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8/11/2019 Jp Littlebook 2014Q3
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As of September 30, 2013
As of June 30, 2014
i h M rk
i h M rk
1
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Global Market Insights Strategy Team
Americas Europe Asia
Dr. David P. Kelly, CFA
New York
Stephanie H. Flanders
London
Tai Hui
Hong Kong
Joseph S. Tanious, CFA
Los Angeles
Andrew D. Goldberg
London
Geoff Lewis
Hong Kong
Andrs D. Garcia-Amaya, CFANew York
Maria Paola ToschiMilan
Yoshinori ShigemiTokyo
Anastasia V. Amoroso, CFA
Houston
Vincent Juvyns
Luxembourg
Grace Tam, CFA
Hong Kong
James C. Liu, CFA
Chicago
Manuel Arroyo Ozores, CFA
Madrid
Ian Hui
Hong Kong
Julio C. Callegari Lucia Gutierrez Ben Luk
So Paulo Madrid Hong Kong
Brandon D. Odenath, CFA
New York
Tilmann Galler, CFA
Frankfurt
Gabriela D. Santos Kerry Craig, CFA
Anthony M. Wile
New York
David M. Lebovitz
London
Ainsley E. Woolridge
New York
Alexander W. Dryden
London
2
Past performance is no guarantee of comparable future results. For China and Australia distribution, please note this
communication is for intended recipients only and is for wholesale clients only in Australia. For details, please refer to the full
disclaimer at the end. Unless otherwise stated, all data is as of June 30, 2014 or most recently available.
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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. Owners of Treasury Securities36. Credit Conditions37. High Yield Bonds38. Municipal Finance39. Global Fixed Income
Equities Page4
7. Stock Valuation Measures: S&P 500 Index8. Corporate Profits and Leverage9. Sources of Earnings per Share Growth10. Sources of Total Return11. Multiples, Confidence, Style and Interest Rates12. Interest Rates and Equities13. De lo in Cor orate Cash
40. Emerging Market Debt
41. Global Equity Markets42. Global Economic Growth43. Manufacturing Momentum44. The Importance of Exports
International Page 41
14. Annual Returns and Intra-year Declines15. Equity Correlations and Volatility16. Stock Market Since 1900
17. Economic Growth and the Composition of GDP18. Consumer Finances
45. Sovereign Debt Stresses46. Global Monetary Policy47. MSCI EAFE Index at Inflection Points48. Europe: Cyclical Headwinds and Tailwinds
49. Europe: Unemployment and Inflation50. Europe: Economy and Earnings51. Ja an: Economic Sna shot
Economy Page 17
19. Cyclical Sectors20. Residential Real Estate21. Commercial Real Estate22. Long-term Drivers of Economic Growth23. Federal Finances24. Employment
P
52. International Equity Earnings and Valuations53. Demographics and Development54. Emerging Market Currencies55. China: Economic and Credit Growth56. Global Equity Valuations Developed Markets57. Global Equity Valuations Emerging Markets
. L26. Employment and Income by Educational Attainment27. Consumer Price Index28. Energy and the Economy29. Consumer Confidence and the Stock Market
F
58. Asset Class Returns59. Correlations and Volatility60. Alternative Asset Class Returns61. Mutual Fund Flows62. Yield Alternatives: Domestic and GlobalFixed Income
Asset Class
Page 30
Page 58
3
.
31. Interest Rates and Inflation32. Fixed Income Yields and Returns33. Sources of Bond Returns34. The Fed and Interest Rates
.
64. Historical Returns by Holding Period65. Diversification and the Average Investor66. Cash Accounts67. Corporate DB Plans and Endowments
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S&P 500 Index at Inflection Points
2,000Index level 1,527 1,565 1,960P/E ratio (fwd.) 25.6x 15.2x 15.6x
S&P 500 IndexJun. 30, 2014
P/E (fwd.) = 15.6x
1,960
Characteristic Mar-2000 Oct-2007 Jun-2014
1,600
1,800
. . .10-yr. Treasury 6.2% 4.7% 2.5%
Equ
ities
Mar. 24, 2000P/E (fwd.) = 25.6x
1,527
Oct. 9, 2007P/E (fwd.) = 15.2x
1,565
1,200
1,400
+101%+190%
+106%
800
1,000
-49% -57%
'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
600
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
741
Mar. 9, 2009P/E (fwd.) = 10.3x
677
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 6/30/14.
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Returns and Valuations by Style
2Q 2014 Year to Date Current P/E vs. 20-year avg. P/E
Value Blend Growth Value Blend Growth
e e15.0 15.6 18.3
Value Blend Growth
ge
Equ
ities
Lar 5.1% 5.2% 5.1%
Lar 8.3% 7.1% 6.3%
Mid 5.6% 5.0% 4.4% M
id 11.1% 8.7% 6.5%
14.0 16.2 21.0
17.0 18.4 19.8
14.1 16.4 21.8
La
Mid
Since Market Low (March 2009)Since Market Peak (October 2007)
Current P/E as % of 20-year avg. P/E
E.g.: Large Cap Blend stocks are 3.4%
cheaper than their historical average.
Small
2.4% 2.0% 1.7%Small
4.2% 3.2% 2.2%
. . .
14.4 17.2 21.4Small
Value Blend Growth
Large
107.4% 96.6% 87.1%
id 120.1% 111.7% 90.7%
Value Blend Growth Value Blend Growth
Large
35.7% 45.2% 59.9%Large
238.2% 224.4% 226.2%
id id
Small
116.1% 107.6% 96.5%
Small
48.1% 55.0% 61.3%Small
266.2% 273.8% 280.7%
5
, , , . . .
All calculations are cumulative total return, including dividends reinvested for the stated period. Since Market Peak represents period 10/9/07 6/30/14, illustratingmarket returns since the S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 6/30/14, illustrating market returns since the S&P 500 Indexlow on 3/9/09. Returns are cumulative returns, not annualized. For all time periods, total return is based on Russell-style indexes with theexception 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.
Data are as of 6/30/14.
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Stock Valuation Measures: S&P 500 Index
U.S. Equity: Valuation Measures Historical Averages
Valuation
Measure DescriptionLatest
1-year
ago
5-year
avg.
10-year
avg.
25-year
avg.*
Equ
ities P/E Price to Earnings 15.6x 13.8x 13.4x 13.8x 15.6x
CAPE Shiller's P/E 25.6 24.4 21.7 22.9 25.1
Div. Yield Dividend Yield 1.9% 2.0% 2.0% 2.0% 2.1%
PEG Price/Earnings to Growth 1.5 0.8 1.1 1.7 1.4
P/B Price to Book 2.8 2.6 2.2 2.4 2.9
14%S&P 500 Earnings Yield vs. Baa Bond Yield
26xS&P 500 Index: Forward P/E Ratio
P/CF Price to Cash Flow 11.0 10.3 8.9 9.5 10.6
EY Spread EY Minus Baa Yield 1.7% 1.5% 2.0% 1.2% -0.7%
8%
10%
12%
S&P 500 Earnings Yield:
(Inverse of fwd. P/E) 6.4%
16x
18x
20x
22x
24x
Current: 15.6x
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '142%
4%
6%
Moodys Baa Yield: 4.7%
Source: Standard & Poors FactSet Robert Shiller Data FRB J.P. Mor an Asset Mana ement. Price to Earnin s is rice divided b consensus anal st estimates of earnin s
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '148x
10x
12x
14x Average: 15.6x
7
per share for the next 12 months. Shillers P/E uses trailing 10-years of inflation adjusted earnings as reported by companies. Dividend Yield is calculated as the trailing 12-
month average dividend divided by price. Price/Earnings to Growth Ratio is calculated as NTM P/E divided by NTM earnings growth. Price to Book Ratio is the price divided by
book value per share. Price to Cash Flow is price divided by NTM cash flow. EY Minus Baa Yield is the forward earnings yield (consensus analyst estimates of EPS over the
next 12 months divided by price) minus the Moodys Baa seasoned corporate bond yield. *P/CF is a 20-year avg. due to cash flow data availability.
Latest reflects data as of 6/30/14.
Guide to the Markets U.S. Data are as of 6/30/14.
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Corporate Profits and Leverage
12%
S&P 500 Earnings Per ShareOperating basis, quarterly
Profit Margins
S&P 500 Operating EPS % of Sales per Share
1Q14*: $27.32 1Q14:9.8%
$23
$27
4%
6%
8%
Equ
ities
1Q14:8.9%
2Q07: $24.06
$15
$19
0%
2%
'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
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%
1Q14:102%
Average: 171%
8
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: BEA, Standard & Poors, Compustat, J.P. Morgan Asset Management.EPS levels are based on operating earnings per share. *Most recently available data is 4Q13 as 1Q14 are Standard & Poors preliminary estimates .Past performance is not indicative of future returns.
Guide to the Markets U.S.
Data are as of 6/30/14.
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14
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Sources of Earnings per Share Growth
50%
S&P 500 Year-Over-Year EPS GrowthGrowth broken into revenue, changes in profit margin & changes in share count
30%
40%
Equ
ities
Margin 2.6%Revenue 3.6%
Share count -0.1%
0%
10%
-20%
-10%
-50%
-40%
-
1Q141Q121Q101Q081Q061Q041Q021Q001Q981Q961Q94
9
Source: Standard & Poors, Compustat, J.P. Morgan Asset Management.EPS levels are based on operating earnings per share. Most recently available data is 4Q13 as 1Q14 are Standard & Poors preliminary estimates.Past performance is not indicative of future returns. 4Q2008, 1Q2010 and 2Q2010 reflect -101%, 92% and 51% growth in operating earnings, andare adjusted on the chart.
Guide to the Markets U.S.
Data are as of 6/30/14.
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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%
Equ
ities
0%
10%
-20%
-10%
Share of Total Return 2Q14
-50%
-40%
-
2Q142Q122Q102Q082Q062Q042Q022Q002Q982Q962Q94
Multiples 12.4%Earnings 9.6%Dividends 2.6%
10
Source: Standard & Poors, IBES, J.P. Morgan Asset Management.Earnings contribution is the measured change in forward earnings per share estimates.
Guide to the Markets U.S.
Data are as of 6/30/14.
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Multiples, Confidence, Style and Interest Rates
27x120
Multiple Expansion and Contraction
Consumer Sentiment Forward P/E
S&P 500 forward P/E based on consensus EPS estimatesEst. impact of a 10pt. rise in sentiment: +2.0 multiple points*
15x
18x
21x
24x
80
90
100
Equ
ities
'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
9x
12x
50
60
70
Correlation Coefficient: 0.52
-
20%
30%
40%
3%
4%
5%
.
Cyclical vs. Defensive Sectors (LHS)
0%
10%
1%
2%
Growth vs. Value Styles (LHS)
10-yr. Treasury Yield(RHS)
11
'10 '11 '12 '13-10% 0%
Source: (Top) Standard & Poors, FactSet, J.P. Morgan Asset Management. *Estimated impact based on coefficients from regression analysis.(Bottom) Standard & Poors, Russell, J.P. Morgan Asset Management. Cyclical sectors include consumer discretionary, financials, technology,industrials, energy and materials of the S&P 500, while defensive sectors include health care, consumer staples, telecom and utilities.Guide to the Markets U.S. Data are as of 6/30/14.
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Interest Rates and Equities
0.8
Correlations Between Weekly Stock Returns and Interest Rate MovementsWeekly S&P 500 returns, 10-year Treasury yield, rolling 2-year correlation, May 1963 Jun. 2014
0.4
0.6
Equ
ities
Positiverelationshipbetween yieldmovementsand stock
below 5%, risingrates aregenerally
associated withrising stockprices
Last 12 Months
1963 12 Months Ago
Graph Key
0
0.2
returns
onCo
efficient
-0.4
-0.2
Negativerelationship
between yield
Correlati
-0.8
-0.6
0% 2% 4% 6% 8% 10% 12% 14% 16%
stock returns
12
Source: Standard & Poors, U.S. Treasury, FactSet, J.P. Morgan Asset Management.
Returns are based on price index only and do not include dividends. Markers represent monthly 2-year correlations only.
Guide to the Markets U.S.
Data are as of 6/30/14.
10-Year Treasury Yield
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Deploying Corporate Cash
$1,600$1,70032%
Corporate Cash as a % of Current AssetsS&P 500 companies cash and cash equivalents, quarterly
Corporate Growth
Capital Expenditures M&A Activity
$bn, nonfarm nonfinancial capex, quarterly value of deals completed
$600
$800$1,000
$1,200
,
$1,200
$1,300$1,400
$1,500
,
20%
22%
24%
26%
28%
Equ
ities
$0
$200
$400
$900
$1,000
$1,100
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
14%
16%
18%
Cash Returned to ShareholdersDividend Payout Ratio
$120
$140
$160
$30
$33
$36
50%
60%
$bn, S&P 500 companies, rolling 4-quarter averagesS&P 500 companies, LTM
Dividends per Share
$40
$60
$80
$18
$21
$24
30%
40%
Share Buybacks
13
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '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 6/30/14.
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Annual Returns and Intra-year Declines
3440%
S&P 500 Intra-year Declines vs. Calendar Year ReturnsDespite average intra-year drops of 14.4%, annual returns positive in 26 of 34 years*
YTD 2014
26
1517
26
1512
27 26
7
20
27
20
26
9
14
23
13 13
30
10%
20%
30%
Equ
ities
-101 2
-7
4
-2 -10 -13 -23
3 4
-38 0
-7
-
-8-9
-8 -8 -6 -6 -5-9
-3
-8
-11 -12
-8 -7 -8-10 -10
-6 -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 '14
14
Source: Standard & Poors, FactSet, J.P. Morgan Asset Management.Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough duringthe year. For illustrative purposes only. *Returns shown are calendar year returns from 1980 to 2013 excluding 2014 which is year-to-date.
Guide to the Markets U.S.
Data are as of 6/30/14.
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Equity Correlations and Volatility
70%
Large Cap StocksCorrelations Among Stocks
Sovereign DebtCrisis
LehmanGreat Depression /
30%
40%
50%
Equ
ities
Tech Bust & 9/11
1987 Crash
OPEC Oil
Crisis
Cuban Missile Crisis
0%
10%
20%
'26 '32 '38 '44 '50 '56 '62 '68 '74 '80 '86 '92 '98 '04 '10
Average: 26.9%Jun. 2014: 28.2%
2.5%
3.0%
3.5%
60
75
90Volatility Measure 08 Peak Average LatestDJIA (Left) 3.30% 0.72% 0.41%VIX (Right) 80.9 20.0 11.6
DJIA vol. shownin 3-month
moving average
0.5%
1.0%
1.5%
.
15
30
45
15
'30 '35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '100.0% 0
Source: (Top) Empirical Research Partners LLC, Standard & Poors, J.P. Morgan Asset Management. Capitalization weighted correlation of top750 stocks by market capitalization, daily returns, 1926 Jun. 30, 2014. (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 6/30/14.
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Stock Market Since 1900
S&P Composite Index
Log Scale
1,000
300
Equ
ities
100
1966 1974
101900 1924
1937 1948
'00 '10 '20 '30 '40 '50 '60 '70 '80 '90 '00 '10
16
Source: Robert Shiller, FactSet, J.P. Morgan Asset Management.
Data shown in log scale to best illustrate long-term index patterns.Past performance is not indicative of future returns. Chart is for illustrative purposes only.
Guide to the Markets U.S.
Data are as of 6/30/14.
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Economic Growth and the Composition of GDP
10%$18
Real GDPYear-over-year % chg
1 14
Components of GDP1Q14 nominal GDP, trillions USD
3.2% HousingReal GDP
6%
8%
$14
$16
y
YoY % chg: 1.5%12.7% Investment Ex-housing
18.3% Govt SpendingAverage:
QoQ % chg: -2.9%
2%
4%
$8
$10
Econo 3.0%
-2%
0%
$2
$4
$6 68.9% Consumption
ExpansionAverage:
2.1%
'65 '70 '75 '80 '85 '90 '95 '00 '05 '10-6%
-4%
-$2
$0
Source: BEA, FactSet, J.P. Morgan Asset Management.
- 3.1% Net Exports
17
. .
full period and the period starting in the second quarter of 2009.Guide to the Markets U.S.
Data are as of 6/30/14.
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Consumer Finances
13.5%$100
Household Debt Service RatioDebt payments as % of disposable personal income, seasonally adjusted
4Q07:
Consumer Balance Sheet1Q14, Trillions of dollars outstanding, not seasonally adjusted
3Q-07 Peak: $83.1tn
11.0%
11.5%
12.0%
12.5%
.
$80
$90
y1Q80:10.6%
. .
Homes: 24%
1Q-09 Low: $69.7tn
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '129.5%
10.0%
10.5%
$50
$60
$70
Econo 2Q14*:
9.9%
Household Net WorthBillions USD, not seasonally adjusted 2Q14*:
Deposits: 10%
Pension Funds: 21%
Other Tangible: 6%
$30
$40
$50,000
$60,000
$70,000
$80,000
$90,000 $83,5472Q07:
$68,901
Other Non-revolving: 1%Revolving (e.g.: credit cards): 6%
Auto Loans: 7%Other Liabilities: 9%
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: $13.8tn
Assets: 39%
Mortgages: 68%
18
Source: (Left) FRB, J.P. Morgan Asset Management. Data includes households and nonprofit organizations. (Right) BEA, FRB, J.P. Morgan Asset
Management. *2Q14 household debt service ratio and household net worth are J.P. Morgan Asset Management estimates. Values may not sum to100% due to rounding.
Guide to the Markets U.S.
Data are as of 6/30/14.
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Cyclical Sectors
24
Millions, seasonally adjusted annual rateLight Vehicle Sales
46
47
Manufacturing and Trade InventoriesDays of sales, seasonally adjusted
14
16
18
20
22
y Average: 15.3
Jun. 2014:
16.9
41
4243
44
45
Apr. 2014:39.2
'96 '98 '00 '02 '04 '06 '08 '10 '12 '148
10
12
Econo
Real Capital Goods Orders
Housing Starts
'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
- . , ,
May 2014:1,001
ousan s, seasona y a us e annua rae
May 2014:60.9
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14$4 0
$4 5
$5 0
$5 5
'96 '98 '00 '02 '04 '06 '08 '10 '12 '140
400
800
,
Average: 56.6
,
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.
Data are as of 6/30/14.
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Residential Real Estate
40%
Housing Affordability IndexAvg. mortgage payment as a % of household income
130
Indexed to 100, seasonally adjustedHome Prices
-
20%
25%
30%
35%
y
May 2014:13.4%120
125
FHFA Purchase Only
Average Existing Home
10%
15%
'75 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10 '12Econo
.
105
110
Home Inventories
90
95
100ons, annua rae, seasona y a us e
3.5
4.0
4.5
May 2014:2.3
'04 '05 '06 '07 '08 '09 '10 '11 '12 '1380
85
'96 '98 '00 '02 '04 '06 '08 '10 '12 '141.5
2.0
2.5
.
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.Data are as of 6/30/14.
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Commercial Real Estate
25%
10%
Commercial Vacancy Rates by SectorPercent at year end
Cap. Rates, REIT Div. Yields & Treasury Yields
Cap. Rates
20%4%
6%
8% Apr. 2014:6.61%
y
ec orOffice 16.7%Retail 10.1%
Industrial 9.5%Apartment 4.2%
Apr. 2014:4.14%
REIT Div. Yield
10-Year Treasur Yield
15% 0%
2%
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Commercial Mort a e-Backed Securit Issuance
Apr. 2014:2.65%
Econo
10%
80
100
120
$ bn, quarterly
U.S. Issuance
Foreign Issuance
0%
5%
0
20
40
60
21
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: Reis, Inc., PREA, FactSet, J.P. Morgan Asset Management.Cap rate is the rate of return on a real estate investment property based on the expected return that the property will generate. It is calculated bydividing annual income by the total value of the property. Cap rate is for U.S. core properties limited to deal transactions of $2.5 million or greater.Vacancy rate data provided by Reis, Inc. Guide to the Markets U.S.
Data are as of 6/30/14.
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Long-term Drivers of Economic Growth
16% 5%
ProductivityOutput per hour, nonfarm private business, year-over-year % chg.
Gross Investment and DepreciationPrivate nonresidential fixed investment, % of GDP
Gross investment spending Depreciation
8%
12%
2%
3%
4%
y2013:0.5%
0%1990 1995 2000 2005 2010
0%
1%
1990 1995 2000 2005 2010Econo
Real Capital Stock Growth
Labor Force Growth
3%
4%
5%
2%
3%
onres en a xe asses, year-over-year c g.
2013JPMAM
Est: 1.5%
ear-over-year c g. n popua on age wor ng or oo ng or wor
0%
1%
2%
-1%
0%
2013:-0.4%
22
1990 1995 2000 2005 2010
Source: BEA, BLS, FactSet, J.P. Morgan Asset Management.
Guide to the Markets U.S.
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Federal Finances
-12%
-10%
The 2014 Federal BudgetCBO Baseline forecast, trillions USD
Federal Budget Surplus/Deficit% of GDP, 1990 2024, 2014 CBO Baseline
Forecast$4.0
-8%
-6%
-4%
-2%
0%y
2014:-2.8%
$3.0
$3.5Total Spending: $3.5tn
Other
$360bn (10%)Net Int.: $227bn (6%)
Borrowing:
$492bn (14%)
Other: $265bn (8%)
2%
4%'90 '95 '00 '05 '10 '15 '20
Econo
Federal Net Debt (Accumulated Deficits)% of GDP, 1940 2024, 2014 CBO Baseline, end of fiscal year
$2.0
$2.5
Defense:
$596bn (17%)
- .$584bn (17%)
Social Insurance:$1,033bn (29%)
80%
100%
120%
$1.0
$1.5Social Security:
$845bn (24%)
Corp.: $351bn (10%)
2024:78.1%
20%
40%
60%
'40 '44 '48 '52 '56 '60 '64 '68 '72 '76 '80 '84 '88 '92 '96 '00 '04 '08 '12 '16 '20 '24$0.0
$0.5
Total Government Spending Sources of Financing
Medicare & Medicaid:$911bn (26%)
$1,382bn (39%)
Forecast
73.8%
23
Source: U.S. Treasury, BEA, CBO, St. Louis Fed, J.P. Morgan Asset Management.
2014 Federal Budget is based on the CBOs April 2014 Baseline Scenario. Other spending includes, but is not limited to, health insurance subsidies, income security,and federal civilian and military retirement.Note: Years shown are fiscal years (Oct. 1 through Sep. 30). 2014 numbers are CBO estimates as of April 2014.
Guide to the Markets U.S.
Data are as of 6/30/14.
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Employment
60012%
Civilian Unemployment Rate Employment Total Private PayrollSeasonally adjusted Total job gain/loss (thousands)
200
400
10%
11%
y 8.8mmobs lost
Oct. 2009: 10.0%
-200
0
8%
9%
Econo
9.4mmjobs
-600
-400
6%
7%
May 2014: 6.3%
-1,000
-800
3%
4%
50-yr. avg.: 6.1%
24
'04 '05 '06 '07 '08 '09 '10 '11 '12 '13'70 '80 '90 '00 '10
Source: BLS, FactSet, J.P. Morgan Asset Management.
Guide to the Markets U.S.
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Labor Market Perspectives
Job Gains and Losses May 2013 to Apr. 2014
Millions of jobs
Total Separations: 52.8mmTotal Hires: 55.1mm
68%
Labor Force Participation Rate% of population aged 16+ working or looking for work
20
30
40
50
y
Other Separations: 4.4mm
Quits:28.5 mm
64%
65%
66%
67%
0
10
Econo Layoffs and Discharges:
19.9mm
Average Hourly Earnings Growth
'96 '98 '00 '02 '04 '06 '08 '10 '12 '1462%
63%
May 2014: 62.8%
- -Net Job Creation Since Feb. 2010 Millions of Jobs
3%
4%
5%
May 2014:2.4%
.
2.72.4
1.91.7
0.7
1 mm
2 mm
'96 '98 '00 '02 '04 '06 '08 '10 '12 '140%
1%
2%
-0.6
-1 mm
0 mm
Info. Fin &Bus. Svcs.
Mfg. Trade &Trans.
Leisure,Hosp t. &
Other Svcs.
Educ. &Health Svcs .
Mining &Construct.
Gov't
25
Source: BLS, FactSet, J.P. Morgan Asset Management.
Guide to the Markets U.S.
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Employment and Income by Educational Attainment
18%$89,253
$90,000
Average Annual Earnings by Highest Degree EarnedFull-time workers aged 18 and older, 2012, USD
Unemployment Rate by Education Level
14%
16%
$70,000
$80,000
y
+29K
Less than High School Degree
High School No College
Some CollegeCollege or Greater
10%
12% $60,159
$50,000
$60,000
Econo
+28K
May 2014:
6.5%
May 2014:9.1%
6%
8%
$32,630
$30,000
$40,000
May 2014:
5.5%
0%
2%
0
$10,000
$20,000
May 2014:3.2%
26
'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 High School Graduate Bachelor's Degree Advanced Degree
Source: BLS, Census Bureau, FactSet, J.P. Morgan Asset Management.
Unemployment rates shown are for civilians aged 25 and older.
Guide to the Markets U.S.
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Consumer Price Index
15%
CPI and Core CPI50-yr. Avg. May 2014
Headline CPI: 4.2% 2.1%
% change vs. prior year, seasonally adjustedCPI
Components
Weight in
CPI
12-month
change (sa)
Food & Bev. 14.9% 2.4%
12%
y
Core CPI: 4.1% 1.9%Housing 41.4% 2.6%
Apparel 3.4% 0.7%
Transportation 16.4% 1.8%
6%
9%
Econo Medical Care 7.6% 2.8%
Recreation 5.8% 0.4%
Educ. & Comm. 7.1% 1.5%
Other 3 4% 1 8%
0%
3%
. .
Headline CPI 100.0% 2.1%
Less:
Energy 9.0% 3.4%
'65 '70 '75 '80 '85 '90 '95 '00 '05 '10-3%
Source: BLS, FactSet, J.P. Morgan Asset Management.
Food 13.9% 2.5%
Core CPI 77.1% 1.9%
27
CPI used is CPI-U and values shown are % change vs. 1 year ago and reflect May 2014 CPI data. CPI component weights are as of December 2013.
Core CPI is defined as CPI excluding food and energy prices.
Guide to the Markets U.S.
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Energy and the Economy
Gbl. Natural Gas Prices35
Kuwait
Middle East Energy Production & Chokepoints
Percent of global liquid fuel production, 2012*
U.S. Natural Gas ProductionTrillions of cubic meters, USD EIA
Forecast
.Germany $10.64U.S. $4.59
15
20
25
y
Iran3.9%
Iraq3.9%
3.4%0.2%
Suez Canal2.2%
Other
Shale Gas
0
5
10
1990 1995 2000 2005 2010 2015 2020 2025
Econo Libya
1.8%Egypt0.8% Saudi Arabia
12.9%
Strait ofHormuz
U.S. Sources of Oil and Li uid Fuels
20
25
U.S. consumption, millions of barrels per day0.1%UAE3.5%
.
Bab el-Mandeb
Net Imports U.S. Production
EIA Forecast
5
10
3.4%
Major Producers
Percent of global total, 2012
Saudi Arabia 13% China 5%
Major Consumers
Percent of global total, 2012
United States 21% India 4%
28
0
2000 2002 2004 2006 2008 2010 2012 2014Source: (Left) EIA, J.P. Morgan Asset Management. (Top right) EIA, IMF, FactSet, J.P. Morgan Asset Management. (Bottom right) EIA, J.P.Morgan Asset Management. Forecasts are from EIA Annual Energy Outlook and start in 2013. *Production numbers as of 2012, while chokepointsare 2011 data. Natural gas prices are as of May 2014. Guide to the Markets U.S. Data are as of 6/30/2014.
Russia 12% Iran 4% Japan 5% Saudi Arabia 3%
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Consumer Confidence and the Stock Market
130
Consumer Sentiment Index University of Michigan
Impact on Consumer Sentiment from a
110
120
y
Jan. 2000
-2.0%
Jan. 2004+4.4%
- . p s
+1.9
+2.8
-5.2
y-o-y r se n gaso ne pr ces
10% y-o-y rise in home prices
10% y-o-y rise in the S&P 500
1% y-o-y rise in the unemployment rate
90
100
Average: 85.3
Econo
.+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
29
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 5/31/2014. Guide to the Markets U.S.
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Interest Rates and Inflation
20%
Nominal and Real 10-year Treasury Yields
15%
ep. , :15.84%
Average
(1958 2014) 6/30/14Nominal Yields 6.34% 2.53%Real Yields 2.52% 0.58%
10%
com
eNominal 10-yearTreasury Yield
. .
5%
FixedI Jun. 30, 2014: 2.53%
Real 10-year
-
0%
Jun. 30, 2014: 0.58%
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 5001982-2013 9.7% 11.6%Ann. Inflation 3.0% 3.0%Ann. Real Return 6.5% 8.4%
31
'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
-
Source: Federal Reserve, BLS, J.P. Morgan Asset Management.Real 10-year Treasury yields are calculated as the daily Treasury yield less year-over-year core CPI inflation for that month except for June 2014,where real yields are calculated by subtracting out May 2014 year-over-year core inflation. All returns above reflect annualized total returns, whichinclude reinvestment of dividends. Corporate bond returns are based on a composite index of investment grade bond performance.Guide to the Markets U.S.Data are as of 6/30/14.
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Fixed Income Yields and Returns
US Treasuries# of
issues
Correlation to
10-year
Avg.
Maturity6/30/2014 3/31/2014 2Q14 YTD
Yield Return Price Impact of a 1% Rise/Fall in Interest Rates*
+1%
-1%-2.0%0.9%2y UST
- . . . . .
5-Year 96 0.91 5 1.62% 1.73% 1.18% 1.92%
10-Year 18 1.00 10 2.53% 2.73% 2.66% 6.14%
30-Year 20 0.92 30 3.34% 3.56% 5.24% 13.77%-16.9%
-8.5%
-6.7%
-4.7%
21.9%
9.4%
7.7%
.
30y UST
10y UST
TIPS
5y UST
TIPS 35 0.59 10 0.27% 0.60% 3.81% 5.83%
Sector
Broad Market 8,523 0.86 7.7 years 2.22% 2.39% 2.04% 3.93%
MBS 429 0.81 7.2 2.79% 3.11% 2.41% 4.03%
com
e
-3.8%
-3.2%
-0.1%
3.5%
3.5%
0.1%
ABS
Convertibles
Floating Rate
Municipals 9,101 0.47 9.9 2.25% 2.55% 2.49% 5.69%
Corporates 5,039 0.46 10.5 2.91% 3.10% 2.66% 5.68%
High Yield 2,164 -0.24 6.6 4.91% 5.23% 2.41% 5.46%
Floating Rate 47 -0.21 3.1 1.01% 1.17% 0.73% 1.13%
FixedI
-6.1%
-6.0%
-5.6%
-4.1%
5.6%
4.1%
5.6%
4.0%
Munis
MBS
US Agg regate
US HY
Convertibles 514 -0.32 -- 1.19% 1.20% 4.23% 8.80%
ABS 1,358 -0.04 4.1 1.90% 1.90% 1.19% 2.33%
Source: U.S. Treasury, Barclays Capital, FactSet, J.P. Morgan Asset Management.Fixed income sectors shown above are provided by Barclays Capital and are represented by Broad Market: Barclays U.S. Aggregate; MBS: U.S. Aggregate Securitized - MBS Index;Corporate: U.S. Corporates; Municipals: Muni Bond 10-year Index; High Yield: Corporate High Yield Index; TIPS: Treasury Inflation Protection Securities (TIPS). Floating Rate: Barclays FRNBBB Convertibles: Barcla s U.S. Convertibles Com osite ABS: Barcla s ABS + CMBS. Treasur securities data for # of issues based on U.S. Treasur benchmarks from Barcla s Ca ital.
-6.6%7.6%
-30% -10% 10% 30%
IG Corps
32
. . . . . .Yield and return information based on bellwethers for Treasury securities. Sector yields reflect yield to worst, while Treasury yields are yield to maturity. Correlations are based on 10-years of
monthly returns for all sectors. Change in bond price is calculated using both duration and convexity according to the following formula: New Price = (Price + (Price * -Duration * Change inInterest Rates))+(0.5 * Price * Convexity * (Change in Interest Rates)^2). *Calculation assumes 2-year Treasury interest rate falls 0.47% to 0.00%,as interest rates can only fall to 0.00%.Chart is for illustrative purposes only. Past performance is not indicative of future results. Guide to the Markets U.S.
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Sources of Bond Returns
Coupon Return2013 C
Total Return2013 A + B + C
Treasury Base Rate Return2013 A
Spread to Treasury Return2013 B
2014 YTD1.2%5-yr. 0.8% 1.9% 5-yr.
2013
4.8%
12.0%
10-yr.
30-yr.
1.4%
1.8%
6.1%
13.8%
10-yr.
30-yr.
com
e
3.5%
-1.3%
10-yr. Muni
U.S. HY
EM (USD)
2.1%
3.4%
5.7%
5.5%
10-yr. Muni
U.S. HY
EM (USD)
3.4%
FixedI
.
2.2%
1.5%
IG Corp.
U.S. MBS
.
2.1%
1.8%
.
5.7%
4.0%
IG Corp.
U.S. MBS
.
1.4%
0.7%
1.7%
-0.7%
-20% -10% 0% 10%
U.S. Agg .
FRN (BBB)
1.6%
0.7%
-20% -10% 0% 10%
3.9%
1.1%
-20% -10% 0% 10% 20%
U.S. Agg .
FRN (BBB)
0.7%
1.1%
-20% -10% 0% 10%
33
Source: Federal Reserve, Barclays, J.P. Morgan Asset Management.
All returns reflect year to date returns. Treasury base, spread, and coupon returns based on Barclays and J.P. Morgan Asset 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 6/30/14.
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The Fed and Interest Rates
Yield Curve Steepness10-yr. U.S. Treasury minus effective Fed Funds rate
Feds Balance Sheet: Assets$ trillions
4%Jun. 2014:
$4.0
$4.5
er
U.S. Treasuries
Agency MBS
1%
2%
3%
Average:
1.6%
.
$1.5
$2.0
$2.5
$3.0
$3.5
Feds Balance Sheet: Liabilities
com
e
Federal Reserve Summary of Economic Projections
'85 '90 '95 '00 '05 '10-1%
0%
$0.0
$0.5
$1.0
'04 '05 '06 '07 '08 '09 '10 '12 '13 '14
r ons
FixedI
Other Liabilities
Excess Reserves
Required Reserves
$2.5
$3.0
$3.5
$4.0
$4.5 Fed's June 2014 Forecasts*Percent
2014 2015 2016Long
Run
Chan e in real GDP 4 to 4 2.2 3.1 2.8 2.2
'05 '06 '07 '08 '09 '10 '11 '12 '13$0.0
$0.5
$1.0
$1.5
$2.0
Unemployment Rate, Q4 6.1 5.6 5.3 5.4
PCE Inflation, Q4 to Q4 1.6 1.8 1.8 2.0
Federal Funds Rate, end of year 0.25 1.13 2.50 3.75
34
Source: Federal Reserve, FactSet, J.P. Morgan Asset Management.Monetary base is defined as the total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits heldin the central bank's reserves. Other liabilities of the Federal Reserve primarily consist of currency outstanding. *Forecasts of 16 FOMC participants,midpoints of central tendency except for federal funds rate which is a median estimate. Guide to the Markets U.S.
Data are as of 6/30/14.
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Owners of Treasury Securities
1,200
Net Purchases of Treasuries Year Ended 1Q14Billions of dollars
Treasuries Outstanding 1Q14Billions of dollars, end of period, not seasonally adjusted
Total Outstanding Treasury Securities: $12,591
800
1,000
PensionsMutual funds
Other
Foreign private
Financial
State and localgov'ts6%
Other
1%
400
600
com
eForeign official
Total net purchases: $686
Foreign official
32%Households7%
institutions7%
0
200
FixedI Federal Reserve
Federal Reserve18%
Foreign private15%
Mutual funds9%
-400
-200Households
Financial institutionsState and local govts
35
ource: e era eserve, . . organ sse anagemen .Treasuries outstanding include total issues of Treasury securities plus budget agency securities and federal mortgage borrowing. Other includesNonfinancial corporate business, Nonfinancial noncorporate business, Issuers of asset-backed securities and Holding companies. Net Purchasesis the average of the annual rates over the past four quarters. Foreign official reports assets held by official foreign institutions (i.e. Monetaryauthorities, government agencies), Foreign private reports treasury securities held by other foreigners (i.e. Financial institutions, individuals).
Guide to the Markets U.S.
Data are as of 6/30/14.
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Credit Conditions
760 12%
Delinquency RatesAll banks, seasonally adjusted
Lending Standards for Approved Mortgage LoansAverage FICO score based on origination date
May 2014:741
700
720
740
4%
6%
8%
10% Consumer Loans
Commercial and Industrial Loans
7.8%
660
680
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '140%
2%
com
e0.9%
.
Common Equity as a % of Total Assets
Mortgage Originations
10%
12%
14%
FixedI ,
2013:11.1%
$300
$350
$400
$450
u y, , y u
4%
6%
8%
' ' ' ' ' ' ' ' ' ' ' '
Average: 7.7%
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14$50
$100
$150
$200
2Q14: $144bn
36
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 6/30/14.
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High Yield Bonds
20%Average Latest
HY Spreads 5.9% 4.0%Lev. Loan Spreads 4.9% 3.0%HY Defaults Rates 4.0% 2.1%
High Yield Spreads and Defaults
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 '14
com
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
$40
$60
$80
FixedI
Average: 41.1
YTD 2014: $15.0bn
High Yield
Leveraged Loans
40
50
60
70
-$20
$0
$20
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '140
10
20
30
'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
37
Source (Top chart): U.S. Treasury, J.P. Morgan, Strategic Insight, J.P. Morgan Asset Management. Default rates are defined as the par value percentage of the total market
trading at or below 50% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. (Bottom left): J.P Morgan, Fitch, J.P. Morgan AssetManagement. (Bottom right): Strategic Insight, J.P. Morgan Asset Management. Spreads indicated are benchmark yield to worst less comparable maturity Treasury yields.2014 recovery rate is a weighted average number as of June 2014. Yield to worst is defined as the lowest potential yield that can be 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 May 2014. Past performance is not indicative of comparable future results. Guide to the Markets U.S.Data are as of 6/30/14.
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Municipal Finance
9%
10%12%
State & Local Government Debt Service% of current expenditures
10-Year Muni Taxable Equivalent YieldTaxable equivalent Muni and Treasury yields 1Q14: 8.8%
5%
6%
7%
8%
10%
Taxable Equivalent 10-Yr Muni Yield
3%
4%
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
6%
8%
com
e
Municipal Bond Issuance*Billions USD revenue and GO issues
4%
$300bn
$400bn
$500bn
FixedI
10-Year Treasury Yield
0%
2%
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14$0bn
$100bn
$200bn
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14
Spread
38
Source (Left chart): Barclays Capital, U.S. Treasury, FactSet, J.P. Morgan Asset Management. (Top right) BEA, J.P. Morgan Asset Management. (Bottom right) SIFMA, J.P.Morgan Asset Management.Taxable equivalent yields are calculated for the highest federal marginal tax bracket. 2014 tax rate includes the net investment income tax of 3.8%.*Excludes maturities of 13 months or less and private placements. Interest payments include interest accrued on defined benefit liabilities.2014 issuance data is as of May 2014. Guide to the Markets U.S.
Data are as of 6/30/14.
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Global Fixed Income
AggregatesCorrel to
10-yearDuration Current 2Q14 YTD
ReturnYield
$100
Global Bond MarketUSD, trillions
EM: $14tn
U.S. 0.83 5.6 Yrs 2.22% 2.04% 3.93%
Gbl. ex. U.S. 0.38 6.8 1.56% 2.71% 5.50%
Japan 0.53 8.0 0.53% 2.39% 5.27%$70
$80
$90 12/31/89 12/31/13U.S. 60.7% 37.9%Dev. ex U.S. 38.2% 48.3%
EM 1.1% 13.9%
Germany 0.25 5.8 0.94% 1.44% 3.63%
U.K. 0.17 8.6 2.54% 3.51% 6.35%
Italy 0.07 6.3 2.00% 2.76% 7.93%$50
$60
com
e Developed ex
U.S.: $47tn
Spain 0.10 5.5 1.68% 2.38% 7.66%
Sector
EMD ($) 0.18 7.0 5.10% 4.76% 8.66%
$20
$30
$40
FixedI
. . . . .
Euro Corp. 0.09 4.6 1.48% 2.39% 4.81%
Euro HY. -0.41 4.0 4.37% 2.66% 6.03% $0
$10
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
Source: Barcla s Ca ital BIS FactSet J.P. Mor an Asset Mana ement. Fixed income sectors shown above are rovided b Barcla s Ca ital and are re resented b the lobal
. .: 7tn
39
aggregate for each country except where noted. EMD sectors are represented by the J.P. Morgan EMBIG Index (USD) and the J.P. Morgan GBI EM Global Diversified Index (LCL).
European Corporates are represented by the Barclays Euro Aggregate Credit Corporate Index and the Barclays Pan-European High Yield index. Sector yields reflect yield to worst.Duration is modified duration. Correlations are based on 7-years of monthly returns for the all sectors. Past performance is not indicative of future results.Current data are as of 6/30/2014 unless otherwise noted.Guide to the Markets U.S.Data are as of 6/30/14.
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Emerging Market Debt
12%
Emerging Markets Debt SpreadsSpread to Treasuries of USD-denominated debt, percent
Index Breakdown USD Denominated EMDMiddle East &
Africa 12%Middle East &
Africa 16%100%
IndexAverage
Spread
Spread
(6/30/14)
4%
6%
8%
Asia 38%
Europe 33%Europe 15%
Latin America36%
Latin America30%
20%
40%
60%
EMBIG 3.8% 2.8%
CEMBI 3.3% 3.0%
0%
2%
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
com
e
Annual Flows into EMD Mutual Funds & ETFsBillions USD
Emerging Market Debt Credit RatingEMBIG average monthly credit rating, inverse scale
Asia 19%
0%Sovereigns
(EMBIG)Corporates
(CEMBI)
$15
$20
$25
$30
FixedI
-
BB+
BBB-
BB
BB-
YTD 2014:
'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 '14
B-
B
B+-$2.0bn
40
Source: J.P. Morgan, MorganMarkets, FactSet, Strategic Insight, J.P. Morgan Asset Management.
Spreads measure the credit risk premium over comparable maturity U.S. Treasury bonds. The J.P. Morgan EMBI Global (EMBIG) Index is a USD-denominated external debt index tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. The J.P. Morgan Corporate EmergingBond Index (CEMBI) is a USD-denominated external debt index tracking bonds issued by corporations in developing nations. Flow data is as of May2014. Past performance is not indicative of comparable future results. Index breakdown may not equate to 100% due to rounding.Guide to the Markets U.S.Data are as of 6/30/14.
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Global Equity Markets
Country / Region
2Q14 YTD 2014
Local USD Local USD
Weights in MSCI All Country World Index% global market capitalization, float adjusted
Regions / Broad Indexes
U.S. (S&P 500) - 5.2 - 7.1EAFE 3.7 4.3 3.5 5.1
-
UnitedStates49%
Europe ex-U.K.17%
U.K. 8%
EmergingMarkets . . . . . .
Pacif ic ex-Japan 3.0 4.4 3.6 7.5
Emerging Markets 5.2 6.7 4.8 6.3
MSCI: Selected Countries
11%
Japan7%
Canada4%
Global Equity Market Correlations
0.60
0.70
0.80
0.90United Kingdom 3.4 6.1 1.9 5.2
France 3.1 2.4 6.1 5.4
Germany 2.9 2.3 2.6 2.0
Japan 4.9 6.7 -2.8 0.9o
nal
Rolling 1-year correlations, 30 countries
0.10
0.20
0.30
0.40
0.50
China 5.6 5.7 -0.5 -0.5
India 13.5 12.7 18.5 21.9
Brazil 5.2 7.7 3.5 10.7
- -
Internati
Jun. 2014:0.38
41
.'95 '97 '99 '01 '03 '05 '07 '09 '11 '13
. . . .
Source: Standard & Poors, MSCI, FactSet, J.P. Morgan Asset Management.
All return values are MSCI Gross Index (official) data. Chart is for illustrative purposes only. Past performance is not indicative of future results. Pleasesee disclosure page for index definitions. Countries included in global correlations include Argentina, South Africa, Japan, UK, Canada, France,Germany, Italy, Australia, Austria, Brazil, China, Colombia, Denmark, Finland, Hong Kong, India, Malaysia, Mexico, Netherlands, New Zealand, Peru,Philippines, Portugal, Korea, Spain, Taiwan, Thailand, Turkey, United States. Guide to the Markets U.S. Data as of 6/30/14.
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Global Economic Growth
10%Year-over-year % chg. forecasts from JPMSIEmerging Market Country Real GDP Growth
2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
Historical
1Q15
JPMSI Forecast
2%
4%
6%
-4%
-2%
Emerging Markets China India Korea Brazil South Africa Mexico Russia
Develo ed Market Countr Real GDP Growth
4%
6%
8%
10%
Year-over-year % chg. forecasts from JPMSI
o
nal
2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
s or ca
1Q15
orecas
-4%
-2%
0%
2%
Internati
42
Countries
. . . .
Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management.
Forecast and aggregate data come from J.P. Morgan Global Economic Research. Historical growth data collected from FactSet Economics.Guide to the Markets U.S.
Data are as of 6/30/14.
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The Importance of Exports
Exports as a % of GDP2013, goods exported Estimated increase in quarterly real GDP reflecting stronger DM exports
Emerging Market Real GDP Growth Sensitivity to DM
Brazil .
16.0%
24.9%Turkey
S. Africa
raz
China
India
U.S.
Europe
U.S.
.
9.4%
Russia
Mexico
Chile
U.S.
Other
BRICJapan
14.6%
19.6%
18.5%
o
nal Korea
Hungary
UK
Eurozone
apan
20.7%
24.6%
37.6%Internati
Thailand
Taiwan
Germany
Italy
France
44
Source: IMF, MacData, J.P. Morgan Securities, J.P. Morgan Asset Management.Values may not sum to 100% due to rounding. (Right chart) Assumes a 1% increase in GDP growth from Japan, Europe, and the U.S., and 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 6/30/14.
0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6%0% 5% 10% 15% 20% 25% 30% 35% 40%
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Sovereign Debt Stresses
10%
Bubble size = 10-yearovernment bond ield
GDP Growth, Gross Debt to GDP and Borrowing Costs
India
Indonesia
Malaysia
10%
5%
6%
8%
014F)
Brazil
South Africa
Mexico
U.S.
Turkey
Korea
France
Germany
JapanRussia
Singapore
EU
Aust ralia
U.K.
0%
2%
row
th(20122
Greece
ItalySpain
Portugal
-4%
-2%
RealGDP
o
nal
-8%
-6%
0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200%
Developed Markets
Emerging Markets
Internati
245%
45
Gross Debt-to-GDP Ratios (2013F)
Source: IMF, FactSet, Bloomberg, J.P. Morgan Economics, Barclays, J.P. Morgan Asset Management.Growth and debt data are based on the April 2014 World Economic Outlook.Borrowing costs based on local currency debt. EU overall borrowing cost based on Barclays Capital Euro-Aggregate 7-10 year treasury. South Africasborrowing cost is based on 7-year government bond yield due to data availability. Guide to the Markets U.S.
Data are as of 6/30/14.
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Global Monetary Policy
4%60%
Central Bank Assets Percent of Nominal GDP Real Policy Rates Monthly
2%
3%50%
Emerging Markets
1%
30%
40%
Bank of Japan
-1%
20%
o
nal
Developed Markets
European Central Bank
-3%
-2%
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '130%
10%
Internati
U.S. Federal Reserve
46
Source: J.P. Morgan Global Economics Research, J.P. Morgan Asset Management.Real policy rates represent GDP weighted aggregates estimated by J.P. Morgan Global Economics Research. Real policy rates are short-term targetinterest rates set by central banks minus year-over-year inflation.Guide to the Markets U.S.Data are as of 6/30/14.
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MSCI EAFE Index at Inflection Points
1,400 Index level 1,136 1,212 969P/E ratio (fwd.) 28.7x 14.5x 14.2x
MSCI EAFE Index Characteristic Mar-2000 Jul-2007 Jun-2014
1,100
1,200
1,300 . . .
10-yr. German Bunds 5.3% 4.6% 1.2%
Mar. 29, 2000
P/E (fwd.) = 28.7x1,136
Jul. 16, 2007P/E (fwd.) = 14.5x
1,212
800
900
1,000
-56%
un. ,P/E (fwd.) = 14.2x
969
+141%
-57% +87%
+70%
600
700
Dec. 31, 1996P/E (fwd.) = 19.5x
670
o
nal
'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
Internati
47
Index levels are in local currency. Dividend yield is calculated as the annualized dividend rate divided by price, as provided by MSCI. Forward Price to Earnings Ratio is 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.
Data are as of 6/30/14.
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Europe: Cyclical Headwinds and Tailwinds
16%35%6/27/14
Government Fiscal Drag% of potential GDP, reduction in structural deficits from one period to the next
European Sovereign Funding Costs10-year benchmark bond yield
14.4%
12%
14%
15%
20%
25%
30% Greece 5.87%Portugal 3.56%
Spain 2.63%
Italy 2.72%Ireland 2.33%
Germany 1.26%
2010-2013
2013-2016
refisca
ldrag
LTRO
OMT
5.9%6%
8%
10%
'08 '09 '10 '11 '12 '130%
5%M
Euro Area Credit Growth
3.4%
4.7%
3.5% 3.5% 3.3%2.9%
0.7%
1.5% 1.5%1.9%
0.3%
1.2%2%
4%
10%
15%
20%
o
nal
sfiscaldrag
year-over-year oan grow
Nonfinancial Corporations
-1.0%
-0.1%
-2%
0%
-5%
%
5%
' ' ' ' ' ' ' ' '
Internati L
e
Households
May 2014: -2.6%
May 2014:-0.7%
48
Source: Eurostat, Tullett Prebon, FactSet, IMF, J.P. Morgan Asset Management. Data are based on the April 2014 World Economic Outlook.Government deficits are calculated by the IMF as the general government structural balance. The structural balance excludes the normal impact of the business cycle, providing aclearer measure of the independent impact of changes in government spending and taxation on demand in the economy.*Eurozone includes a J.P. Morgan Asset Management estimate for the 2016 structural deficit as a % of GDP.Guide to the Markets U.S.Data are as of 6/30/14.
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Europe: Unemployment and Inflation
13% May 2014: 11.6%
Unemployment Rates Latest Unemployment Rates for European CountriesLatest available, seasonally adjusted
3.3%Norway
7%
9%
11%
Euro Area-16
6.6%
6.5%
5.1%
4.7%
U.K.
Denmark
Germany
Austria
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '133%
5%
Europe Inflation
. .May 2014: 6.3%
8.5%
8.5%
7.8%
7.0%
Belgium
Finland
Sweden
Netherlands
2%
3%
4%
5%
- -
o
nal
Core
Euro Area
Periphery
12.6%
12.0%
11.6%
10.3%
.
Italy
Ireland
Euro Area
European Union
rance
-1%
0%
1%
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Internati
27.4%
25.1%
14.3%
0% 5% 10% 15% 20% 25% 30%
Greece
Spain
Portugal
49
Source: Eurostat, BLS, FactSet, IMF, J.P. Morgan Asset Management.(Top left) Unemployment rate levels for the U.S. and Euro Area-16 are not directly comparable due to calculation differences.
Guide to the Markets U.S.
Data are as of 6/30/14.
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Europe: Economy and Earnings
7015% 13 $130
Economic Growth and Revenue Growth Estimates12-month revenue growth & manufacturing PMI (advanced 12-months)
Earnings Per ShareNext 12- month consensus EPS
S&P 500
40
50
60
-
-5%
0%
5%
10%
11
12
$110
$120
20
30
-20%
-15%
'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '159
10
$90
$100Manufacturing PMIRevenue Growth
U.S. and European Operating Profit Margins
6
7
8
$60
$70
$80
9%
10%
11%
o
nal
,
S&P 500
'00 '02 '04 '06 '08 '10 '12 '144
5
$40
$50
'04 '05 '06 '07 '08 '09 '10 '11 '12 '136%
7%
8%
Internati
MSCI Europe
MSCIEurope
50
Source: Markit, MSCI, FactSet, J.P. Morgan Asset Management.
Revenue growth reflects next twelve month forward estimates from FactSet for the MSCI Europe Index.
Data are as of 6/30/14.
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Japan: Economic Snapshot
9%
130
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%
9 0
100
110
10,000
12,000
14,000
16,000
Other Domestic 72%Bank of Japan 20%
Foreign 8%
Owners of Japanese Gov. Bonds
3%
5%
'04 '05 '06 '07 '08 '09 '10 '11 '12 '137 0
8 0
6,000
8,000
Nominal 10-year Yield Government Fiscal Balance% of GDP
-12%
-10%
-8%
-6%
-4%
1%
o
nal
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%
Internati
Core CPI
51
Source: (Left) Bank of Japan, OECD, IMF, FactSet, J.P. Morgan Asset Management. (Right) FactSet, J.P. Morgan Asset Management.
Core CPI is defined as CPI excluding fresh food. Other Domestic includes banks, insurance and pensions, public pensions, and households. Values
may not sum to 100% due to rounding. Government bond data is calculated from the Bank of Japans June 2014 flow of funds.
Guide to the Markets U.S.
Data are as of 6/30/14.
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International Equity Earnings and Valuations
18x
Forward Price to EarningsP/E ratios for next 12-month consensus EPS
Earnings per ShareEPS for next 12-month consensus, local currency, rebased to 100
260 07/08 Peak Current % Change Average Current
16x220
240
-
S&P 500 150 182 21%MSCI Europe 161 125 -22%
. x . xS&P 500 13.8x 15.6xMSCI Europe 11.7x 14.3x
12x
14x
160
180
200
o
nal
10x
120
140
Internati
'04 '05 '06 '07 '08 '09 '10 '11 '12 '136x
'04 '05 '06 '07 '08 '09 '10 '11 '12 '1380
100
52
, , . . .Forward Price to Earnings Ratio is based on each index price, divided by consensus estimates for earnings per share (EPS) in the next 12 months (NTM),
and is provided by FactSet Market Aggregates. Past performance is not indicative of future returns.
Guide to the Markets U.S.
Data are as of 6/30/14.
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Demographics and Development
Demographic SnapshotThe Impact of UrbanizationUrbanization ratios and GDP per capita (current USD), 1961 2012
$60,000Investment
% of GDP
GDP Per
Ca itaPopulation
% of Pop.
under 20
$50,000 Japan
U.S.2012: $51,749
Developed
U.S. $53,101 316 mm 26% 20%
Canada 51,990 35 22 24
U.K. 39,567 64 24 14
$30,000
$40,000
GDP
perCapita
South
Germany 44,999 81 18 17
France 43,000 64 24 19
Japan 38,491 127 18 21
Italy 34,715 60 19 17
o
nal
$10,000
$20,000
China
India
Korea
1961: $2,935
Emerging
Korea 24,329 50 22 26
India 1,505 1,243 38 35
Brazil 11,311 198 33 18
Source: FactSet, World Bank, United Nations, J.P. Morgan Global Economics Research, OECD, Bureau of Statistics of China, Ministry of Statistics &
Internati
$-15% 25% 35% 45% 55% 65% 75% 85% 95%
Urbanization Ratio
Mexico 10,630 118 38 22
Russia 14,819 143 21 24
China 6,747 1,361 20 48
53
, . . .
GDP per capita and Investment as % of GDP are IMF estimates for 2014.Guide to the Markets U.S.
Data are as of 6/30/14.
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Emerging Market Currencies
6%
EM Current Accounts and Currency Performance
ger
ncy
Mexico
Korea
Taiwan
-3%
-9% -6% -3% 0% 3% 6% 9%
e
14%
Stron
Curr
India
Russia
-12%yPerforman
2013 Currency Performance& 2013 Current Account
South Africa
Turkey
-21%
o
nal
Curren
Graph Key
Currency Performance sinceJan. 2013 &
2014 Current Account
Indonesia
-30%
Current Account (% of GDP)
Internati
Weaker
Currency
Current Account SurplusCurrent Account Deficit
54
Source: IMF World Economic Outlook, FactSet, J.P. Morgan Asset Management.
Current accounts as a percentage of GDP are IMF figures for full year 2013 and latest available quarterly data for 2014.
Russia current account reflects IMF estimates for 2014. Guide to the Markets U.S.
Data are as of 6/30/14.
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China: Economic and Credit Growth
16%
China Real GDP ContributionYear-over-year % change Year-over-year % change, 3-month moving average for credit
Credit* vs. GDP Growth
40%
12%
Investment
Consumption
Net Exports
9.6%
9.2%
10.4%9.3%
Credit
Real GDP
GDP Deflator
30%
35%
4.5%
8.1%
5.5% 4.4%
3.6% 4.2%
4%
8%7.7% 7.7%
20%
25%
0.8%
-3.4%
0.4%
-0.4% -0.2% -0.3%
.4.6%
4.5% 5.3%4.2% 3.9%
0%
o
nal
10%
15%
-8%
-4%
Internati
-5%
0%
' ' ' ' ' ' ' ' ' ' ' '
55
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, bankers acceptance bills, trust loans,entrusted loans, corporate bond financing, foreign currency loans, and non-financial equity financing. TSF data uses an assumption of outstandingcredit in Dec. 2001. Guide to the Markets U.S.Data are as of 6/30/14.
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Global Equity Valuations Developed Markets
+5 Std Dev
+6 Std Dev
+7 Std Dev
Developed Market Countries
erage
Expensiverelative to
Example
+3 Std Dev
+2 Std Dev
+1 Std Dev
Average-1 Std Dev
-2 Std Dev
-3 Std Dev
Devfrom
GlobalA
Expensiverelative to own
history
wor
Cheap relative toown histor
Average
Current
CurrentComposite
Current 10-year avg.
-4 Std Dev
-5 Std Dev
World(ACWI)
EAFEIndex
France U.K. Australia Germany JapanCanada
SwitzerlandUnitedStates
Std
relative toworld
w . v. . w . v. .
World (ACWI) 0.62 14.5 2.1 8.5 2.5% 13.0 2.0 7.4 2.5%
EAFE Index -0.26 14.2 1.7 8.0 3.1% 12.6 1.7 6.6 3.2%
France -0.47 14.1 1.5 8.0 3.3% 11.3 1.6 5.8 3.4%
U.K. -0.46 13.6 1.9 7.8 3.6% 11.2 2.0 7.5 3.7%
Australia -0.44 14.3 2.0 8.2 4.6% 13.4 2.2 9.3 4.3%
Index
o
nal
Germany -0.27 13.0 1.7 8.1 2.8% 11.5 1.5 5.6 3.1%
Japan 0.22 13.6 1.3 7.4 1.9% 16.2 1.4 6.4 1.6%
Canada 0.85 15.1 2.0 9.9 2.7% 13.6 2.1 8.6 2.3%
Switzerland 1.64 16.2 2.6 11.9 3.1% 13.4 2.4 9.7 2.7%
United States 2.27 15.9 2.7 10.0 1.9% 13.9 2.4 8.6 1.9%
Source: MSCI, FactSet, J.P. Morgan Asset Management.
Internati
56
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 monthscash 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.
Data are as of 6/30/14.
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Global Equity Valuations Emerging Markets
Emerging Market Countries
erage
Expensiverelative to
Example
+5 Std Dev
+6 Std Dev
+7 Std Dev
Devfrom
GlobalA
Expensive
relative to ownhistory
world
Cheap relative toAverage
Current
+3 Std Dev
+2 Std Dev
+1 Std Dev
Average
-1 Std Dev
-2 Std Dev
-
+ ev
CurrentComposite
Current 10-year avg.
World(ACWI)
EMIndex
Russia China Brazil TaiwanThailand
Korea SouthAfrica
IndonesiaMexico
India
Std
relative toworld
-4 Std Dev
-5 Std Dev
. . . . . .
World (ACWI) 0.62 14.5 2.1 8.5 2.5% 13.0 2.0 7.4 2.5%
EM Index -1.31 10.9 1.5 5.7 2.7% 11.1 1.9 6.2 2.7%
Russia -4.39 4.7 0.7 3.0 4.4% 7.7 1.4 4.6 2.2%
China -2.67 8.8 1.4 3.4 3.5% 11.8 2.1 7.0 2.7%
Brazil -1.99 10.4 1.4 5.8 3.8% 9.9 1.9 5.6 3.2%
Index
o
nal
a wan - . . . . . . . . .
Thailand 0.03 12.5 2.1 9.6 3.2% 10.7 2.0 6.9 3.6%
Korea 0.43 9.4 1.1 5.5 1.2% 9.5 1.4 4.9 1.5%
South Africa 1.14 14.5 2.6 10.8 3.0% 11.4 2.4 8.8 3.2%
Indonesia 2.01 14.0 3.3 11.5 2.5% 12.5 3.5 10.0 2.7%
Mexico 2.88 18.4 2.8 8.4 1.6% 14.3 2.8 7.5 1.8%
Internati
57
n a . . . . . . . . .
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), priceto last 12 months cash flow (P/CF) and price to last 12 months dividends. Results are then normalized using means and average variability over thelast 10 years. The grey bars represent valuation index variability relative to that of the MSCI All Country World Index (ACWI). See disclosures page atthe end for metric definitions. Guide to the Markets U.S.Data are as of 6/30/14.
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Correlations and Volatility
U.S.
Large
Cap EAFE EME Bonds
Corp.
HY Munis Currcy. EMD Cmdty. REITs
Hedge
Funds
Eq
Market
Neutral*
Ann.
Volatility
U.S. Lar e Ca - - - . . . . . . . . . . . .
EAFE 1.00 0.91 -0.18 0.77 -0.04 -0.73 0.67 0.58 0.70 0.88 0.70 20%
EME 1.00 -0.10 0.81 0.05 -0.68 0.78 0.64 0.61 0.89 0.56 25%
Bonds 1.00 -0.05 0.83 -0.07 0.29 -0.23 -0.01 -0.28 -0.17 3%
Corp. HY 1.00 0.18 -0.52 0.85 0.55 0.71 0.77 0.41 12%
Munis 1.00 -0.10 0.50 -0.14 0.07 - 0.08 -0.08 4%
Currencies 1.00 -0.52 -0.58 -0.46 -0.61 -0.66 7%
EMD 1.00 0.47 0.65 0.64 0.34 9%
Commodities 1.00 0.37 0.70 0.45 20%
REITs 1.00 0.56 0.42 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
etClass
Hedge Funds 1.00 0.58 8%
Eq Market Neutral* 1.00 4%
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 6/30/04 to 6/30/14.
This chart is for illustrative purposes only. Guide to the Markets U.S.
Data are as of 6/30/14.
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Mutual Fund Flows
Billions, USD AUM YTD 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999
Fund Flows
,
World Equity 2,161 49 142 6 4 57 26 (80) 142 151 107 72 24 (4) (23) 58 11
Taxable Bond 2,895 32 (22) 252 127 219 301 22 100 45 21 0 39 125 76 (36) 8
Tax-exempt Bond 532 8 (58) 50 (12) 11 70 8 11 15 5 (15) (7) 17 12 (14) (12)
Hybrid 1,345 21 73 47 40 35 20 (26) 40 20 43 53 39 8 7 (37) (14)
1 400
$1,600
60
$80
Difference In Flows Into Stock and Bond FundsBillions, USD, U.S. and international funds, monthly
Cumulative Flows Into Stock & Bond FundsBillions, USD, includes both mutual funds and ETFs
May 14: $1,367 billion into bond fundsand fixed income ETFs since 07
Money Market 2,577 (140) 15 (0) (124) (525) (539) 637 654 245 62 (157) (263) (46) 375 159 194
$800
$1,000
$1,200
,
$0
$20
$40
Bond flows exceeded equity flowsby $11 billion in May 2014
May 14: $597 billioninto stock funds and
$0
$200
$400
$600
' ' ' ' ' ' ' '
-$60
-$40
-$20
Feb '09 Dec '09 Oct '10 Au '11 Jun '12 A r '13 Feb '14setClass Bonds
Stocks
61
Source: Investment Company Institute, J.P. Morgan Asset Management.Data include flows through May 2014 and exclude ETFs except for the bottom left chart. ICI data are subject to periodic revisions. World equityflows are inclusive of emerging market, global equity and regional equity flows. Hybrid flows include asset allocation, balanced fund, flexibleportfolio and mixed income flows.Guide to the Markets U.S.Data are as of 6/30/14.
As
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Global Commodities
Commodity PricesWeekly index prices rebased to 100
Gold Prices$ / oz
$3,000500
$1,500
$2,000
$2,500Jun. 2014:
$1,315
,
Gold
400
450Precious Metals
Commodit Prices and Inflation
'75 '80 '85 '90 '95 '00 '05 '10$0
$500
,
250
300
350
Industrial Metals
4%
6%
8%
40%
60%
80%
Year-over-year % chg.
Headline CPI(Y/Y % chg.)
DJ-UBS Commodity Index(Y/Y % chg.)
150
200Energy
CPI Basket
-4%
-2%
0%
2%
-40%
-20%
0%
20%
setClass
50
100
Livestock
Grains
63
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14
-6% -60%
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.
Data are as of 6/30/14.
As '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
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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% $564,491
Bonds 6.1% $327,240
Stocks 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.setClass 50/50 Portfolio
Bonds
64
rolling rolling rollingAs
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.
Data are as of 6/30/14.
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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 CapitalAggregate; International Stocks: 15%MSCI EAFE. Portfolio with 25% in
Traditional Portfolio More Diversified Portfolio
Maximizing the Power of Diversification (1994 2013)
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: 8.02%Standard Deviation: 10.64% Return: 7.95%Standard Deviation: 9.71%
20-year Annualized Returns by Asset Class (1994 2013)
. . .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:
10.3% 10.2%
9.2%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)
-setClass 6.1% 5.8% 5.7%
3.1%2.5% 2.4%
4%
6%
8%
65
-ending 12/31/13 to match Dalbars
most recent analysis.As
0%
2%
REITs Oil S&P 500 EAFE Gold Bonds Homes AverageInvestor
Inflation
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Cash Accounts
$8,000
$10,000
Annual Income Generated by $100,000 Investment in a 6-month CD$ Billions
Weight in
Money
Supply
Money Supply
Component
$2,000
$4,000
$6,000
2013:$390
,
M2-M1 8,498 77.9%
Retail MMMFs 638 5.8%
'90 '95 '00 '05 '10$0
M2 Money Supply as a % of Nominal GDP70%
1Q14: 65.3%
Savings deposits 7,336 67.2%
Small time deposits 524 4.8%
50%
55%
60%
65%
Average: 52.8%
Institutional MMMFs 1,745 16.0%
667 6.1%Cash in IRA & Keogh
accounts
setClass
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.
'80 '85 '90 '95 '00 '05 '1040%
45%
Total 10,910 100.0%
66
As 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. 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 6/30/14.
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Corporate DB Plans and Endowments
100%
105%$2.5 Funded Status (%)
Defined Benefit Plans: Russell 3000 CompaniesAsset Allocation: Corporate DB Plans vs. Endowments
Endowments
Liabilities $
Trillions ($)
80%
85%
90%
95%
$1.0
$1.5
.
Assets ($)
48.0%
9.0%
27.0%
Fixed Income
Equities
70%
75%
$0.0
$0.5
'07 '08 '09 '10 '11 '12 '13 May '14Est.
Pension Return Assumptions: S&P 500 companies
4.0%
38.0%
20.1%Hedge Funds
27% 29%
20%20%
34%
20%
30%
40%
anies
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%
%ofCom
setClass
% 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 2014 estimated using 2014 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 6/30/14.
As
0% 10% 20% 30% 40% 50% 60%
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