《市场解读》：乐观积极，莫忘警惕

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A blonde woman with a light suit and stylish scarf, Nancy Rooney, sits in a comfortable office and speaks to the viewer.

Ms. Rooney:

Hello and welcome. As we prepare to enter 2020, I invite you to join me for a conversation with our Chief Investment Officer, Richard Madigan, on what lies ahead.

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J.P.Morgan.

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February 2020. Market Thoughts: Guarded Optimism.

On screen:

Nancy sits in the office across from a man with salt-and-pepper hair in a business suit, with his top button casually undone, Richard Madigan. She gestures slightly with her hands as she begins the conversation.

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Nancy Rooney, Global Head of Managed Solutions. J.P. Morgan Private Bank.

Ms. Rooney:

So last year was a very strong year in terms of performance, and we saw portfolios ranging from conservative all the way to growth return something between 13 to almost 22 percent for that stock/bond blend. And yet, I think there were a lot of folks who actually pulled money out of equity markets. Almost $250 billion came out. Yet you kept your overweight and you kept it through the whole year. And so the question is, what’s your conviction now in that overweight?

Text on screen:

Richard Madigan, Chief Investment Officer, J.P. Morgan Private Bank.

Mr. Madigan:  

That’s an easy question to answer: high conviction. We’re active managers. So I show up every day with the team, look at portfolio positions, think about risk, think about whether we want to dial things up or down. We do that so clients don’t have to. We’re still pro-cyclically positioned in portfolios. So at a high level, I’m overweight stocks versus bonds. And within stocks, I’m overweight still the U.S. equity market. And I feel good about that. I think over the last three months, four months, the biggest focus for me has been making sure, given where we are—not only in the cycle but also valuations—that we’re appropriately diversifying risk, and not overreaching or concentrating risk right now in markets.

Ms. Rooney:

Let’s talk about expectations…for a second, because I think there was an element of 2019’s returns… Where global equity markets were up almost 28 percent. That was payback for 2018. But are we also borrowing from future returns? And so if I’m a client and I’m invested, should I lower my expectations?

Mr. Madigan: 

Temper expectations if you’re only looking at 2019. And I want anchor on something you said, Nancy. You can’t look at 2019 extraordinary performance without recognizing 2018 and the collapse we saw in risk assets toward the end of that year. Blend the two together, and you’ve got a reasonable approximation of what I think is fair value and reasonable returns.

On screen:

A bar chart appears titled "Risk assets bounced back last year." It shows 2018 Total Returns with: DM equities at about -8%, EM equities at about -15%, US High Yield Bonds at about -3%, and Global Bonds at about 2%. It shows 2019 Total Returns with: DM equities at about 27%, EM equities at about 18%, US High Yield Bonds at about15%, and Global Bonds at about 10%.

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Source: Bloomberg. Data as of December 2019. DM equities = MSCI World Index, Global bonds = Bloomberg-Barclays Global Aggregate Bond Index, EM equities = MSCI Emerging Markets Index,

and US high yield bonds = JPMorgan Domestic High Yield Index. Past performance is not a reliable indicator of future results.

Mr. Madigan: 

The pulling-forward dynamic is an interesting question because to me what carried equity markets last year were valuations. It wasn’t earnings. And that’s got to reverse this year. So my expectation is for global earnings, we see five to six percent growth. Maybe some upside around that, and that comes from buyback activity. Tack on two percent for dividends, and as a base case, thinking that we see high single digit returns across global equity markets.

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2020 Global Equity Return Expectations*: Global Earnings – 5-6%. Dividends and Buyback Activity – 2-4%. High Single Digits. *: Base case.

Ms. Rooney: 

So in a kind of way a reverse of last year, where multiples stay somewhat similar to where they are now. But it’s earnings that grow. This is an election year. And with every tweet and with every comment… We’re seeing markets move. You also have overweights to some what I would call politically sensitive types of sectors like healthcare is one. And so how do you navigate this type of an environment where there are so many comments that come out that move markets?

Mr. Madigan: 

Carefully. I’m a fundamental…investor. So I focus much more on the macro environment, the market environment, what we’re thinking is happening in fiscal monetary policy default risk, and then valuation whether on an absolute or relative basis. Healthcare is an interesting observation because to me those were positions that we held to be a little bit more defensive in the portfolio last year. We actually trimmed them back coming into this year with the expectation that headlines are going to stay noisy. But I want to separate noise from market resistance, and I think there’s a great deal of noise ahead of us. It’s opportunity to me. So that’s a tactical opportunity, again, to step into risk and then to hopefully step back from risk at the right point around it. Politics isn’t going away.  The one word of caution I think I’d lend to anyone especially around the U.S. election—we’re very early in this race. We don’t even know who the two candidates are going to be. So paying attention to the political policy rhetoric right now is important. Positioning a portfolio ahead of that and way ahead of November elections I just think is a little presumptuous.

Ms. Rooney: 

A lot has been written and talked about in the space of environmental and social responsibility. In fact, we believe it as a firm ourselves. And while you don’t have an ESG strategy per se directly, around the environment, social and governance, it clearly is having an impact in terms of where flows are going.

Text on screen:

Environmental:

·        Renewable energy

·        Clean water

Social:

·        Community revitalization

·        Data security

Governance:

·        Gender diversity

·        Board composition

Ms. Rooney: 

And so how do you incorporate that as you think about the sectors and where you want to invest?                       

Mr. Madigan: 

For the U.S. market in particular, there’s a structural shift going on that’s gaining momentum. And I can see that not only from investor interest, but also from company interest. When my Equity team is out meeting with companies now, I can tell you in almost every meeting we’re having the theme of sustainable investing, ESG comes up in some form in that conversation, and ironically provoked by companies to a large degree in terms of interest around that. We’re still very early in terms of the definitional state of the toolkit. So as the investment toolkit continues to evolve, I’m trying to discern a couple of things. I think first and fundamentally, as an investor, what does it mean over a longer period with regard to valuations, because you said money is in motion. That may have an impact on credit spreads, in valuations, equity multiples as well. That’s yet to be proven. The one thing I will tell you, it’s a space that I’ve been incredibly excited about and one that I think does greater good in terms of…people’s relative awareness.

Ms. Rooney:

So I would say we have ESG-dedicated strategies for clients who are so motivated. What do you think looks different in 2020, or what are you looking at?

Mr. Madigan:

I think the fact that we have a Phase One trade deal right now brings me back to revisiting emerging markets under the construct, not for valuations because emerging markets are by no means cheap right now, but the earnings dynamic and the how we think earnings will lay out again some of the other international markets. So there’s a little bit more to come on that one. Europe from a top-down perspective to me has still got its challenges with regard to growth. Bottom up is becoming a lot more interesting. So the team is literally looking at sector and subsector exposure. Staples we own and continue to like. We’re doing a bunch of work right now on things as broad as mid-cap exposure to financials, to technology and healthcare. I think you’ll make money in Europe bottom up by sector allocations this year—not blindly allocating top down.

Ms. Rooney: 

So if I were to put it all together, you remain overweight equities, funded from bonds, continue to see earnings—in fact the market should grow into their earnings—and bonds, while they don’t offer a terrific from a yield perspective. Not much of a buffer. Still important from a portfolio construction and insurance perspective.

Mr. Madigan: 

They are there for portfolio insurance.

Ms. Rooney: 

Right. And so that diversification, as I’ve heard you say before, arguably as almost more important when you see things fully valued. But it’s also they’re fully valued, but fairly valued.

Mr. Madigan: 

I would say that across markets right now. And that again goes back to the diversification argument. We will inevitably see a bump or two ahead. I don’t want to—or I hesitate in saying I’m looking forward to that. But it’s something we’re ready to take advantage of.

Ms. Rooney:

Thank you, Richard.

Mr. Madigan: 

Pleasure.

Text on screen:

February 2020. Market Thoughts: Guarded Optimism.

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J.P.Morgan.

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