Transcript the Presentation

1Q | 2015
As of December 31, 2014
Guide to the Markets
1
®
jpmorganfunds.com/bench
Recessions, Expansions and Bull Markets
Length of Economic Expansions and Recessions
Dimensions of Equity Bull Markets
125
Average Length (months):
100
Economy
Start
Date
Expansions: 46 months
Recessions: 15 months
75
*
50
Duration in
Rank
Mths
Price
Gains, %
Rank
P/E at
Peak
Rank
Apr. '09
68*
6
168.3*
6
18.8*
7
Mar. '03
56
7
83.9
9
20.7
4
Jan. '88
152
2
516.4
1
28.0
1
Jan. '75
153
1
362.4
4
20.1
6
Jul. '70
31
10
56.6
10
18.1
9
Jul. '62
78
5
91.4
8
18.5
8
Jul. '49
150
3
413.5
2
22.5
2
May '42
49
9
138.5
7
21.7
3
Jul. '32
55
8
279.7
5
16.8
10
Sep. '21
97
4
385.3
3
20.2
5
25
0
1900
1912
1921
1933
1949
1961
1980
2001
Source: Standard and Poors, Robert Shiller, Yale University Department of Economics,
*Chart assumes current expansion started in July 2009 and continued through December Factset, J.P. Morgan Asset Management.
*Denotes current market dimensions, which are as of 12/31/2014, not necessarily market
2014.
peak.
Data for length of economic expansions and recessions obtained from the National
P/E ratios use lagged as reported earnings from Robert Shiller’s data, except for values
Bureau of Economic Research (NBER). These data can be found at www.nber.org/cycles/ since 6/30/2014, which are estimated using Standard and Poor’s data for earnings
estimates.
and reflects information through December 2014.
Source: NBER, J.P. Morgan Asset Management.
For illustrative purposes only.
Data reflect most recently available as of 12/31/14.
2
28
Energy: Supply, Demand and Prices
GTM – U.S.
Change in Production and Consumption of Oil
Production, consumption and inventories, million barrels per day
Price of Oil
Brent crude, nominal prices , USD/bbl
$160
2013
2014*
2015*
Production
Growth since
2013
$140
$120
Economy
$100
U.S.
12.3
13.9
14.9
20.7%
OPEC
36.0
36.0
35.9
-0.3%
Other
41.8
42.1
41.9
0.4%
Global
90.2
92.0
92.8
2.9%
Consumption
$80
$60
Dec. 2014:
$57.33
$40
$20
$0
'86
'88
'90
'92
'94
'96
'98
'00
'02
U.S. Natural Gas Production**
Trillions of cubic feet, USD
U.S.
19.0
19.0
19.1
0.7%
35
Europe
13.6
13.5
13.4
-1.9%
30
Japan
4.5
4.4
4.2
-6.4%
25
China
10.6
11.0
11.3
6.9%
20
Other
42.8
43.6
44.3
3.6%
15
Global
90.5
91.4
92.3
2.0%
10
'04
'06
'08
'10
'12
'14
EIA
Forecast
Gbl. Natural Gas Prices
Japan
Germany
U.S.
$13.86
$10.16
$3.65
Shale Gas
Other***
5
Inventory Change
-0.3
0.5
0.4
0
'95
'00
'05
'10
'15
'20
Source: EIA, FactSet, J.P. Morgan Asset Management. *Forecasts are from EIA Annual Energy Outlook and start in 2013. **Production numbers as of 2013. ***Other includes
conventional on and offshore natural gas drilling, tight gas, and coalbed methane. Natural gas prices are $/mmbtu and are as of December 2014.
Guide to the Markets – U.S.
Data are as of 12/31/14.
3
'25
29
Energy Price Impacts
GTM – U.S.
Percent of Income Spent on Gasoline and Motor Oil
Before-tax income quintile, percent of spending, 2013
Oil Importers and Exporters
Net imports as a percent of GDP, 2013
14%
Imports as a % of GDP
-14%
-8%
12%
10%
Canada
8%
4%
2%
0%
Lowest
Second
Third
Fourth
Highest
Gasoline Prices
United States all city average, USD per gallon
-4%
-2%
0%
2%
6%
0.9%
U.S.
1.6%
Italy
2.2%
France
2.4%
Germany
2.4%
Japan
$5.00
4%
-3.6%
U.K.
6%
Developed
Economy
-6%
3.6%
Dec. 2014:
$2.61
$4.00
Russia*
Developing
$3.00
$2.00
$1.00
$0.00
-13.6%
Brazil
China
South Africa
India
'80
'90
'00
'10
Source: (Top left) BEA, (Bottom Left) Department of Labor, FactSet, (Right) EIA, IMF, J.P. Morgan Asset Management.
*Russia imports as a percent of GDP was -13.6% in 2013 and is adjusted on the chart.
Guide to the Markets – U.S.
Data are as of 12/31/14.
4
0.7%
2.4%
4.8%
5.3%
16
Economic Growth and the Composition of GDP
GTM – U.S.
Components of GDP
Real GDP
Year-over-year % chg
3Q14 nominal GDP, trillions USD
10%
Real GDP
YoY % chg:
Economy
8%
QoQ % chg:
3Q14
$18
2.7%
5.0%
$16
$14
6%
Average:
3.0%
3.2% Housing
13.3% Investment Ex-housing
18.2% Gov’t Spending
$12
4%
$10
2%
$8
68.2% Consumption
$6
0%
Expansion
Average:
2.3%
-2%
$4
$2
-4%
$0
- 2.9% Net Exports
-$2
-6%
'65
'70
'75
'80
'85
'90
'95
'00
'05
'10
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 represent s the annualized growth rate for the
full period. Expansion average refers to the period starting in the second quarter of 2009.
Guide to the Markets – U.S.
5
Data are as of 12/31/14.
26
Inflation
GTM – U.S.
CPI and Core CPI
CPI
Components
% change vs. prior year, seasonally adjusted
15%
Headline CPI
Core CPI
Headline PCE
Core PCE
Economy
12%
50-yr. Avg.
Nov. 2014
4.2%
4.1%
3.6%
3.5%
1.3%
1.7%
1.2%
1.4%
9%
6%
3%
Weight in
CPI
12-month Change
Food & Bev.
14.1%
3.2%
Housing
32.3%
3.0%
Apparel
3.5%
-0.3%
Transportation
5.6%
1.8%
Medical Care
5.8%
2.3%
Recreation
2.0%
-2.8%
Edu. & Comm.
0.6%
-4.0%
Other
1.6%
1.5%
100.0%
1.3%
Energy
8.9%
-4.8%
Food
14.1%
3.2%
Core CPI
77.1%
1.7%
Headline CPI
Less:
0%
-3%
6
'65
'70
'75
'80
'85
'90
'95
'00
'05
'10
Source: BLS, FactSet, J.P. Morgan Asset Management.
CPI used is CPI-U and values shown are % change vs. one year ago and reflect November 2014 CPI data. CPI component weights are as of November 2014.
Core CPI is defined as CPI excluding food and energy prices. The Personal Consumption Expenditure (PCE) deflator employs an
evolving chain-weighted basket of consumer expenditures instead of the fixed weight basket used in CPI calculations.
Guide to the Markets – U.S. Data are as of 12/31/14.
24
Labor Market Perspectives
GTM – U.S.
Employment – Total Private Payroll
Labor Force Participation Rate
Total job gain/loss (thousands)
68%
600
8.8mm
jobs lost
400
67%
200
66%
0
65%
Economy
-200
11.2 mm
jobs
gained
-400
-600
64%
63%
-800
-1,000
Dec. 2014: 62.7%
62%
'05
'06
'07
'08
'09
'10
'11
'12
'13
'90
'14
Net Job Creation Since Feb. 2010 – Millions of Jobs
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
'12
'14
Ratio of Unemployed to Job Openings
7
3 mm
3.3
6
2.9
2 mm
2.1
5
2.0
1 mm
4
0.9
0 mm
-0.5
2
-1 mm
Info. Fin & Mfg. Trade & Leisure,
Edu. &
Mining &
Bus. Svcs.
Trans.
Hospt. & Health Svcs. Construct.
Other Svcs.
Source: BLS, FactSet, J.P. Morgan Asset Management.
Guide to the Markets – U.S.
Data are as of 1/12/15.
7
3
Gov't
1
Oct. 2014: 1.9
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
23
Unemployment and Wages
GTM – U.S.
Civilian Unemployment Rate and
Year-over-Year Growth in Wages of Production and Non-Supervisory Workers
Seasonally adjusted, percent
12%
Oct. 2009:
10.0%
Economy
10%
Unemployment
8%
50-yr. Average: 6.1%
6%
Dec. 2014:
5.6%
4%
49-yr. Average: 4.3%
Dec. 2014:
1.6%
2%
Wage Growth
0%
'70
Source: BLS, FactSet, J.P. Morgan Asset Management.
Guide to the Markets – U.S.
Data are as of 1/12/15.
8
'80
'90
'00
'10
32
The Fed and Interest Rates
GTM – U.S.
Fed’s Balance Sheet: Assets
Federal Funds Rate Expectations
$ trillions
FOMC and market expectations for the Fed Funds rate
$4.5
7%
$4.0
Other
$3.5
U.S. Treasuries
$3.0
Agency MBS
Federal Funds Rate
FOMC Year-End Estimates
Market Expectations
FOMC Long Run Projection
6%
5%
$2.5
4%
$2.0
3%
$1.5
2%
$1.0
1%
Fixed Income
$0.5
0%
$0.0
'04
'06
'07
'08
'09
'10
'11
'12
'13
'14
Fed’s Balance Sheet: Liabilities
$4.5
Excess Reserves
$3.5
Other Liabilities
'01
'03
'05
'07
'09
'11
'13
'15
'17
Federal Reserve Summary of Economic Projections
$ trillions
$4.0
'99
FOMC December 2014 Forecasts*
Percent
2014
2015
2016
2017
Long
Run
Change in real GDP, Q4 to Q4
2.4
2.8
2.8
2.4
2.2
$1.5
Unemployment Rate, Q4
5.8
5.3
5.1
5.1
5.4
$1.0
PCE Inflation, Q4 to Q4
1.3
1.3
1.9
1.9
2.0
0.13
1.13
2.50
3.63
3.75
$3.0
Required Reserves
$2.5
$2.0
$0.5
$0.0
Federal Funds Rate, end of year
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
Source: Federal Reserve, FactSet, J.P. Morgan Asset Management.
Monetary base is defined as the total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits held
in the central bank's reserves. Other liabilities of the Federal Reserve primarily consist of currency outstanding. Market expectations are the federal
funds rates priced into the fed futures market. *Forecasts of 17 Federal Open Market Committee (FOMC) participants, midpoints of central tendency
except for federal funds rate which is a median estimate.
9
Guide to the Markets – U.S. Data are as of 12/31/14.
39
High Yield Bonds
GTM – U.S.
U.S. High Yield Spreads and Defaults
20%
HY Spreads
HY Defaults Rates
HY Spreads
15%
Average
5.9%
4.0%
Latest
5.7%
3.0%
'06
'08
HY Default Rates
10%
5%
Fixed Income
0%
'88
'90
'92
'94
'96
'98
Global High Yield Spreads
Spread over Treasuries
'00
'02
'04
Sector Weights
100%
Euro HY
60%
EM HY
U.S. HY
40%
5%
'14
Other 5%
Energy 2%
Energy 11%
Energy 17%
Industrial 29%
Industrial 24%
Industrial 20%
Telecom 18%
80%
7%
'12
Other 7%
Other 17%
9%
'10
Telecom 10%
Financial 7%
20%
Consumer 28%
Telecom 21%
Financial 13%
Financial 22%
Consumer 31%
Consumer 17%
3%
0%
'12
10
'13
'14
U.S. HY
Euro HY
EM HY
Source: U.S. Treasury, J.P. Morgan, Strategic Insight, J.P. Morgan Asset Management. Default rates are defined as the par value percentage of the total market trading at or
below 50% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. Spreads indicated are benchmark yield to worst less comparable
maturity Treasury yields. Yield to worst is defined as the lowest potential yield that can be received on a bond without the issuer actually defaulting
and reflects the possibility of the bond being called at an unfavorable time for the holder. J.P. Morgan Domestic HY, J.P. Morgan Euro HY, and
J.P. Morgan CEMBI Non-IG indexes were used for Spreads and Industry Weights. Past performance is not indicative of comparable future results.
Guide to the Markets – U.S. Data are as of 12/31/14.
40
Emerging Market Debt
GTM – U.S.
EMD Indices by Region
EMD Sovereign Spreads
Local denominated debt, 5 years, spread to Treasuries, basis points
100%
Brazil 27%
80%
60%
Mexico 20%
Poland 11%
40%
S. Africa 9%
Other 23%
0%
Local Sovereign
Latin America
30%
Russia
Europe 13%
Brazil
Europe 31%
1,089
India
633
Asia 21%
Turkey
628
Middle East &
Africa 13%
Middle East &
Africa 18%
USD Sovereign
USD Corporate
Indonesia
592
Colombia
428
EMD Indices by Credit Ratings
100%
Mexico
80%
China
60%
Investment
Grade 85%
Investment
Grade 65%
Investment
Grade 69%
40%
0%
348
Non Investment
Grade 15%
Local Sovereign
Non
Investment
Grade 35%
Non
Investment
Grade 31%
USD Sovereign
USD Corporate
Graph Key
Current spread
181
5 year average
168
Philippines
Hungary
20%
11
1,317
Asia 39%
Turkey 10%
20%
Fixed Income
Latin America
35%
146
Poland
49
0
200
400
600
800
1,000
1,200
1,400
Source: J.P. Morgan Global Economic Research, FactSet, J.P. Morgan Asset Management.
Spreads measure the credit risk premium over comparable maturity U.S. Treasury bonds. The J.P. Morgan EMBI Global (EMBIG) Index is a USD-denominated external debt index
tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. The J.P. Morgan Corporate Emerging Bond Index Broad (CEMBI) is a
USD-denominated external debt index tracking bonds issued by corporations in developing nations. The J.P. Morgan Government Bond Index – EM
(GBI-EM) is a local currency denominated index tracking bonds issued by emerging market sovereigns. Past performance is not indi cative of
Comparable future results. Index breakdown may not equate to 100% due to rounding.
Guide to the Markets – U.S. Data are as of 12/31/14.
8
Corporate Profits and Leverage
GTM – U.S.
S&P 500 Earnings Per Share and Performance
Index level and quarterly operating earnings
Equities
$31
Profit Margins
11%
4Q14*: $30.50
S&P 500 Operating EPS % of Sales per Share**
After-Tax, Adj. Corp. Profits, % of GDP
10%
3Q14*:
10.1%
9%
$27
2Q07: $24.06
8%
3Q14:
8.8%
7%
$23
6%
5%
$19
4%
'60
$15
'65
'70
'75
'80
'85
'90
'95
'00
'05
'10
Total Leverage
S&P 500, ratio of total debt to total equity, quarterly
220%
$11
200%
180%
$7
160%
Average: 162%
140%
$3
4Q14:
100%
120%
100%
-$1
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
12
80%
'96
'98
'00
'02
'04
'06
'08
Source: BEA, Standard & Poor’s, Compustat, J.P. Morgan Asset Management.
EPS levels are based on operating earnings per share. *Most recently available data is 3Q14 as 4Q14 is a Standard & Poor’s preliminary estimate. **S&P 500
Operating EPS % of Sales per Share fell to 0% in 4Q2008 and is adjusted on the chart. Past performance is not indicative of future returns.
Guide to the Markets – U.S.
Data are as of 12/31/14.
'10
'12
'14
7
Stock Valuation Measures: S&P 500 Index
GTM – U.S.
Equities
U.S. Equity: Valuation Measures
Valuation
Measure
P/E
CAPE
Div. Yield
REY
P/B
P/CF
Description
Price to Earnings
Shiller's P/E
Dividend Yield
Real Earnings Yield
Price to Book
Price to Cash Flow
EY Spread
EY Minus Baa Yield
Historical Averages
1-year
5-year
ago
avg.
Latest
10-year
avg.
25-year
avg.*
16.2x
15.4x
13.5x
13.8x
15.6x
27.3
25.5
22.5
22.9
25.3
1.9%
1.9%
2.0%
2.0%
2.1%
3.7%
3.7%
4.3%
3.3%
2.3%
2.9
2.7
2.3
2.4
2.9
11.4
10.8
9.3
9.7
11.3
1.5%
1.6%
2.2%
1.3%
-0.7%
S&P 500 Index: Forward P/E Ratio
S&P 500 Earnings Yield vs. Baa Bond Yield
26x
14%
24x
S&P 500 Earnings Yield
(Inverse of fwd. P/E): 6.2%
12%
22x
20x
10%
18x
Current: 16.2x
8%
16x
Average: 15.6x
14x
6%
12x
4%
Moody’s Baa Yield: 4.7%
10x
8x
'90
13
2%
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
'12
'14
'90
'92
'94
'96
'98
'00
'02
'04
'06
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. Shiller’s P/E uses trailing 10-years of inflation adjusted earnings as reported by companies.
Dividend Yield is calculated as the trailing 12-month average dividend divided by price. Real Earnings Yield is defined as (trailing four quarters of reported
earnings/price) - year over year core CPI inflation. Price to Book Ratio is the price divided by book value per share. Price to Cash Flow is price divided by
NTM cash flow. EY Minus Baa Yield is the forward earnings yield (consensus analyst estimates of EPS over the next 12 months divided by price) minus
the Moody’s Baa seasoned corporate bond yield. *P/CF is a 20-year avg. due to cash flow data availability.
Guide to the Markets – U.S. Data are as of 12/31/14.
'08
'10
'12
'14
Multiples and Confidence
Multiple Expansion and Contraction
jpmorganfunds.com/bench
Est. impact of a 10pt. rise in sentiment: +2.0 multiple points*
S&P 500 forward P/E based on consensus EPS estimates
Equities
120
27x
Consumer Sentiment
Forward P/E
110
24x
100
21x
90
18x
80
15x
70
12x
60
Correlation Coefficient: 0.54
50
9x
'86
'88
'90
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
'12
Source: (Top) Standard & Poor’s, FactSet, J.P. Morgan Asset Management. *Estimated impact based on coefficients from regression analysis.
Guide to the Markets – U.S.
14
Data are as of 12/31/14.
'14
6
Returns and Valuations by Sector
ex
In
d
50
0
10.4%
12.2%
10.1%
8.4%
4.5%
11.3%
12.1%
18.7%
6.6%
9.8%
10.5%
7.4%
2.3%
2.1%
2.1%
3.2%
0.1%
6.4%
3.2%
4.0%
3.0%
100.0%
100.0%
100.0%
2014
15.2
20.1
25.3
9.8
-7.8
9.7
16.0
3.0
29.0
6.9
13.7
4Q14
7.2
5.2
7.5
6.8
-10.7
8.7
8.2
-4.2
13.2
-1.8
4.9
-19.6
78.6
118.7
52.4
16.9
115.8
112.3
22.5
54.0
33.5
54.0
338.7
274.2
252.6
318.9
114.1
399.5
197.7
133.9
169.5
217.9
244.2
Beta to S&P 500
1.44
1.10
0.70
1.20
0.99
1.13
0.57
0.63
0.50
1.27
1.00
Correl to Treas. Yields
0.20
0.03
-0.16
0.17
0.29
0.06
-0.19
-0.21
-0.50
0.12
0.04
Forward P/E Ratio
15-yr avg.
13.6x
12.7x
15.9x
20.6x
17.2x
17.3x
16.3x
17.0x
16.5x
13.6x
18.4x
18.5x
19.1x
18.4x
13.5x
16.9x
17.4x
14.0x
16.1x
16.0x
16.2x
16.1x
Trailing P/E Ratio
20-yr avg.
16.8x
16.5x
19.3x
26.0x
24.4x
24.1x
17.9x
20.3x
12.8x
17.1x
21.0x
19.3x
22.5x
21.3x
10.9x
19.8x
19.9x
15.0x
19.1x
19.5x
18.6x
19.5x
Dividend Yield
1.8%
1.5%
1.4%
2.1%
2.9%
1.4%
2.5%
4.7%
3.5%
2.1%
1.9%
2.1%
0.7%
1.4%
1.7%
1.7%
0.9%
2.1%
4.2%
Source: Standard & Poor’s, Russell Investment Group, FactSet, J.P. Morgan Asset Management.
4.3%
2.1%
1.7%
Since Market Peak
(October 2007)
Since Market Low
(March 2009)
20-yr avg.
Return (%)
14.2%
14.2%
13.7%
ρ β
19.7%
28.3%
9.5%
Weight
S&
P
at
er
ia
ls
M
Ut
il
iti
es
es
Te
le
co
m
Co
n
s.
St
ap
l
Di
sc
r.
s.
Co
n
er
gy
En
In
du
st
ria
ls
He
al
th
C
ar
e
og
y
ol
Te
ch
n
16.6%
5.3%
29.9%
P/E
S&P Weight
Russell Growth Weight
Russell Value Weight
Div
Equities
Fi
na
nc
ia
ls
GTM – U.S.
All calculations are cumulative total return, not annualized, including dividends for the stated period. Since Market Peak represents period 10/9/07 – 12/31/14.
Since Market Low represents period 3/9/09 – 12/31/14. Correlation to Treasury Yields are trailing 2-year monthly correlations between S&P 500 sector price
returns and 10-year Treasury yield movements. Forward P/E Ratio is a bottom-up calculation based on the most recent S&P 500 Index price, divided by
consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates. Trailing P/E rati os 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
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. Beta’s are calculated on a monthly frequency over the past 10-years.
Past performance is not indicative of future returns.
15
Guide to the Markets – U.S.
Data are as of 12/31/14.
21
Long-term Drivers of Economic Growth
GTM – U.S.
Gross Investment and Depreciation
Growth in Employment and Real Output Per Worker*
Private nonresidential fixed investment, % of GDP
Depreciation
Five year moving average of year-over-year % change
16%
Gross investment
spending
5%
Average growth
50 yr.
10 yr.
12%
4%
Economy
8%
4%
5 yr.
Employment
1.5%
0.5%
1.1%
Real Output
Per Worker
1.5%
1.1%
1.3%
GDP
3.0%
1.6%
2.4%
3%
Real Output Per Worker
0%
'90
'95
'00
'05
'10
2%
Real Capital Stock Growth
Nonresidential fixed assets, year-over-year % chg
5%
4%
3%
2%
1%
Employment Growth
2013: 1.6%
0%
1%
-1%
'70
'80
'90
1990
1995
2000
2005
2010
Source: BEA, BLS, FactSet, J.P. Morgan Asset Management.
*Labor Force includes the population age 16+ working or looking for work, Real Output Per Worker is calculated as real GDP growth minus civilian
employment growth. Averages are calculated as the annualized growth rate.
0%
Guide to the Markets – U.S.
16
Data are as of 12/31/14.
'00
'10
42
Global Equity Markets
GTM – U.S.
Weights in MSCI All Country World Index
4Q14
Country / Region
Local
% global market capitalization, float adjusted
2014
USD
Local
USD
Europe exU.K.
16%
Regions / Broad Indexes
-
4.9
-
13.7
EAFE
1.8
-3.5
6.4
-4.5
Europe ex-U.K.
0.2
-4.3
7.4
-5.8
Pacific ex-Japan
3.1
-1.5
5.8
-0.3
Emerging Markets
0.1
-4.4
5.6
-1.8
Japan
7%
Rolling 1-year correlations, 30 countries
United Kingdom
-0.4
-4.2
0.5
-5.4
France
-1.7
-5.8
3.6
-9.0
0.80
Germany
4.0
-0.4
2.8
-9.8
0.70
Japan
6.7
-2.4
9.8
-3.7
China
7.0
7.2
8.3
8.3
0.40
India
1.5
-0.7
26.4
23.9
0.30
Brazil
-7.5
-14.8
-2.8
-13.7
Russia
-5.9
-32.8
-12.1
-45.9
0.90
0.60
0.50
Dec. 2014: 0.44
0.20
0.10
0.00
'95
17
U.K. 7%
Emerging
Markets
11%
Global Equity Market Correlations
MSCI: Selected Countries
International
United
States
51%
Canada 4%
U.S. (S&P 500)
'97
'99
'01
'03
'05
'07
Source: Standard & Poor’s, 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 indi cative of future results. Please
see disclosure page for index definitions. Countries included in global correlations include Argentina, South Africa, Japan, UK, Canada, France,
Germany, Italy, Australia, Austria, Brazil, China, Colombia, Denmark, Finland, Hong Kong, India, Malaysia, Mexico, Netherlands, New Zealand, Peru,
Philippines, Portugal, Korea, Spain, Taiwan, Thailand, Turkey, United States.
Guide to the Markets – U.S. Data as of 12/31/14.
'09
'11
'13
27
Trade and the U.S. Dollar
GTM – U.S.
Current Account Balance and Oil Imports, % of GDP
-7%
U.S. Dollar Index
Monthly average of nominal trade-weighted exchange index: major currencies
115
4Q05:
-6.2%
Forecast*
110
-6%
Economy
105
-5%
100
95
-4%
90
Current Account Balance
-3%
3Q14:
-2.3%
Mar. 2009:
84.0
85
80
-2%
75
2Q08:
-3.1%
-1%
3Q14:
-1.0%
Net Oil Imports
Mar. 2008:
70.3
70
65
0%
'99
'01
'03
'05
'07
'09
'11
'13
'15
'96
'98
'00
'02
'04
Source: BEA, EIA, Federal Reserve, FactSet, J.P. Morgan Asset Management.
*Oil imports as a percent of GDP is an EIA forecast. **December U.S. Dollar index value is a J.P. Morgan Asset Management est imate.
Guide to the Markets – U.S.
18
Dec. 2014**:
84.3
Data are as of 12/31/14.
'06
'08
'10
'12
'14
47
Europe: Cyclical Headwinds and Tailwinds
GTM – U.S.
European Sovereign Funding Costs
10-year benchmark bond yield
35%
Government Fiscal Drag
% of potential GDP, reduction in structural deficits from one period to the next
30%
9.42%
2.67%
1.86%
1.61%
1.24%
0.53%
More fiscal drag
Greece
Portugal
Italy
Spain
Ireland
Germany
13.9%
14%
12/31/14
25%
2010-2013
12%
2013-2016
10%
8%
20%
6.0%
6%
LTRO
4.6%
4.0%
4%
OMT
10%
Less fiscal drag
International
15%
3.5%
3.3%
2%
1.2%
1.1%
3.1%
2.7%
1.4%
0.8%
0.5%
0.5%
0%
-0.4%
5%
-0.1%
-2%
0%
'08
19
'09
'10
'11
'12
'13
Source: Tullett Prebon, FactSet, IMF, J.P. Morgan Asset Management. Data are based on the October 2014 World Economic Outlook.
Government deficits are calculated by the IMF as the general government structural balance. The structural balance excludes the normal impact of the business cycle, providing a
clearer measure of the independent impact of changes in government spending and taxation on demand in the economy.
*Eurozone includes a J.P. Morgan Asset Management estimate for the 2016 structural deficit as a % of GDP.
Guide to the Markets – U.S.
Data are as of 12/31/14.
48
Europe: Unemployment, Inflation and Credit Markets
GTM – U.S.
Unemployment Rates
Oct. 2014: 11.5%
12%
Euro Area Credit Growth
% year-over-year loan growth
20%
Euro Area
10%
Nonfinancial Corporations
15%
8%
10%
6%
Nov. 2014: 5.8%
4%
Households
U.S.
Nov. 2014:
-0.4%
%
2%
-5%
0%
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'06
'07
'08
'09
'10
'11
'12
'13
Year-over-year % change
€ billions
Core
Euro Area
Periphery
5%
4%
€3,000
€2,500
3%
€2,000
2%
1%
€1,500
0%
-1%
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
€1,000
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
Source: Eurostat, BLS, SIFMA, ECBC, FactSet, IMF, J.P. Morgan Asset Management.
(Top left) Unemployment rate levels for the U.S. and Euro Area are not directly comparable due to calculation differences. (Bottom right) Euro Area securitization outstanding
includes Covered Bonds, Asset-Backed Securities, Residential Mortgage-Backed Securities, Commercial Real Estate Mortgage-Backed Securities,
and Small and Medium-Sized Enterprise Asset-Backed Securities.
20
'14
Euro Area Asset-Backed Securities Outstanding
Europe Inflation
International
Nov. 2014: -1.6%
5%
Guide to the Markets – U.S.
Data are as of 12/31/14.
'13
54
Global Equity Valuations: Developed Markets
GTM – U.S.
Developed Market Countries
Example
Std Dev from Global Average
+7 Std Dev
+6 Std Dev
Expensive
relative to
world
+5 Std Dev
+4 Std Dev
+3 Std Dev
+2 Std Dev
Expensive
relative to own
history
+1 Std Dev
Average
-1 Std Dev
Cheap relative
to own history
-2 Std Dev
-3 Std Dev
-4 Std Dev
-5 Std Dev
International
World
(ACWI)
EAFE
Index
U.K.
France Germany Australia Canada
Current
Average
Cheap
relative to
world
Japan Switzerland United
States
Current
Com posite
Index
Fw d. P/E
P/B
P/CF
Div. Yld.
Fw d. P/E
P/B
P/CF
Div. Yld.
World (ACWI)
0.71
14.8
2.1
8.7
2.5%
13.1
2.0
7.5
2.5%
EAFE Index
-0.48
14.2
1.6
7.5
3.2%
12.7
1.7
6.7
3.2%
U.K.
-0.76
13.8
1.8
7.3
3.9%
11.4
2.0
7.4
3.7%
France
-0.69
13.8
1.4
7.7
3.3%
11.5
1.6
5.9
3.5%
Germ any
-0.58
12.9
1.6
7.5
2.9%
11.5
1.6
5.8
3.1%
Australia
-0.37
14.7
1.9
8.8
4.8%
13.5
2.2
9.2
4.3%
Canada
0.46
15.5
1.9
8.6
2.8%
13.7
2.1
8.5
2.3%
Japan
0.70
14.3
1.4
8.1
1.8%
16.1
1.4
6.4
1.6%
Sw itzerland
1.36
15.7
2.5
11.3
3.2%
13.5
2.4
9.9
2.8%
United States
2.68
16.4
2.8
11.0
1.9%
14.0
2.4
8.7
1.9%
Current
10-year avg.
Source: MSCI, FactSet, J.P. Morgan Asset Management.
Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd. P/E), price to current book (P/B), price to last 12 months’
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 one standard deviation in variability relative to that of the MSCI All Country World Index (ACWI).
21
See disclosures page at the end for metric definitions.
Guide to the Markets – U.S. Data are as of 12/31/14.
51
Demographics and Development
GTM – U.S.
The Impact of Urbanization
Urbanization ratios and GDP per capita (current USD), 1961 – 2013
Demographic Snapshot
GDP Per
Capita
Population
% of Pop.
under 20
Investm ent
(% of GDP)
U.S.
$53,101
316 mm
26%
20%
Canada
51,990
35
22
24
U.K.
39,567
64
24
14
Germ any
44,999
81
18
17
France
43,000
64
24
19
Japan
38,491
127
18
21
Italy
34,715
60
19
17
Korea
24,329
50
22
26
India
1,505
1,243
38
35
Brazil
11,311
198
33
18
Mexico
10,630
118
38
22
Russia
14,819
143
21
24
China
6,747
1,361
20
48
$60,000
U.S.
2013: $53,142
Developed
$50,000
Japan
GDP per Capita
$40,000
$30,000
South
Korea
International
$20,000
1961: $2,935
China
$10,000
India
$15%
25%
35%
45%
55%
65%
75%
85%
95%
Em erging
Urbanization Ratio
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.
GDP per capita and Investment as % of GDP in the Demographic Snapshot table are IMF estimates for 2014.
Guide to the Markets – U.S.
22
Data are as of 12/31/14.
55
Global Equity Valuations: Emerging Markets
GTM – U.S.
Emerging Market Countries
Example
Std Dev from Global Average
+7 Std Dev
Expensive
relative to
world
+6 Std Dev
+5 Std Dev
+4 Std Dev
+3 Std Dev
+2 Std Dev
Expensive
relative to own
history
+1 Std Dev
Average
-1 Std Dev
-2 Std Dev
Cheap relative
to own history
-3 Std Dev
-4 Std Dev
-5 Std Dev
-6 Std Dev
International
World
(ACWI)
23
World (ACWI)
EM Index
Russia
Brazil
China
Taiw an
Korea
Thailand
South Africa
Indonesia
Mexico
India
EM
Index
Russia
Current
Com posite
Index
0.71
-1.49
-5.52
-2.58
-2.35
-0.54
0.09
0.22
1.41
2.62
3.17
3.90
Brazil
China
Taiwan
Korea Thailand South Indonesia Mexico
Africa
Current
Current
Average
Cheap
relative to
world
India
10-year avg.
Fw d. P/E
P/B
P/CF
Div. Yld.
Fw d. P/E
P/B
P/CF
Div. Yld.
14.8
11.0
3.8
10.2
9.4
13.2
9.6
13.2
15.7
15.0
18.3
16.7
2.1
1.4
0.4
1.2
1.4
1.9
1.0
2.1
2.6
3.3
2.6
3.0
8.7
5.4
1.8
5.2
4.0
6.9
5.8
9.4
11.0
12.6
7.1
12.2
2.5%
2.8%
6.6%
4.5%
3.2%
3.0%
1.3%
3.0%
3.0%
2.4%
1.4%
1.5%
13.1
11.1
7.3
10.0
11.7
14.2
9.7
10.9
11.7
12.8
14.7
15.7
2.0
1.9
1.3
1.8
2.1
1.9
1.4
2.0
2.5
3.5
2.8
3.2
7.5
6.3
4.4
5.6
6.8
6.7
5.1
7.2
8.9
10.3
7.5
13.0
2.5%
2.7%
2.2%
3.2%
2.7%
3.6%
1.5%
3.6%
3.2%
2.7%
1.8%
1.3%
Source: MSCI, FactSet, J.P. Morgan Asset Management.
Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd. P/E), price to current book (P/B), price
to last 12 months’ 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 one standard deviation in variability relative to that of the MSCI All Country World Index (ACWI). See disclosures
page at the end for metric definitions. See disclosures page at the end for metric definitions.
Guide to the Markets – U.S. Data are as of 12/31/14.
56
Asset Class Returns
GTM – U.S.
2005
2008
2009
Ba rc la ys
Agg
5.2%
MS CI
EME
79.0%
MS CI
EAFE
32.5%
2010
2011
2012
REITs
REITs
REITs
27.9%
8.3%
Russe ll
2000
26.9%
Ba rc la ys
Agg
7.8%
3 5 . 1%
MS CI
EME
39.8%
Bbe rg
Cmdty
2 1. 4 %
MS CI
EME
32.6%
Bbe rg
Cmdty
16 . 2 %
MS CI
EAFE
14 . 0 %
MS CI
EAFE
26.9%
MS CI
EAFE
11. 6 %
Ma rke t
Ne utra l
1. 1%
28.0%
MS CI
EME
19 . 2 %
12 . 2 %
Russe ll
2000
18 . 4 %
Ma rke t
Ne utra l
9.3%
Asse t
Alloc .
- 24.0%
Russe ll
2000
27.2%
Bbe rg
Cmdty
16 . 8 %
Asse t
Alloc .
8.3%
S &P
500
15 . 8 %
Asse t
Alloc .
7.4%
Russe ll
2000
- 33.8%
S &P
500
26.5%
S &P
500
15 . 1%
Ma rke t
Ne utra l
6 . 1%
Asse t
Alloc .
15 . 2 %
Ba rc la ys
Agg
7.0%
Bbe rg
Cmdty
- 35.6%
Asse t
Alloc .
22.2%
Asse t
Alloc .
12 . 5 %
S &P
500
4.9%
Ma rke t
Ne utra l
11. 2 %
S &P
500
5.5%
S &P
500
- 37.0%
Bbe rg
Cmdty
18 . 9 %
MS CI
EAFE
8.2%
Russe ll
2000
- 4.2%
Ba rc la ys
Agg
4.2%
Ca sh
Ca sh
REITs
4.8%
4.8%
- 37.7%
MS CI
EAFE
- 11. 7 %
Ma rke t
Ne utra l
0.9%
3.0%
Ba rc la ys
Agg
4.3%
Russe ll
2000
- 1. 6 %
MS CI
EAFE
- 4 3 . 1%
Ba rc la ys
Agg
2.4%
Bbe rg
Cmdty
2 . 1%
Russe ll
2000
4.6%
Asset Class
2007
MS CI
EME
34.5%
REITs
24
2006
Ca sh
REITs
REITs
- 15 . 7 %
Ca sh
1. 8 %
MS CI
EME
- 53.2%
REITs
Ba rc la ys Ba rc la ys
Agg
Agg
5.9%
6.5%
Ma rke t
Ne utra l
4 . 1%
Ca sh
0 . 1%
2014
4Q14
REITs
REITs
19 . 7 %
Russe ll
2000
38.8%
28.0%
12 . 9 %
MS CI
EME
18 . 6 %
S &P
500
32.4%
S &P
500
13 . 7 %
Russe ll
2000
9.7%
Ma rke t
Ne utra l
4.5%
MS CI
EAFE
17 . 9 %
MS CI
EAFE
23.3%
Ba rc la ys
Agg
6.0%
S &P
500
2 . 1%
Russe ll
2000
16 . 3 %
Asse t
Alloc .
15 . 0 %
0 . 1%
S &P
500
16 . 0 %
Asse t
Alloc .
- 0.6%
Asse t
Alloc .
11. 3 %
Ca sh
0 . 1%
Bbe rg
Cmdty
- 13 . 3 %
Ma rke t
Ne utra l
- 0.8%
MS CI
EME
- 18 . 2 %
Ca sh
2013
10-yrs. '05 - '14
Cum.
Ann.
MS CI
EME
13 2 . 0 %
MS CI
EME
8.8%
REITs
REITs
S &P
500
4.9%
. 12 2 . 3 %
Russe ll
2000
111. 3 %
. 8.3%
Russe ll
2000
7.8%
Asse t
Alloc .
5.2%
Asse t
Alloc .
2.0%
S &P
500
10 9 . 5 %
S &P
500
7.7%
Ma rke t
Ne utra l
9.3%
Russe ll
2000
4.9%
Ba rc la ys
Agg
1. 8 %
Asse t
Alloc .
9 1. 7 %
Asse t
Alloc .
6.7%
REITs
Ca sh
Ma rke t
Ne utra l
1. 0 %
MS CI
EAFE
6 1. 5 %
MS CI
EAFE
4.9%
2.9%
0.0%
0.0%
Ma rke t
Ne utra l
- 0.5%
Ba rc la ys
Agg
- 2.0%
MS CI
EME
- 1. 8 %
MS CI
EAFE
- 3.5%
0 . 1%
MS CI
EME
- 2.3%
MS CI
EAFE
- 4.5%
MS CI
EME
- 4.4%
15 . 7 %
1. 5 %
Bbe rg
Cmdty
- 1. 1%
Bbe rg
Cmdty
- 9.5%
Bbe rg
Cmdty
- 17 . 0 %
Bbe rg
Cmdty
- 12 . 1%
Bbe rg
Cmdty
- 17 . 1%
Bbe rg
Cmdty
- 1. 9 %
Ca sh
Ca sh
Ca sh
0.0%
Ba rc la ys Ba rc la ys
Agg
Agg
58.4%
4.7%
Ma rke t
Ne utra l
54.0%
Ma rke t
Ne utra l
4.4%
Ca sh
Ca sh
Source: Russell, MSCI, Bloomberg, Standard & Poor’s, Credit Suisse, Barclays Capital, NAREIT, FactSet, J.P. Morgan Asset Management.
The “Asset Allocation” portfolio assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EME,
25% in the Barclays Capital Aggregate, 5% in the Barclays 1-3m Treasury, 5% in the CS/Tremont Equity Market Neutral Index, 5% in the Bloomberg
Commodity Index and 5% in the NAREIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. All data represents total return for stated period.
Past performance is not indicative of future returns. Data are as of 12/31/14, except for the CS/Tremont Equity Market Neutral Index, which
reflects data through 11/30/14. “10-yrs” returns represent period of 12/31/04 – 12/31/14 showing both cumulative (Cum.) and annualized (Ann.)
over the period. Please see disclosure page at end for index definitions. *Market Neutral returns include estimates found in disclosures.
Guide to the Markets – U.S. Data are as of 12/31/14.