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EQUITIES ECONOMY FIXED INCOME INTERNATIONAL ASSET CLASS U.S. Market Strategy Team
Dr. David P. Kelly, CFA Joseph S. Tanious, CFA Andrs D D. Garcia-Amaya Garcia Amaya, CFA Anastasia V. Amoroso, CFA James C. Liu, CFA Brandon D. Odenath, CFA Gabriela D. Santos Anthony M. M Wile david.p.kelly@jpmorgan.com joseph.s.tanious@jpmorgan.com andres d garcia@jpmorgan com andres.d.garcia@jpmorgan.com anastasia.v.amoroso@jpmorgan.com james.c.liu@jpmorgan.com brandon.d.odenath@jpmorgan.com gabriela.d.santos@jpmorgan.com anthony m wile@jpmorgan com anthony.m.wile@jpmorgan.com
4 18 29 39 58
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 December 31, 2013 or most recently available.
Page Reference
Equities
4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 3 14. 15. 16. 17. S&P 500 Index at Inflection Points Returns and Valuations by Style Returns and Valuations by Sector Stock Valuation Measures: S&P 500 Index Corporate Profits and Leverage Sources of Earnings per Share Growth Sources of Total Return Confidence, Earnings and Multiples Interest Rates and Equities Deploying ep oy g Corporate Co po ate Cas Cash P/E Ratios and Equity Returns Real Earnings Yield and Bull Market Cycles Annual Returns and Intra-year Declines Equity Correlations and Volatility 35. 36. 37. 38. High Yield Bonds Municipal Finance Global Fixed Income Emerging Market Debt
International
39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51 51. 52. 53. 54. 55. 56. 57. Global Equity Markets: Returns Global Equity Market: Returns to Prior Peaks MSCI EAFE Index at Inflection Points Global Economic Growth Manufacturing Momentum The Importance p of Exports p The Impact of Global Consumers Global Demographics and Equity Investment Emerging Market Currencies Sovereign Debt Stresses Global Monetary Policy Europe: Unemployment, Inflation and Austerity Eurozone: Sovereign Bond Yields Japan: Economic Snapshot China: Economic and Credit Growth Global Equity Markets Emerging Market Equity: Composition Global Equity Valuations Developed Markets Global Equity Valuations Emerging Markets
Economy
18. 18 19. 20. 21. 22. 23. 24. 25 25. 26. 27. 28. Economic Growth and the Composition of GDP Cyclical Sectors The Aftermath of the Housing Bubble Consumer Finances Federal Finances Employment Alternative Measures of Labor Utilization Employment and Income by Educational Attainment Consumer Price Index Energy and the Economy Consumer Confidence and the Stock Market
Asset Class
58. 59. 60. 61. 62. 63. 64. 65. 66. 67. Asset Class Returns Correlations and Volatility Alternative Asset Class Returns Mutual Fund Flows Yield Alternatives: Domestic and Global G Global C Commodities Historical Returns by Holding Period Diversification and the Average Investor Cash Accounts Corporate DB Plans and Endowments
Fixed Income
29. 30. 31. 32. 33. 34. Fixed Income Sector Returns Interest Rates and Inflation Fixed Income Yields and Returns Sources of Bond Returns The Fed and the Money Supply Credit Conditions
Characteristic Index level P/E ratio (fwd.) Dividend yield 10-yr. Treasury
Mar. 24, 2000 P/E (fwd.) = 25.6x
1,848
Equities
1,600
1,527
1,565
1,400
+106%
1,200
1,000
800
741
600 '97 '98 '99 '00 '01
777
'02 '03 '04 '05 '06 '07
677
'08 '09 '10 '11 '12 '13
Source: Standard & Poors, First Call, Compustat, FactSet, J.P. Morgan Asset Management. Dividend yield is calculated as the annualized dividend rate divided by price price, as provided by Compustat. Compustat Forward Price to Earnings Ratio is a bottom bottom-up up calculation based on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates. Returns are cumulative and based on S&P 500 Index price movement only, and do not include the reinvestment of dividends. Past performance is not indicative of future returns. Guide to the Markets U.S.
2013
Value Blend Growth
Larg ge
Equities
10.0%
10.5%
10.4%
Larg ge
32.5%
32.4%
33.5%
Mid
8.6%
8.4%
8.2%
Mid
33.5%
34.8%
35.7%
Small
9.3%
8.7%
8.2%
Small
34.5%
38.8%
43.3%
Current P/E as % of 20-year avg. P/E Since Market Peak (October 2007)
Value Large Blend Growth Large
E.g.: Large Cap Blend stocks are 4.9% cheaper than their historical average. Value Blend Growth
Large 101.6% 95.1% 85.7%
25.3%
35.5%
50.4%
Mid M
46 8% 46.8%
50 2% 50.2%
51 5% 51.5%
Mid M
Mid M
Small
Mid
110.5%
106.8%
89.4%
Small
42.1%
50.2%
57.8%
Small
Small
117.3%
112.2%
102.9%
Source: Russell Investment Group Group, Standard & Poors Poor s, FactSet, FactSet J J.P. P Morgan Asset Management. Management All calculations are cumulative total return, including dividends reinvested for the stated period. Since Market Peak represents period 10/9/07 12/31/13, illustrating market returns since the S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 12/31/13, illustrating market returns since the S&P 500 Index low on 3/9/09. Returns are cumulative returns, not annualized. For all time periods, total return is based on Russell-style indexes with the exception of the large blend category, which is reflected by the S&P 500 Index. Past performance is not indicative of future returns. Guide to the Markets U.S. Data are as of 12/31/13.
na nc ia ls
du st ria ls
og
Te le co m
at er ia ls
Te ch n
He al th
er gy
s.
s.
Co n
Co n
Fi
In
En
Ut il
iti
Equities
10.3 35.6 -30.2 280.8 1.44 0 42 0.42 12.9x 12.6x 15.6x 16.0x 1.7% 2.1%
13.3 28.4 48.7 211.6 1.12 0 30 0.30 15.5x 22.7x 18.2x 26.2x 1.7% 0.6%
10.1 41.5 74.5 181.3 0.70 0 15 0.15 16.8x 17.5x 22.3x 24.4x 1.7% 1.4%
13.5 40.7 38.8 281.4 1.20 0 30 0.30 16.8x 16.7x 20.7x 20.4x 2.0% 1.7%
8.4 25.1 26.8 132.2 1.00 0 32 0.32 13.1x 14.1x 14.6x 17.7x 2.2% 1.7%
10.8 43.1 96.7 355.4 1.11 0 21 0.21 18.5x 18.3x 21.9x 19.1x 1.4% 0.9%
8.7 26.1 83.0 156.7 0.56 -0 0.15 15 17.2x 17.5x 19.1x 21.1x 2.7% 2.1%
5.5 11.5 18.9 127.1 0.65 -0 0.45 45 13.7x 17.0x 36.1x 20.3x 4.7% 4.1%
2.8 13.2 19.4 108.9 0.50 -0 0.34 34 15.0x 13.6x 19.2x 14.6x 4.0% 4.4%
10.7 25.6 24.8 197.4 1.28 0 16 0.16 16.4x 16.0x 20.6x 19.0x 2.2% 2.1%
Source: Standard & Poors, Russell Investment Group, FactSet, J.P. Morgan Asset Management. All calculations are cumulative total return, not annualized, including dividends for the stated period. Since Market Peak represents period 10/9/07 12/31/13. Since Market Low represents period 3/9/09 12/31/13. Correlation to Treasury Yields are trailing 2-year monthly correlations between S&P 500 sector price returns and 10-year Treasury yield movements. Forward P/E Ratio is a bottom-up calculation based on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates. Trailing P/E ratios are bottom-up values defined as month-end price divided by the last 12 months of available reported earnings. Historical data can change as new information becomes available. Note that P/E ratios for the S&P 500 may differ from estimates elsewhere in this book due to the use of a bottom-up 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. Correlations to Treasury yields reflect the 10-year Treasury. Past performance is not indicative of future returns. Guide to the Markets U.S.
Weight
S&P Weight
50 0
ol
es
ex
Latest*
15.4x 2.7 10.6 1.6 1.5 2.1%
1-year ago
12.6x 2.1 8.7 1.2 1.3 2.4%
10-year avg.
13.9x 2.5 9.5 1.3 1.7 2.1%
15-year avg.
16.2x 2.9 10.8 1.5 1.6 1.9%
Equities
40x 30x 20x 10x 0x '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
10% 8% 6% 4% 2%
Source: (Top) Standard & Poors, FactSet, Robert Shiller Data, J.P. Morgan Asset Management. Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months. Price to Book is price divided by book value per share. Data post-1992 post 1992 include intangibles and are provided by Standard & Poors Poor s. Price to Cash Flow is price divided by consensus analyst estimates of cash flow per share for the next 12 months. Price to Sales is calculated as price divided by consensus analyst estimates of sales per share for the next 12 months. PEG Ratio is calculated as NTM P/E divided by NTM earnings growth. Dividend Yield is calculated as consensus analyst estimates of dividends for the next 12 months divided by price. All consensus analyst estimates are provided by FactSet. (Bottom left) Cyclically adjusted P/E uses as reported earnings throughout. *Latest reflects data as of 12/31/2013. (Bottom right) Standard & Poors, IBES, Moodys, FactSet, J.P. Morgan Asset Management. Guide to the Markets U.S. Data are as of 12/31/13.
Profit Margins
3Q13*: $26.92
3Q13: 9.6%
Equities
2Q07: $24.06
$23
$19
2% 0%
$15
'93
'95
'97
'99
'01
'03
'05
'07
'09
'11
'13
Total Leverage
S&P 500, ratio of total debt to total equity, quarterly
$11
240% 220%
$7
$3
-$1 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
80% '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
Source: Standard & Poors, Compustat, J.P. Morgan Asset Management. EPS levels are based on operating earnings per share. *Most recently available data is 2Q13 as 3Q13 are Standard & Poors preliminary estimates. Past performance is not indicative of future returns. Guide to the Markets U.S.
Growth broken into revenue, changes in profit margin & changes in share count
Share of EPS Growth Margin Revenue Share count 3Q13 8.0% 3.3% 0.6%
Equities
3Q95
3Q97
3Q99
3Q01
3Q03
3Q05
3Q07
3Q09
3Q11
3Q13
Source: Standard & Poors, Compustat, J.P. Morgan Asset Management. EPS levels are based on operating earnings per share. Most recently available data is 2Q13 as 3Q13 are Standard & Poors preliminary estimates. Past performance is not indicative of future returns. 4Q2008, 1Q2010 and 2Q2010 reflect -101%, 92% and 51% growth in operating earnings, and are adjusted on the chart. Guide to the Markets U.S.
Equities
40% 30% 20% 10% 0% -10% -20% -30% 3 % -40% -50% 4Q95 4Q97 4Q99 4Q01 4Q03 4Q05 4Q07 4Q09 4Q11 4Q13
Source: Standard & Poors, J.P. Morgan Asset Management. Guide to the Markets U.S. Data are as of 12/31/13.
10
Est. impact of a 10pt. rise in sentiment: +2.0 multiple points* Forward P/E
27x 24x 21x 18x
Consumer Sentiment
Equities
15x
12x 9x '14
4Q13: $120.31
$80 $60 $40 $20 $0 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
Source: (Top) Standard & Poors, FactSet, J.P. Morgan Asset Management. (Bottom) Standard & Poors, IBES, J.P. Morgan Asset Management. Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next twelve months. *Estimated impact based on coefficients from regression analysis. Guide to the Markets U.S. Data are as of 12/31/13.
11
Equities
0.6
Positive relationship between yield movements and stock returns
0.4
Correlation Coefficient
0.2
-0.2
Negative relationship between yield movements and stock returns
-0.4
-0.6
12
Corporate Growth
$1,700 $1 600 $1,600 $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 $900
Equities
50%
$30 $27
40%
$24 $21
30%
$18
Share Buybacks
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
$40 $20 $
20%
$15 $
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
13
Source: Standard & Poors, FRB, Bloomberg, FactSet, J.P. Morgan Securities, J.P. Morgan Asset Management. (Top left) Standard & Poors, FactSet, J.P. Morgan Asset Management. (Top right) M&A activity is the quarterly value of deals completed and capital expenditures are for nonfarm nonfinancial corporate business. (Bottom left) Standard & Poors, FactSet, J.P. Morgan Asset Management. (Bottom right) Standard & Poors, Compustat, FactSet, J.P. Morgan Asset Management. Guide to the Markets U.S. Data are as of 12/31/13.
Equities
40%
40%
20%
20%
-20%
-20%
-40%
-40%
14
Source: BEA, FRB, J.P. Morgan Asset Management. Prices are based on the market value of all U.S. corporations and include quarterly dividends. Valuation based on long-term P/E ratio. Note: Orange line denote results of linear regression with R-squared of 0.13 for 1-yr. returns (left) and 0.27 for 5-yr. returns (right). Guide to the Markets U.S. Data are as of 12/31/13.
Returns to peak price after average valuation R t Returns b before f markets k t pass average valuation l ti
Equities
Cheaper
6% 240% 5%
Average: 2.6%
4% 180% 3%
49% 83% 0%
2%
120%
0%
1%
30% 4% 16% 15% 29% 49% 73% 121% 59% 180% 101% 173%
0%
60%
-1%
-2% 63 '63 '68 68 '73 73 '78 78 '83 83 '88 88 '93 93 '98 98 '03 03
More Expensive
'08 08 '13 13
Source: Standard & Poors, J.P. Morgan Asset Management. Guide to the Markets U.S. Valuations are based on real earnings yield for the S&P 500 which is defined as (trailing four quarters of reported earnings/price) - year over year core CPI inflation. Period after average valuation defined by 15-day moving average passing below average real earnings yield. Guide to the Markets U.S.
15
Data as of 12/31/2013
Equities
15
15
12
-10
-8
-9
-8
-8
-6
-6
-5
-20
-30 -34
-40% -50% -60% '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
Source: Standard & Poors, FactSet, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough during the year. For illustrative purposes only. Returns shown are calendar year returns from 1980 to 2013. Guide to the Markets U.S. Data are as of 12/31/13.
-49
16
Equities
Great Depression / World War II Cuban Missile Crisis OPEC Oil Crisis
1987 Crash
Average: 26.9%
90 75 60 45
1.5% 1.0% 0.5% 0.0% '30 '35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 Source: (Top) Empirical Research Partners LLC, Standard & Poors, J.P. Morgan Asset Management. Capitalization weighted correlation of top 750 stocks by market capitalization, daily returns, 1926 Dec. 31, 2013. (Bottom) CBOE, Dow Jones, J.P. Morgan Asset Management. DJIA volatility are represented as three-month moving averages of the daily absolute percentage change in the Dow Jones Industrial Average. Charts shown for illustrative purposes only. Guide to the Markets U.S. Data are as of 12/31/13. '10 30 15 0
17
Components of GDP
Real GDP YoY % chg: QoQ % chg: 50-yr avg. 3Q13 3 1% 3.1% 3.1% 2 2.0% 0% 4.1%
$1,482 bn of output recovered
8%
Econom my
6%
Average: 3 1% 3.1%
4%
2%
$8,000 $6,000
$639 bn of output lost
0%
68.2% Consumption
-2%
$4,000 $2,000
-4% 4%
$0
-6% '63 '68 '73 '78 '83 '88 '93 '98 '03 '08
Source: BEA, FactSet, J.P. Morgan Asset Management. Values may not sum to 100% due to rounding rounding. Quarter over quarter percent changes are at an annualized rate rate. Guide to the Markets U.S. Data are as of 12/31/13.
18
Cyclical Sectors
Light Vehicle Sales
24 22 20 18 16
44 43 42 41 40 39 38
Econom my
'02
'04
'06
'08
'10
'12
37 '94
'96
'98
'00
'02
'04
'06
'08
'10
'12
'14
Housing Starts
Non defense capital goods orders ex. Non-defense ex aircraft, aircraft $ bn bn, seasonally adjusted
Average: 56.2
'02 02
'04 04
'06 06
'08 08
'10 10
'12 12
'96
'98
'00
'02
'04
'06
'08
'10
'12
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.
19
Econom my
20%
120
15% 10% '75 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10
110
Home Inventories
Milli Millions, annuall rate, t seasonally ll adjusted dj t d
4.5
100
4.0 3.5
90
80 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
1.5 '94
Sources: (Left) National Association of Realtors, Standard & Poors, FHFA, FactSet, J.P. Morgan Asset Management. (Top right) Census Bureau, J.P. Morgan Asset Management. Monthly mortgage payment assumes the prevailing 30-year fixed-rate mortgage rates and average new home prices excluding a 20% downpayment. (Bottom right) Census Bureau, National Association of Realtors, J.P. Morgan Asset Management. Guide to the Markets U.S. Data are as of 12/31/13.
20
Consumer Finances
Consumer Balance Sheet
Trillions of dollars outstanding, not seasonally adjusted
$100
Household Debt Service Ratio Debt payments as % of disposable personal income, seasonally adjusted
14%
4Q07: 13 5% 13.5%
13% 12%
Homes: 24%
11%
1Q80: 11.0%
Econom my
10% 9% '80
4Q13*: 10.0%
'85 '90 '95 '00 '05 '10
3Q07: $69,094
$0
'90
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
'12
'14
Source: (Left) FRB, J.P. Morgan Asset Management. Data includes households and nonprofit organizations. (Right) BEA, FRB, J.P. Morgan Asset Management. *4Q13 household debt service ratio and household net worth are J.P. Morgan Asset Management estimates. Values may not sum to 100% due to rounding. Guide to the Markets U.S. Data are as of 12/31/13.
21
Federal Finances
The 2013 Federal Budget
CBO Baseline forecast, trillions USD
$4.0
2013: -4.1%
Forecast
$3.5
Total Spending: $3.5tn Other $359bn (10%) Net Int.: $223bn (6%) Non-defense Non defense Disc Disc.: : $461bn (13%) Defense: $751bn (22%)
-8% -6%
$3.0
-4% -2% 0% 2% 4% '75 '79 '83 '87 '91 '95 '99 '03 '07 '11 '15 '19 '23
Econom my
$2.5
$2.0
Federal Net Debt (Accumulated Deficits) % of GDP, 1975 2023, 2013 CBO Baseline, end of fiscal y year
80% 70% 60%
$1.5
$1.0
$0.5
Forecast
'75
'79
'83
'87
'91
'95
'99
'03
'07
'11
'15
'19
'23
2013 Federal Budget is based on the CBOs May 2013 Baseline Scenario. Other spending includes, but is not limited to, health insurance subsidies, income security, and federal civilian and military retirement. Note: Years shown are fiscal years (Oct. 1 through Sep. 30). 2013 numbers in right hand charts are J.P. Morgan Asset Management estimates. Guide to the Markets U.S.
22
Employment
Civilian Unemployment Rate
Seasonally adjusted
12%
11%
400
Econom my
10%
200
9%
0
8%
-200
7%
6%
5%
-600
4%
-1,000 , '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Source: BLS, FactSet, J.P. Morgan Asset Management.
23
Econom my
40
64% 63%
Quits: 27.0 mm
30
62% '94
20
4% 3%
10
2% 1% 0% '94
0
S Source: BLS, BLS FactSet, F tS t J.P. J P Morgan M A Asset t Management. M t Guide to the Markets U.S. Data are as of 12/31/13.
'96
'98
'00
'02
'04
'06
'08
'10
'12
24
$87,981
16%
14%
Less than High School Degree High School No College Some College College or Greater Nov. 2013: 10.8%
$80,000
+29K
$70,000
Econom my
12%
$60,000
$59,415
10%
8%
$50,000
+27K
$40,000
$32,493
6%
$30,000
% 4%
2%
$10,000
0% '92 '94 '96 '98 '00 '02 '04 '06 Source: BLS, FactSet, J.P. Morgan Asset Management.
Unemployment rates shown are for civilians aged 25 and older. Guide to the Markets U.S.
$0 '08 '10 '12 High School Graduate Bachelor's Degree Advanced Degree
Source: Census Bureau, J.P. Morgan Asset Management.
25
Weight in CPI 15.3% 41.0% 3.6% 16.8% 7.2% 6.0% 6.8% 3 4% 3.4% 100.0%
12-month Change 1.2% 2.1% -0.1% -0.9% 2.2% 0.5% 1.6% 1 6% 1.6% 1.2%
4.2% 4.1%
1.2% 1.7%
12%
Econom my
9%
6%
3%
0%
Energy Food
-3% '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
Source: BLS, FactSet, J.P. Morgan Asset Management.
Core CPI
CPI used is CPI-U and values shown are % change vs. 1 year ago and reflect November 2013 CPI data. CPI component weights are as of December 2012 and 12-month change reflects non-seasonally adjusted data through November 2013. Core CPI is defined as CPI excluding food and energy prices. Guide to the Markets U.S. Data are as of 12/31/13.
26
3Q08: 3.7%
Iraq 3.9%
Iran 3.9%
2%
Econom my
Libya 1.8%
Egypt 0.8%
1%
4Q13*: 2.3%
Sudan 0.1%
Total U.S. Energy Net Imports % of total energy consumption Energy Spending by Income Level
% of after-tax income
30% 25% 35%
EIA forecast
20% 15% 10% 5% 0% '90 '95 '00 '05 '10 '15 '20
Source: (Left) EIA, J.P. Morgan Asset Management. (Top right) BEA, FactSet, J.P. Morgan Asset Management. (Bottom right) EIA, J.P. Morgan Asset Management. Forecasts are from EIA Annual Energy Outlook and start in 2013. *4Q13 drag on growth is a J.P. Morgan Asset Management estimate. *Production numbers as of 2012, while chokepoints are 2011 data. Guide to the Markets U.S.. Data as of 12/31/2013.
27
120
110
Econom my
Average: 85.3
80
70
Mar. 2003 +32.8% Oct. 2005 +14.2% Oct. 1990 +29.1% May 1980 +19.2%
'78 '80 '82
60
50
Sentiment Cycle Low and subsequent 12-month S&P 500 Index return
'84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04
28
2005
EMD 12 3% 12.3% Asset Alloc. 3.5% TIPS 2.8% 8% Treas. 2.8% Muni 2.7% High Yield 2.7% MBS 2.6% Barclays Agg 2.4% Corp. 1.7%
2006
High Yield 11 8% 11.8% EMD 10.0% MBS 5.2% 5 % Asset Alloc. 5.1% Muni 4.7% Barclays Agg 4.3% Corp. 4.3% Treas. 3.1% TIPS 0.4%
2007
TIPS 11 6% 11.6% Treas. 9.0% Barclays Agg 7.0% 0% MBS 6.9% Asset Alloc. 6.4% EMD 5.2% Corp. 4.6% Muni 4.3%
2008
Treas. 13 7% 13.7% MBS 8.3% Barclays Agg 5.2% 5 % Muni 1.5% Asset Alloc. -0.8% TIPS -2.4% Corp. -4.9% EMD -14.7%
2009
2010
2011
TIPS 13 6% 13.6% Muni 12.3% Treas. 9.8% 9 8% Asset Alloc. 9.1% Corp. 8.1% Barclays Agg 7.8% EMD 7.0% MBS 6.2% High Yield 5.0%
2012
EMD 17 9% 17.9% High Yield 15.8% Corp. 9.8% 9 8% Asset Alloc. 7.7% TIPS 7.0% Muni 5.7% Barclays Agg 4.2% MBS 2.6% Treas. 2.0%
2013
High Yield 7 4% 7.4% MBS -1.4% Corp. -1.5% 5% Asset Alloc. -2.0% Barclays Agg -2.0% Muni -2.2% Treas. -2.7% EMD -4.1% TIPS -8.6%
4Q13
High Yield 3 6% 3.6% EMD 1.2% Corp. 1.1% % Asset Alloc. 0.3% Muni -0.1% Barclays Agg -0.1% MBS -0.4% Treas. -0.8% TIPS -2.0%
High Yield High Yield 58 2% 58.2% EMD 34.2% Corp. 18.7% 8 % Asset Alloc. 15.3% TIPS 11.4% Muni 9.9% Barclays Agg 5.9% MBS 5.9% Treas. -3.6% 15 1% 15.1% EMD 12.8% Corp. 9.0% 9 0% Asset Alloc. 7.8% Barclays Agg 6.5% TIPS 6.3% Treas. 5.9% MBS 5.4% Muni 4.0%
Fixed In ncome
Corp. 5.4% MBS 4.7% Barclays Agg 4.3% Muni 4.1% Treas. 3.5%
Source: Barclays Capital, FactSet, J.P. Morgan Asset Management. Past performance is not indicative of future returns. Fixed income sectors shown above are provided by Barclays Capital and are represented by: Barclays Capital U.S. Aggregate Index; MBS: Fixed Rate MBS Index; Corporate: U.S. Corporates; Municipals: Muni Bond 10-Year Index; Emerging Debt: Emerging Markets USD Index; High Yield: Corporate High Yield Index; Treasuries: Barclays Capital U.S. Treasury; TIPS: Barclays Capital TIPS. The Asset Allocation portfolio assumes the following weights: 10% in MBS, 20% in Corporate, 15% in Municipals, 10% in Emerging Debt, 10% in High Yield, 25% in Treasuries, 10% in TIPS. Asset allocation portfolio assumes annual rebalancing. Guide to the Markets U.S.
29
10%
Fixed In ncome
-5% '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
Source: Federal Reserve, BLS, J.P. Morgan Asset Management. Real 10-year Treasury yields are calculated as the daily Treasury yield less year-over-year core inflation for that month except for December 2013, where real yields are calculated by subtracting out November 2013 year-over-year core inflation. All returns above reflect annualized total returns, which include reinvestment of dividends. Corporate bond returns are based on a composite index of investment grade bond performance. Guide to the Markets U.S. Data are as of 12/31/13.
30
+1% -1%
Floating Rate
8,701 784 9,149 4,843 2,147 42 526 1,289 0.86 0.82 0.48 0.48 -0.23 -0.21 -0.29 -0.03 7.6 years 7.8 9.9 10.1 6.6 2.7 -3.4 2.48% 3.26% 3.03% 3.26% 5.64% 1.07% 1.18% 2.05% 1.74% 2.22% 2.01% 2.71% 6.13% 1.84% 0.97% 1.58% -0.14% -2.02% -0.42% -1.41% -0.10% -2.17% 1.11% 3.58% 0.58% -1.53% 7.44% 2.42%
0.1% 3.0% 3.4% 4 2% 4.2% 5.6% 5.6% 6.8% 7.1% 10% 20% 30%
Fixed In ncome
Broad Market MBS Municipals Corporates High Yield Floating Rate Convertibles ABS
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: Fixed Rate MBS Index; Corporate: U.S. Corporates; Municipals: Muni Bond Index; High Yield: Corporate High Yield Index; TIPS: Treasury Inflation Protection Securities (TIPS). Floating Rate: Barclays FRN (BBB); Convertibles: Barclays U.S. Convertibles Composite; ABS: Barclays ABS + CMBS. Treasury securities data for # of issues based on U.S. Treasury benchmarks from Barclays Capital. 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 except Floating Rate which is based on monthly returns from May 2004, due to data availability. Change in bond price is calculated using both duration and convexity according to the following formula: New Price = (Price + (Price * -Duration * Change in Interest Rates))+(0.5 * Price * Convexity * (Change in Interest Rates)^2). *Calculation assumes 2-year Treasury interest rate falls 0.38% 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.
31
Total Return
2013 A + B + C
-2.5% 5-yr.
2013 B
2013 C
1.1%
10-yr.
-9.9%
2.1%
-7.8%
10-yr.
30-yr.
-18.4%
3.3%
-15.0%
30-yr.
10-yr. Muni
-6.5%
4.3%
-2.2%
10-yr. Muni
Fixed In ncome
U.S. HY
-9.3%
9.4%
7.3%
7.4%
U.S. HY
EM (US (USD) )
-9.7% 9.7%
-0.3%
5.9%
-4.1%
EM ( (USD) )
IG Corp.
-9.0%
3.0%
4.4%
-1.5%
IG Corp.
U.S. MBS
-6.3%
1.0%
3.8%
-1.4%
U.S. MBS
U.S. Agg.
-6.2%
1.0%
3.2%
-2.0%
U.S. Agg.
FRN (BBB)
-1.4% 0%
2.4% -10% 0%
-20% -10% 20% -10% 10% 0% 10% -20% Source: Federal Reserve, Barclays, J.P. Morgan Asset Management.
All returns reflect year to date returns. Treasury base, spread, and coupon returns based on Barclays and J.P. Morgan Asset Management estimates. The sum of charts A and B equate to price return for each sector. Indices used include Barclays US Treasury Bellwethers (10Y), Barclays US Aggregate, Barclays US Aggregate Credit Corporate Investment Grade, Barclays US Aggregate Credit Corporate High Yield, Barclays Muni 10-year Index, Barclays US MBS Index, Barclays Floating Rate Index, and Barclays Emerging Markets USD. Guide to the Markets U.S. Data are as of 12/31/13.
32
Money Multiplier
M2 / Monetary Base
10x 9x 8x 7x 6x 5x 4x 3x 2x
Fixed In ncome
$0.0 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
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. Money multiplier defined as M2 divided by the monetary base. Long-term Fed projection is the average of expectations of FOMC members. Other liabilities of the Federal Reserve primarily consist of currency outstanding.
33
Credit Conditions
Lending Standards for Approved Mortgage Loans
Average FICO score based on origination date
760 740 720 700
4%
Delinquency Rates
All banks, seasonally adjusted
12% 10%
8% 6%
8.6%
2.4% % 1.0%
'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
680 660
2% 0%
Fixed In ncome
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
Mortgage Originations
P rchase only, Purchase onl $ bns, bns seasonally seasonall adjusted adj sted
$450 $400
2012: 11.1%
$350 $300 $250 $200 $150 $100 $50 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
10% 8% 6% 4% '34 34 '41 41 '48 48 '55 55 '62 62 '69 69 '76 76 '83 83 '90 90 '97 97 '04 04 '11 11
Average: 7.6%
34
Source: (Top left) McDash, J.P. Morgan Securitized Product Research, J.P. Morgan Asset Management. (Top right) Federal Reserve, FactSet, J.P. Morgan Asset Management. (Bottom left): Federal Reserve, FactSet, J.P. Morgan Asset Management. (Bottom right) FDIC, J.P. Morgan Asset Management. All data reflect most recently available releases. Guide to the Markets U.S. Data are as of 12/31/13.
HY Spreads
15%
10%
5%
0%
Fixed In ncome
'88
'90
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
'12
Historical High Yield Recovery Rates High g y yield e d bo bonds, ds, ce cents ts o on t the e do dollar a
70 60 50 40 30 20 10 0
Annual Flows into High Yield and Leveraged Loan Funds Mutual funds & ETFs, , billions USD YTD 2013: 0 3 $ $70.6bn 0 6b
$80 $70
Average: 40.7
35
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Source (Top chart): U.S. Treasury, J.P. Morgan, Strategic Insight, J.P. Morgan Asset Management. Default rates are defined as the par value percentage of the total market trading at or below 50% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. (Bottom left): J.P Morgan, Fitch, J.P. Morgan Asset Management. (Bottom right): Strategic Insight, J.P. Morgan Asset Management. Spreads indicated are benchmark yield to worst less comparable maturity Treasury yields. 2013 recovery rate is a weighted average number as of December 2013. Yield to worst is defined as the lowest potential yield that can be received on a bond without the issuer actually defaulting and reflects the possibility of the bond being called at an unfavorable time for the holder. Flows include ETFs and are as of November 2013. Past performance is not indicative of comparable future results. Guide to the Markets U.S. Data are as of 12/31/13.
Municipal Finance
Muni Taxable Equivalent 10-Year Yield Taxable equivalent Muni and Treasury yields
12%
3Q13: 9.0%
7% 6% 5%
8%
4% 3%
Fixed In ncome
'90
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
'12
6%
4%
$400bn $300bn
2%
$200bn $100bn $0bn '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Spread
0% '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
Source (Left chart): Barclays Capital, U.S. Treasury, FactSet, J.P. Morgan Asset Management. (Top right) BEA, J.P. Morgan Asset Management. (Bottom right) SIFMA, J.P. Morgan Asset Management. Taxable equivalent yields are calculated for the highest federal marginal tax bracket. 2013 tax rate includes the net investment income tax of 3.8%. *Excludes maturities of 13 months or less and private placements. Interest payments include interest accrued on defined benefit liabilities. 2013 issuance data is as of November 2013. Guide to the Markets U.S.
36
EM: $6tn 12/31/89 61.9% 37.9% 0.1% 9/30/13 42.1% 54.2% 3.7%
$80
$70
2.59% -0.58% -7.99%
$ $60
Fixed In ncome
$50
France Italy Spain Sector EMD ($) EMD (LCL) Euro Corp. Euro HY. EM Corp. 1,214 465 1,388 616 434 0.23 0.05 0.19 -0.36 0.23 5.7 4.8 4.3 3.8 6.3 5.25% 5.69% 2.07% 5.08% 5.60% 313 78 115 328 251 1.17% -0.31% 0.96% 4.00% 1.50% -4.12% 4.60% 11.56% 15.52%
$40
$30
$20
-4.32% 2.37% 9.90% -2.39%
$0 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11
37
Source: Barclays Capital, BIS, FactSet, J.P. Morgan Securities, J.P. Morgan Asset Management. Fixed income sectors shown above are provided by Barclays Capital and are represented by the global aggregate for each country. EMD sectors are represented by Barclays Emerging Markets USD Aggregate Index, Barclays Emerging Market Local Currency Government Index, and JPM CEMBI. European Corporates represent the Barclays Euro Aggregate Credit Corporate Index and the Barclays Pan-European High Yield index. Sector yields reflect yield to worst. Spread is the option adjusted spread to benchmark yields for each respective sector. Duration represents modified duration. Correlations are based on 10-years of monthly returns for the U.S. Aggregate, Japan Aggregate, EMD USD, European Corporates and European High Yield. Correlations for the Barclays Global Aggregate ex U.S. are calculated from December 2006, EMD (LCL) is calculated from August 2008. All other sector correlations are calculated from March 2007. Past performance is not indicative of future results. Current data are as of 12/31/2013 unless otherwise noted. Guide to the Markets U.S. Data are as of 12/31/13.
8% 6% 4% 2%
EMBIG CEMBI
0%
Fixed In ncome
Sovereigns (EMBIG)
Corporates (CEMBI)
0% '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
BB
$15
BB-
$10
B+
$5
B
$0
B-
-$5 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
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 USDdenominated external debt index tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. The J.P. Morgan Corporate Emerging Bond Index (CEMBI) is a USD-denominated external debt index tracking bonds issued by corporations in developing nations. Flow data is as of November 2013. Past performance is not indicative of comparable future results. Index breakdown may not equate to 100% due to rounding. Guide to the Markets U.S. Data are as of 12/31/13.
38
Regions / Broad Indexes U.S. (S&P 500) EAFE Europe ex-U ex U.K. K Pacific ex-Japan Emerging Markets MSCI: Selected Countries United Kingdom France 5.0 4.3 11.3 9.6 3.8 9.0 0.2 15 1.5 7.4 6.2 13.3 2.3 3.8 10.3 -5.5 04 0.4 18.5 22.1 26.7 54.8 4.0 8.6 -3.0 75 7.5 20.7 27.7 32.4 27.3 4.0 -3.8 -15.8 14 1.4 6.4 65 6.5 3.2 3.0 10.5 5.7 82 8.2 0.3 1.9 27.5 24 2 24.2 16.5 3.8 32.4 23.3 28 7 28.7 5.6 -2.3
32.4%
28.7%
Japan
27 3% 27.3%
International
U.K.
20.7%
Earnings
EM -2.3%
Source: Standard & Poors, MSCI, FactSet, J.P. Morgan Asset Management. All return values are MSCI Gross Index (official) data. Multiples and earnings in sources of return calculation based on consensus expectations. Chart is for illustrative purposes only. Past performance is not indicative of future results. Please see disclosure page for index definitions. Guide to the Markets U.S. Data as of 12/31/13.
39
International
Emerging Markets
2 Yrs 10.3%
Germany United Kingdom India U.S. -20% 0% 20% 40% 60% 80% 100% 120% 180%
5 Yrs 5 5% 5.5% 3 Yrs 7.6%
4 Yrs
6.3%
Source: Standard & Poors, MSCI, IMF, FactSet, J.P. Morgan Asset Management. All return values are MSCI Gross Index (official) data. Data assume dividend yields as of 12/31/13 (MSCI EAFE: 2.9% and MSCI EM: 2.5%). Chart is for illustrative purposes only. Past performance is not indicative of future results. Please see disclosure page for index definitions. Guide to the Markets U.S. Data as of 12/31/13.
40
Characteristic
Mar-2000
Index level 1,136 P/E ratio (fwd.) 28.7x Dividend yield 1 4% 1.4% 10-yr. German Bunds 5.3%
1,212
1,136
Dec 31 Dec. 31, 2013 P/E (fwd.) = 13.3x
956
+85%
International
503
518
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
Source: MSCI, FactSet, J.P. Morgan Asset Management. Index I d levels l l are i in l local l currency. Di Dividend id d yield i ld i is calculated l l t d as th the annualized li d di dividend id d rate t di divided id d b by price, i as provided id d b by MSCI. MSCI Forward F dP Price i t to Earnings E i R Ratio ti i is a bottom-up calculation based on the most recent MSCI EAFE Index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates. Returns are cumulative and based on MSCI EAFE Index price movement only, and do not include the reinvestment of dividends. Past performance is not indicative of future returns. Guide to the Markets U.S.
41
International
6% 4% 2% 0% -2% -4% Developed Countries Japan U.S. U.K. Canada Germany France Italy
Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management. Forecast and aggregate data come from J.P. Morgan Global Economic Research. Historical growth data collected from FactSet Economics. Guide to the Markets U.S. Data are as of 12/31/13.
42
Manufacturing Momentum
Global Purchasing Managers Index for Manufacturing
Aug'12 Aug'13 Nov'12 May'12 May'13 Nov'13 Feb'12 Jun'12 Feb'13 Jun'13 Oct'12 Dec'12 Oct'13 Sep'12 Sep'13 Mar'12 Mar'13 Dec'13 Jan'12 Apr'12 Jan'13 Apr'13 Jul'12 Jul'13
Global U.S. Canada U.K. Euro Area G Germ any France Italy Spain Greece Ireland Australia Japan China Indonesia Korea Taiw an India Brazil Mexico Russia
51.0 51.2 51.6 51.3 50.3 49.7 48.8 48.7 48.7 48.9 49.6 50.0 51.5 50.9 51.2 50.4 50.6 50.6 50.8 51.6 51.8 52.1 53.1 53.3 54.3 53.6 56.0 56.0 54.0 52.5 51.4 51.5 51.1 51.0 52.8 54.0 55.8 54.3 54.6 52.1 52.3 51.9 53.7 53.1 52.8 51.8 54.7 55.0 50.6 51.8 52.4 53.3 54.7 54.8 53.0 53.0 52.4 51.4 50.4 50.4 50.5 51.7 49.3 50.1 53.2 52.4 52.0 52.1 54.2 55.6 55.3 53.5 50.8 51.1 52.0 50.2 46.8 48.8 45.5 49.1 48.2 48.0 48.4 50.7 50.9 48.2 49.3 50.6 52.1 53.0 54.7 57.3 56.7 56.5 58.1 57.3 48.8 49.0 47.7 45.9 45.1 45.1 44.0 45.1 46.1 45.4 46.2 46.1 47.9 47.9 46.8 46.7 48.3 48.8 50.3 51.4 51.1 51.3 51.6 52.7 51 0 50.2 51.0 50 2 48.4 48 4 46.2 46 2 45.2 45 2 45.0 45 0 43.0 43 0 44.7 44 7 47.4 47 4 46.0 46 0 46.8 46 8 46.0 46 0 49.8 49 8 50.3 50 3 49.0 49 0 48.1 48 1 49.4 49 4 48.6 48 6 50.7 50 7 51.8 51 8 51.1 51 1 51.7 51 7 52.7 52 7 54.3 54 3 48.5 50.0 46.7 46.9 44.7 45.2 43.4 46.0 42.7 43.7 44.5 44.6 42.9 43.9 44.0 44.4 46.4 48.4 49.7 49.7 49.8 49.1 48.4 47.0 46.8 47.8 47.9 43.8 44.8 44.6 44.3 43.6 45.7 45.5 45.1 46.7 47.8 45.8 44.5 45.5 47.3 49.1 50.4 51.3 50.8 50.7 51.4 53.3 45.1 45.0 44.5 43.5 42.0 41.1 42.3 44.0 44.5 43.5 45.3 44.6 46.1 46.8 44.2 44.7 48.1 50.0 49.8 51.1 50.7 50.9 48.6 50.8 41.0 37.7 41.3 40.7 43.1 40.1 41.9 42.1 42.2 41.0 41.8 41.4 41.7 43.0 42.1 45.0 45.3 45.4 47.0 48.7 47.5 47.3 49.2 49.6 48.3 49.7 51.5 50.1 51.2 53.1 53.9 50.9 51.8 52.1 52.4 51.4 50.3 51.5 48.6 48.0 49.7 50.3 51.0 52.0 52.7 54.9 52.4 53.5 51.6 51.3 49.5 43.9 42.4 47.2 40.3 45.3 43.0 42.8 44.3 44.3 40.2 45.6 44.4 36.7 43.8 49.6 42.0 46.4 51.7 53.2 47.7 47.6 50.7 50.5 51.1 50.7 50.7 49.9 47.9 47.7 48.0 46.9 46.5 45.0 47.7 48.5 50.4 51.1 51.5 52.3 50.7 52.2 52.5 54.2 55.1 55.2 48.8 49.6 48.3 49.3 48.4 48.2 49.3 47.6 47.9 49.5 50.5 51.5 52.3 50.4 51.6 50.4 49.2 48.2 47.7 50.1 50.2 50.9 50.8 50.5 48.5 50.6 50.8 50.5 48.1 50.2 51.4 51.6 50.5 51.9 51.5 50.7 49.7 50.5 51.3 51.7 51.6 51.0 50.7 48.5 50.2 50.9 50.3 50.9 49.2 50.7 52.0 51.9 51.0 49.4 47.2 47.5 45.7 47.4 48.2 50.1 49.9 50.9 52.0 52.6 51.1 49.4 47.2 47.5 49.7 50.2 50.4 50.8 48 9 52.7 48.9 52 7 54.1 54 1 51.2 51 2 50.5 50 5 49.2 49 2 47.5 47 5 46.1 46 1 45.6 45 6 47.8 47 8 47.4 47 4 50.6 50 6 51.5 51 5 50.2 50 2 51.2 51 2 50.7 50 7 47.1 47 1 49.5 49 5 48.6 48 6 50.0 50 0 52.0 52 0 53.0 53 0 53.4 53 4 55.2 55 2 57.5 56.6 54.7 54.9 54.8 55.0 52.9 52.8 52.8 52.9 53.7 54.7 53.2 54.2 52.0 51.0 50.1 50.3 50.1 48.5 49.6 49.6 51.3 50.7 50.6 51.4 51.1 49.3 49.3 48.5 48.7 49.3 49.8 50.2 52.2 51.1 53.2 52.5 51.8 50.8 50.4 50.4 48.5 49.4 49.9 50.2 49.7 50.5 52.2 53.7 53.8 56.3 55.2 55.9 55.2 55.1 54.4 55.5 55.6 57.1 55.0 53.4 52.2 51.7 51.8 51.3 49.7 50.8 50.0 50.2 51.9 52.6 50.8 50.7 50.8 52.9 53.2 51.0 52.0 51.0 52.4 52.9 52.2 50.0 52.0 52.0 50.8 50.6 50.4 51.7 49.2 49.4 49.4 51.8 49.4 48.8
International 43
Source: Markit, Markit J.P. J P Morgan Asset Management Management. Heatmap colors are based on PMI relative to the 50 level, which indicates acceleration or deceleration of the sector, for the time period shown. Guide to the Markets U.S. Data are as of 12/31/13.
S. Africa
Turkey
Chile
Hungary
International
Korea
Singapore
Taiwan
Thailand 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6%
20%
25%
30%
35%
40%
44
Source: IMF, MacData, J.P. Morgan Securities, J.P. Morgan Asset Management. Values may not sum to 100% due to rounding. (Right chart) Assumes a 1% increase in GDP growth from Japan, Europe, and the U.S., and estimates a reaction function through a multistage regression measuring emerging market economies sensitivity to export volumes. Developed market imports are used as a proxy for developed demand and estimated from a 1% pick up in domestic GDP. Increases in industrial production are estimated while controlling for emerging market domestic demand in order to limit feedback loops and isolate the impulse from developed market demand only. The sample period tested ranges between 1993 and 2013 reflecting quarterly data. Guide to the Markets U.S. Data are as of 12/31/13.
35%
30%
25%
$20,000
International
China
20%
55%
65%
75%
85%
95%
Urbanization Ratio
Source: FactSet, United Nations, J.P. Morgan Global Economics Research, J.P. Morgan Asset Management. Share of global consumption data are as of 2012 2012. Guide to the Markets U.S. Data are as of 12/31/13.
45
Includes companies with market value greater than $1bn and 2013 GDP
162% 141%
Population
150%
49%
39%
38%
33%
22%
International
0.18%
0.14%
0.08%
0.08%
0.06%
0.01%
Brazil
India
Source: IMF, J.P. Morgan Global Economics Research, FactSet, EMPEA (Emerging Markets Private Equity Association), J.P. Morgan Asset Management. Number of listed companies excludes secondary listings, non-equity securities, and companies with market capitalization of less than $1 billion. Guide to the Markets U.S.
46
China (Mainland)
3%
Hungary
Korea
-8%
0%
4% Taiwan
20% 8%
Singapore Russia -7% Chile Colombia Thailand Philippines -12% 12% India Brazil Malaysia
International
Turkey
Source: IMF World Economic Outlook, FactSet, J.P. Morgan Asset Management. Current accounts as a percentage of GDP are IMF estimates for 2013. Guide to the Markets U.S. Data reflect most recently available as of 12/31/13.
47
10% Indonesia
6%
Malaysia 5%
4%
Russia
Australia
India Turkey Mexico Singapore Japan Brazil South Africa Germany U.K. U.S.
2%
Korea
France
0%
EU Italy
-2%
International
-4%
-6%
100%
120%
140%
160%
180%
245% 200%
Source: IMF, FactSet, Bloomberg, J.P. Morgan Economics, Barclays, J.P. Morgan Asset Management. Growth and debt data are based on the October 2013 World Economic Outlook. Borrowing costs based on local currency debt. EU overall borrowing cost based on Barclays Capital Euro-Aggregate 7-10 year treasury. South Africas borrowing cost is based on 7-year government bond yield due to data availability. Guide to the Markets U.S.
48
Data as of 12/31/13.
40%
Bank of Japan
30% 20%
2% 1% 0%
Inflation Rate
International
South Africa
Indonesia
Russia
Thailand
Colombia
Hong Kong
Australia
Canada
Mexico
Taiwan
Euro area
Poland
Turkey
Japan
Korea
China
India
-5.0%
U.K.
U.S.
Developed Markets
Emerging Markets
49
Source: J.P. Morgan Global Economics Research, J.P. Morgan Asset Management. (Top charts) Emerging and Developed Economy GDP growth and real policy rates represent GDP weighted aggregates estimated by J.P. Morgan Global Economics Research. (Bottom chart) Target policy rates are the short-term target interest rates set by central banks. Inflation rates shown represent year-over-year quarterly rates for 4Q13. Real policy rates are short-term target interest rates set by central banks minus year-over-year inflation. Guide to the Markets U.S. Data are as of 12/31/13.
Brazil
% of GDP, fiscal drag = reduction in deficits from one period to the next
7%
7%
2010-2013 2013-2016
7.3%
5%
5%
4%
4%
U.S.
3% '70 '75 '80 '85 '90 '95 '00 '05 '10
4% 3% 3% 3%
4% 3% 2% 3% 3% 2% 2%
Europe Inflation
Y Year-over-year % change h
5% 4%
Headline CPI Core CPI
3%
1.7%
1.1%
2.1%
0.9%
2%
International
1% 1%
1%
1%
0%
Source: Eurostat, OECD, FactSet, IMF, J.P. Morgan Asset Management. Government deficits calculated by the IMF as general government net lending/borrowing (revenue minus total expenditure). Data are based on the October 2013 World Economic Outlook. Unemployment rates are OECD estimates as of September 2013. Guide to the Markets U.S. Data are as of 12/31/13.
50
Euro launch
30%
25%
20%
LTRO
15%
OMT
International
10%
5%
51
Nikkei 225
7%
Owners of Japanese Gov. Bonds Bank of Japan 13% Other Domestic 79% Foreign 8%
90 80 70 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
5%
8,000 6,000
3%
IMF forecast
1%
Internatio onal
-1%
-2%
Core CPI
0% 2%
-3% '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13
4% '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Source: (Left) Bank of Japan, OECD, IMF, FactSet, J.P. Morgan Asset Management. (Right) FactSet, J.P. Morgan Asset Management. Core CPI is defined as CPI excluding fresh food. Other Domestic includes banks (34%), insurance and pensions (23%), public pensions (7%), households (3%), and others (11%). Values may not sum to 100% due to rounding. Government bond data is calculated from the Bank of Japans June 2013 flow of funds. Guide to the Markets U.S.
52
Investment Consumption
9.1%
35%
Net Exports
30%
9 3% 9.3%
12%
10.4% 9 6% 9.6%
7.8%
20%
3.9%
15%
4% 4.2% 4.6% 0 9% 0.9% 4.5% 5.2%
10%
4.1%
Internatio onal
0%
5%
0%
-5% '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
53
Source: National Bureau of Statistics of China, The Peoples Bank of China, EM Advisors Group, FactSet, CEIC, J.P. Morgan Asset Management. Values may not sum to 100% due to rounding. *As defined by Total Social Financing: RMB bank loans (61%), bankers acceptance bills (-9%), trust loans (8%), entrusted loans (17%), corporate bond financing (18%), foreign currency loans (3%), and non-financial equity financing (2%). TSF data uses an assumption of outstanding credit in Dec. 2001. Guide to the Markets U.S. Data are as of 12/31/13.
Europe ex exU.K. 16% United States 48% U.K. 8% Emerging Markets 11% Japan 8%
International
10% 8% 6% 4% 2% 0% '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
Source: MSCI, IMF, FactSet, J.P. Morgan Asset Management.
Canada 2%
54
Share of global market capitalization is based on float adjusted MSCI data. Share of global GDP based on purchasing power parity (PPP) as calculated by the IMF for 2013. Definition of emerging markets is based on MSCI and IMF data sources. Percentages may not sum to 100% due to rounding. Guide to the Markets U.S. Data as of 12/31/13.
Other 19%
Korea 16%
Commodities 21%
International
33% 60%
17%
20%
Source: MSCI, FactSet, J.P. Morgan Asset Management. Other is comprised of Healthcare, Industrials, Telecom, and Utilities sectors. *Mexican Telecom sector accounts for 19% of the countrys market capitalization. Values may not sum to 100% due to rounding.
55
Example Expensive relative to world Expensive relative to own history Cheap relative to own history
World (ACWI)
EAFE Index
France
U.K.
Current Com posite Index World (ACWI) EAFE Index France U.K. Germ any A t li Australia Canada Japan Sw itzerland United States 0.39 -0.45 -1.13 -0.53 -0.51 -0.05 0 05 -0.02 0.66 0.82 1.99
Current Fw d. d P/E 13.8 13.3 12.5 12.3 12.5 13 7 13.7 14.2 14.1 14.6 15.4 P/B 2.0 1.7 1.5 1.9 1.7 20 2.0 1.9 1.4 2.5 2.7 P/CF 8.6 7.9 6.8 8.5 7.2 10 4 10.4 8.0 7.8 9.7 10.1 Div Yld Div. Yld. 2.5% 3.1% 3.4% 3.6% 2.7% 4 5% 4.5% 2.9% 1.7% 3.0% 1.9% Fw d. d P/E 13.1 12.6 11.3 11.5 11.2 13 4 13.4 13.7 16.5 13.3 14.0
10-year avg. P/B 2.0 1.7 1.6 1.5 2.0 22 2.2 2.1 1.4 2.4 2.5 P/CF 7.4 6.6 5.8 5.5 7.6 94 9.4 8.6 6.4 9.6 8.6 Div Yld Div. Yld. 2.5% 3.1% 3.3% 3.0% 3.7% 4 3% 4.3% 2.2% 1.5% 2.6% 1.9%
Internatio onal 56
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 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 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 12/31/13.
+5 Std Dev +4 Std Dev +3 3 Std D Dev +2 Std Dev +1 Std Dev Average -1 Std Dev -2 Std Dev 3 Std Dev -3 -4 Std Dev -5 Std Dev
Russia China
Brazil Thailand
Taiwan Korea
Current
Mexico
10-year avg.
World (ACWI) EM Index Russia China Brazil Thailand Taiw an Korea South Africa Indonesia India M i Mexico
Current Com posite Index 0.39 -1.38 -4.16 -2.24 -1.72 -1.10 -0.30 0.59 0.84 0.98 2.98 3 10 3.10
F d. Fw d P/E 13.8 10.2 4.8 9.0 10.0 11.3 14.2 8.6 13.5 12.4 14.1 17 8 17.8
P/B 2.0 1.5 0.7 1.5 1.4 1.9 1.8 1.1 2.5 3.0 2.7 28 2.8
P/CF 8.6 6.0 3.0 4.6 6.8 6.6 7.1 5.1 11.1 10.3 12.5 95 9.5
Di Yld Div. Yld. 2.5% 2.7% 4.2% 3.3% 3.6% 3.5% 3.0% 1.0% 3.1% 2.8% 1.5% 1 5% 1.5%
F d. Fw d P/E 13.1 11.1 7.9 12.0 9.9 10.7 14.0 9.4 11.2 12.2 15.3 14 1 14.1
P/B 2.0 1.9 1.4 2.1 1.9 2.0 1.9 1.5 2.4 3.4 3.2 28 2.8
P/CF 7.4 6.2 4.9 7.2 5.5 6.7 6.8 4.8 8.5 9.7 12.7 74 7.4
Di Yld Div. Yld. 2.5% 2.7% 2.1% 2.6% 3.2% 3.6% 3.6% 1.6% 3.2% 2.8% 1.3% 1 8% 1.8%
Internatio onal 57
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 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 12/31/13.
2005
MS CI EME 34.5% DJ UBS Cmdty 2 1. 4 % MS CI EAFE 14 . 0 % REITs 12 . 2 % Asse t Alloc . 8.3% Ma rke t Ne utra l 6 . 1% S &P 500 4.9% Russe ll 2000 4.6% Ca sh 3.0% Ba rc la ys Agg 2.4%
2006
REITs 3 5 . 1% MS CI EME 32.6% MS CI EAFE 26.9% Russe ll 2000 18 . 4 % S &P 500 15 . 8 % Asse t Alloc . 15 . 2 % Ma rke t Ne utra l 11. 2 % Ca sh 4.8% Ba rc la ys Agg 4.3% DJ UBS Cmdty 2 . 1%
2007
MS CI EME 39.8% DJ UBS Cmdty 16 . 2 % MS CI EAFE 11. 6 % Ma rke t Ne utra l 9.3% Asse t Alloc . 7.4% Ba rc la ys Agg 7.0% S &P 500 5.5% Ca sh 4.8% Russe ll 2000 - 1. 6 % REITs - 15 . 7 %
2008
Ba rc la ys Agg 5.2% Ca sh 1. 8 % Ma rke t Ne utra l 1. 1% Asse t Alloc . - 24.0% Russe ll 2000 - 33.8% DJ UBS Cmdty - 35.6% S &P 500 - 37.0% REITs - 37.7% MS CI EAFE - 4 3 . 1% MS CI EME - 53.2%
2009
MS CI EME 79.0% MS CI EAFE 32.5% REITs 28.0% Russe ll 2000 27.2% S &P 500 26.5% Asse t Alloc . 22.2% DJ UBS Cmdty 18 . 9 %
2010
REITs 27.9% Russe ll 2000 26.9% MS CI EME 19 . 2 % DJ UBS Cmdty 16 . 8 % S &P 500 15 . 1% Asse t Alloc . 12 . 5 % MS CI EAFE 8.2%
2011
REITs 8.3% Ba rc la ys Agg 7.8% Ma rke t Ne utra l 4.5% S &P 500 2 . 1% Ca sh 0 . 1% Asse t Alloc . - 0.6% Russe ll 2000 - 4.2% MS CI EAFE - 11. 7 % DJ UBS Cmdty - 13 . 3 % MS CI EME - 18 . 2 %
2012
REITs 19 . 7 % MS CI EME 18 . 6 % MS CI EAFE 17 . 9 % Russe ll 2000 16 . 3 % S &P 500 16 . 0 % Asse t Alloc . 11. 3 % Ba rc la ys Agg 4.2% Ma rke t Ne utra l 0.9% Ca sh 0 . 1% DJ UBS Cmdty - 1. 1%
2013
Russe ll 2000 38.8% S &P 500 32.4% MS CI EAFE 23.3% Asse t Alloc . 14 . 9 % Ma rke t Ne utra l 7.9% REITs 2.9% Ca sh 0.0%
4Q13
S &P 500 10 . 5 % Russe ll 2000 8.7% MS CI EAFE 5.7% Asse t Alloc . 4.6% Ma rke t Ne utra l 3.8% MS CI EME 1. 9 % Ca sh 0.0%
Ba rc la ys Ba rc la ys Agg Agg - 2.0% - 0 . 1% MS CI EME - 2.3% DJ UBS Cmdty - 9.5% REITs - 0.2% DJ UBS Cmdty - 1. 1%
Ba rc la ys Ba rc la ys Agg Agg 56.0% 4.5% Ca sh 17 . 1% DJ UBS Cmdty 9.0% Ca sh 1. 6 % DJ UBS Cmdty 0.9%
Asset Class
Ba rc la ys Agg 4.3% Ca sh 1. 2 %
58
Source: Russell, Russell MSCI, MSCI Dow Jones, Jones Standard & Poor Poors s, Credit Suisse, Suisse Barclays Capital, Capital NAREIT NAREIT, FactSet, FactSet J J.P. P Morgan Asset Management 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 EMI, 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 DJ UBS 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 12/31/13, except for the CS/Tremont Equity Market Neutral Index, which reflects data through 11/30/13. 10-yrs returns represent period of 1/1/04 12/31/13 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 12/31/13.
Cmdty. 0 30 0.30 0.20 0.09 -0.17 0.11 -0.26 -0.39 0.05 1.00
REITs 0 77 0.77 0.70 0.62 0.03 0.71 0.09 -0.47 0.65 0.49 1.00
Asset Class
Eq Market Neutral*
59
Data as of 12/31/13.
2005
P riva te q y Equity 28.3% G loba l Equity 17 . 4 % Re a l Esta te 13 . 7 % Distrsd. 10 . 4 % HF Agg. 9 . 1% MLP s 6.3% Eq. Mkt. Ntrl. 6 . 1% G lb. Ma c ro 6 . 1% Mrgr. Arb. 5.5% Re l. V a l.
2006
Re a l Esta te 35.6% P riva te Equity 28.7% MLP s 2 6 . 1% G loba l Equity 17 . 0 % Distrsd. 15 . 3 % Mrgr. Mrgr Arb. 14 . 6 % HF Agg. 13 . 3 % Re l. V a l. 12 . 2 % G lb. Ma c ro 8.2% Eq. Mkt. Ntrl. 7.0%
2007
P riva te q y Equity 19 . 7 % MLP s 12 . 7 % G lb. Ma c ro 11. 4 % HF Agg. 11. 0 % Re l. V a l. 10 . 0 % Mrgr. Mrgr Arb. 8.9% G loba l Equity 7.7% Distrsd. 6.8% Eq. Mkt. Ntrl. 5.7% Re a l Esta te - 16 . 3 %
2008
G lb. Ma c ro 4.7% Eq. Mkt. Ntrl. - 3.0% Mrgr. Arb. - 6.7% Re l. V a l. - 17 . 3 % HF Agg. - 18 . 7 % Distrsd. - 22.3% P riva te Equity - 22.4% MLP s - 36.9% Re a l Esta te - 37.3% G loba l Equity - 39.2%
2009
MLP s 76.4% G loba l Equity 30.0% Re a l Esta te 27.6% Re l. V a l. 23.0% Distrsd. 20.2% HF Agg. 18 . 6 % P riva te Equity 13 . 4 % Mrgr. Arb Arb. 11. 9 % G lb. Ma c ro 6.9% Eq. Mkt. Ntrl. - 1. 1 7%
2010
MLP s 35.9% Re a l Esta te 26.7% P riva te Equity 2 1. 0 % Re l. V a l. 12 . 5 % Distrsd. 12 . 2 % G loba l Equity 11. 1% HF Agg. 8.5% Mrgr. Arb Arb. 4.6% G lb. Ma c ro 3.2% Eq. Mkt. Ntrl. 2.5%
2011
MLP s 13 . 9 % P riva te Equity 10 . 5 % Re a l Esta te 9.4% Mrgr. Arb. 2.3% Re l. V a l. 0.8% Distrsd. 0.0% G lb. Ma c ro - 0.7% Eq. Mkt. Ntrl Ntrl. - 1. 5 % HF Agg. - 2.0% G loba l Equity - 6.0%
2012
Re a l Esta te 18 . 0 % G loba l Equity 16 . 5 % P riva te Equity 13 . 8 % Re l. V a l. 9.7% Distrsd. 8.5% MLP s 4.8% HF Agg. 4.4% Eq. Mkt. Ntrl Ntrl. 3 . 1% Mrgr. Arb. 1. 8 % G lb. Ma c ro - 1. 1 3%
2013
MLP s 27.6% G loba l Equity 26.2% Distrsd. 15 . 0 % HF Agg. 9.8% Re l. V a l. 7.4% Eq. Mkt. Eq Mkt Ntrl. 6.4% Mrgr. Arb. 5.4% G lb. Ma c ro 0.6% Re a l Esta te - 0.5% P riva te Equity -
4Q13
G loba l q y Equity 7.9% MLP s 5.3% Distrsd. 4.5% HF Agg. 4.3% Eq. Mkt. Ntrl. 2.7% Re l. V a l. 2.6% Mrgr. Arb. 1. 8 % G lb. Ma c ro 1. 6 % Re a l Esta te - 1. 3 % P riva te Equity -
Ann. Return
P riva te q y Equity 15 . 1% MLP s 15 . 0 % Re a l Esta te 8.5% Distrsd. 7.7% G loba l Equity 7.3% Re l. V a l. 6.5% HF Agg. 5.8% Mrgr. Arb Arb. 5 . 1% G lb. Ma c ro 4.6% Eq. Mkt. Ntrl. 2.7%
Ann. Volatility
Re a l Esta te 25.4% MLP s 18 . 2 % G loba l Equity 16 . 0 % P riva te Equity 10 . 4 % Distrsd. 9.6% HF Agg. 7.9% Re l. V a l. 6.7% G lb. Ma c ro 4.9% Eq. Mkt. Ntrl. 3.7% Mrgr. Arb. 3.6%
Asset Class
60
5.3% Source: Standard & Poors, Alerian, HFRI, MSCI, Cambridge Associates, NAREIT, FactSet, J.P. Morgan Asset Management. Hedge fund indices include distressed and restructuring (Distrsd.), relative value (Rel. Val.), global macro (Glb. Macro), merger arbitrage (Mrger. Arb.), equity market neutral (Eq. Mkt. Ntrl.), and the aggregate (HF Agg.). 4Q13 and 2013 private equity data is unavailable and provided by Cambridge Associates. Real estate returns reflect the NAREIT Real Estate 50 Index and global equity returns reflect the MSCI AC World Index. Annualized volatility and returns are calculated from quarterly data between 1/1/04 and 12/31/13, except for private equity which represents 1/1/03 12/31/12. Please see disclosure pages for index definitions. Guide to the Markets U.S. Data are as of 12/31/13.
Nov 13: $1,346 billion into bond funds and fixed income ETFs since 07 07
Equity flows exceeded bond flows by $41 billion in Nov. Nov 2013
Asset Class
Bonds Stocks
'09 '10 '11
Nov. 13: $498 billion into stock funds and equity ETFs since 07
'12
'13
Dec '09
Oct '10
g '11 Aug
Jun '12
Apr p '13
61
Source: Investment Company Institute, J.P. Morgan Asset Management. Data include flows through November 2013 and exclude ETFs except for the bottom left chart. ICI data are subject to periodic revisions. World equity flows are inclusive of emerging market, global equity and regional equity flows. Hybrid flows include asset allocation, balanced fund, flexible portfolio and mixed income flows. Guide to the Markets U.S. Data are as of 12/31/13.
REIT Yields
Major world markets markets, annualized
10-year government bond yield
3.5%
7% 6%
5.8% 5.8% 5.9% 5.6%
4%
3.2%
5%
2.8% 2.9% 2 4% 2.4%
3%
4.1%
4%
1.7%
Asset Class
2%
1.9%
3% 2%
1% 1% 0%
U.S. Australia France U.K. Switzerland Canada ACWI Japan
0%
U.S.
Australia
Singapore
Canada
France
Japan
Global
U.K.
Source: (Top chart) Standard & Poors, Ibbotson, J.P. Morgan Asset Management. (Bottom left) FactSet, NAREIT, J.P. Morgan Asset Management. Dividend vs. capital appreciation returns are through 12/31/12. Yields shown are that of the appropriate FTSE NAREIT REIT index, which excludes property development companies. (Bottom right) FactSet, MSCI, J.P. Morgan Asset Management. Yields shown are that of the appropriate MSCI index. Guide to the Markets U.S. Data are as of 12/31/13.
62
Global Commodities
Commodity Prices
Weekly index prices rebased to 100
450
Gold Prices
$ / oz
Precious Metals
$3,000 $2,500
400
$2,000 $1,500
350
Industrial Metals
300
$1,000 , $500 $0
250
'75
'80
'85
'90
'95
'00
'05
'10
Energy
Year-over-year % chg.
8% 6%
150
Grains
4% 2% 0%
100
Asset Class
50
Livestock
-2% -4%
0 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
-40% -60%
-6% '94
Source: Dow Jones/UBS, EcoWin, BLS, U.S. Department of Energy, FactSet, J.P. Morgan Asset Management. CPI adjusted gold values are calculated using 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 on nominal prices. Commodity prices represented by the appropriate DJ/UBS Commodity sub-index. Guide to the Markets U.S.
63
16% 17%
14% 5%
Stocks
Asset Class
-30% -40%
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 from 1950-2013. Guide to the Markets U.S.
64
26%
8% 8%
4%
13% 9%
22%
Asset Class
6.3%
2.7%
2.5%
2.3%
Bonds
Homes
Inflation
65
Average Investor
Cash Accounts
Annual Income Generated by $100,000 Investment in a 6-month CD
$10,000 $8,000 , $6,000 $4,000 $2,000 $0
$ Billions
2013*: $270
Retail MMMFs
645
6.0%
Savings deposits
'90 '95 '00 '05 '10
7,138
66.1%
540
5.0%
1,794
16.6%
16%
677
6.3%
Asset Class
12%
Total
10,793
100.0%
66
'00 '02 '04 '06 '08 '10 '12 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. Small denomination time deposits are those issued in amounts of less than $100 Small-denomination $100,000. 000 All IRA and Keogh account balances at commercial banks and thrift institutions are subtracted from small time deposits. Annual income is for illustrative purposes and is calculated based on the 6-month CD yield on average during each year and $100,000 invested. *2013 average income is through June 2013. IRA and Keogh account balances at money market mutual funds are subtracted from retail money funds. Past performance is not indicative of comparable future results. Guide to the Markets U.S. Data are as of 12/31/13.
Trillions ($)
110% 100% %
$2.0
Liabilities ($)
90% 80%
Assets ($)
$1.5 70%
60%
Fixed Income
Hedge Funds
20.1% 4.0% 15 9% 15.9% 2.0% 17.7% $1.0 '07 '08 '09 '10 '11 '12 '13 Est. 50%
Private Equity
30%
% of Comp panies
Real Estate
20% 13% 9% 5% 7% 3% 0% 0% 0%
20% 10% 10% 0% 0% < 6% 6 to 6.5 to 7 to 7.5 to 8 to 8.5 to 9 to 9.5 to > 10% 6.5% 6 5% 7% 7 7.5% 5% 8% 8 8.5% 5% 9% 9 9.5% 5% 10% 1% 6% 1% 1% 12%
Asset Class
Other
Cash
% of total
50% 60%
Return Assumption
67
Source: NACUBO (National Association of College and University Business Officers), Towers Watson, Compustat/FactSet, J.P. Morgan Asset Management. Asset allocation as of 2012. Funded status for 2013 estimated using 2013 market returns. Endowments represents dollar-weighted average data of 842 colleges and universities. Pension Return Assumptions based on all available and reported data from S&P 500 Index companies. Pension Assets, Liabilities and Funded Status based on Russell 3000 companies reporting pension data. Return assumption bands are inclusive of upper range. All information is shown for illustrative purposes only. Guide to the Markets U.S. Data are as of 12/31/13.
68
69
70
JP-LITTLEBOOK U ess ot Unless otherwise e se stated, all a data are a e as of o December ece be 31, 3 , 2013 0 3 or o most ost recently ece t y available. Guide to the Markets U.S.
71