling rolling A s

Sources: Barclays Capital, FactSet, Robert Shiller, Strategas/Ibbotson, Federal Reserve, J.P. Morgan Asset Management.

Returns shown are based on calendar year returns from 1950 to 2013. Growth of $100,000 is based on annual average total returns from1950-2013. Guide to the Markets U.S.



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Diversification and the Average Investor

Equity Mkt. Neutral

(Top) Indexes and weights of thetraditional portfolio are as follows:U.S. Stocks: 55% S&P 500; U.S.Bonds: 30% Barclays Capital

Aggregate; International Stocks: 15%MSCI EAFE. Portfolio with 25% in

Traditional Portfolio More Diversified PortfolioMaximizing the Power of Diversification (1994 2012)

8%8%

8%

4%

26% REIT

S&P 500Russell 2000

55%

30% S&P 500

MSCI EAFE

Barclays Agg .

. .22.2% S&P 500, 8.8% Russell 2000;International Stocks: 4.4% MSCI EM,13.2% MSCI EAFE; U.S. Bonds:26.5% Barclays Capital Aggregate;

Alternatives: 8.3% CS/Tremont EquityMarket Neutral: 8.3%, DJ/UBSCommodities: 8.3% NAREIT EquityREIT Index. Return and standard

9%

MSCI EM

Barclays Agg .

deviation calculated usingMorningstar Direct.Charts are shown for illustrativepurposes only. Past performance isnot indicative of future returns.Diversification does not guarantee

investment returns and does noteliminate risk of loss. Data are as ofReturn: 7.43%Standard Deviation: 10.80% Return: 7.72%Standard Deviation: 9.87%

20-year Annualized Returns by Asset Class (1993 2012)

. . .J.P. Morgan Asset Management.(Bottom) Indexes used are as follows:REITS: NAREIT Equity REIT Index,EAFE: MSCI EAFE, Oil: WTI Index,Bonds: Barclays Capital U.S.

Aggregate Index, Homes: mediansale price of existing single-familyhomes, Gold: USD/troy oz, Inflation:

11.2%

8.4% 8.2% 8.1%

10%

12%

CPI. Average asset allocation investorreturn is based on an analysis byDalbar Inc., which utilizes the net ofaggregate mutual fund sales,redemptions and exchanges eachmonth as a measure of investorbehavior. Returns are annualized(and total return where applicable)

- s e

t C l a s s 6.5% 6.3%

2.7% 2.5% 2.3%

4%

6%

8%

65

-ending 12/31/12 to match Dalbars

most recent analysis. A s

0%

2%

REITs Gold S&P 500 Oil EAFE Bonds Homes Inflation AverageInvestor


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Cash Accounts

$8,000

$10,000 $ BillionsWeight in

MoneySupply

Money SupplyComponent

Annual Income Generated by $100,000 Investment in a 6-month CD

$2,000

$4,000

$6,000 M2-M1 8,323 77.1%

Retail MMMFs 645 6.0%2013*:$270

,

'90 '95 '00 '05 '10$0 Savings deposits 7,138 66.1%

Small time deposits 540 5.0%6-month CD rate vs. Core CPICash AccountsCash as a % of Total Household Financial Assets24% Mar. 09 S&P 500 low

Institutional MMMFs 1,794 16.6%

677 6.3% Cash in IRA & Keogh

accounts16%

20%

c . ow

Total 10,793 100.0%

s e

t C l a s s

Source: Federal Reserve, St. Louis Fed, Bankrate.com, J.P. Morgan Asset Management. All cash measures obtained from the Federal Reserve are seasonally adjusted monthly numbers. All numbers are in billions of U.S. dollars.

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

12%

66

A s ma - enom na on me epos s are ose ssue n amoun s o ess an , . an eog accoun a ances a commerc a an s an r ns u ons are su rac e

from small time deposits. Annual income is for illustrative purposes and is calculated based on the 6-month CD yield on average during each year and $100,000 invested.*2013 average income is through June 2013. IRA and Keogh account balances at money market mutual funds are subtracted from retail money funds.Past performance is not indicative of comparable future results.Guide to the Markets U.S.Data are as of 12/31/13.


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Corporate DB Plans and Endowments

100%

110%$2.5 Funded Status (%)

Defined Benefit Plans: Russell 3000 CompaniesAsset Allocation: Corporate DB Plans vs. Endowments

Endowments Trillions ($)

70%

80%

90%

$1.5

$2.0

Assets ($)

48.0%

9.0%

27.0%

Fixed Income

EquitiesLiabilities ($)

50%

60%

$1.0'07 '08 '09 '10 '11 '12 '13 Est.

Pension Return Assumptions: S&P 500 companies

4.0%

38.0%

20.1%Hedge Funds

27% 29%

20%20%

34%

20%

30%

40%

a n

i e s

2013: Average 7.3%1999: Average 9.2%

2.0%

2.0%

17.7%

.

Real Estate

Private Equity

0% 1% 1% 1%

5%9%

7%10%

6%

12% 13%

3%0% 0% 0%

0%

10%

< 6% 6 to 6.5 to 7 to 7.5 to 8 to 8.5 to 9 to 9.5 to > 10%

% o

f C o m

s e t C l a s s

% of total4.0%

3.0%

3.0%

7.3%

Cash

Other

67

. . . .

Return AssumptionSource: NACUBO (National Association of College and University Business Officers), Towers Watson, Compustat/FactSet, J.P. Morgan AssetManagement. Asset allocation as of 2012. Funded status for 2013 estimated using 2013 market returns. Endowments represents dollar-weightedaverage data of 842 colleges and universities. Pension Return Assumptions based on all available and reported data from S&P 500 Indexcompanies. Pension Assets, Liabilities and Funded Status based on Russell 3000 companies reporting pension data. Return assumption bands areinclusive of upper range. All information is shown for illustrative purposes only. Guide to the Markets U.S. Data are as of 12/31/13.

A s

0% 10% 20% 30% 40% 50% 60%


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jpm guide to the markets - q1 2014

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