20

23

Mid-Year Outlook

The

RECESSION
OBSESSION
Five key ideas to navigate a
well-telegraphed downturn
 A brightening picture

I t’s hard to miss the threats to the economy.

In the United States, those include banking
turmoil, tighter credit, diminished consumer
A global multi-asset portfolio of 60% stocks
and 40% bonds is up 6% year-to-date.1 Despite
the risks, we think diversified portfolios can
savings, declining corporate profits and rising continue to generate higher returns than either
lay-offs. cash or inflation into 2024.

Europe faces the specter of still-elevated In our Mid-Year Outlook, we draw on client data
inflation and war on its borders. China’s to illustrate what representative samples of our
recovery looks sustainable, but geopolitical clients are actually doing with their investments
risks persist. as a way to better understand both the wider
market environment and our clients’ individual
We agree with most economists surveyed by
choices.
Bloomberg as well as the Federal Reserve staff:
A U.S. recession seems more likely than not by Some of the findings surprised us. Others
year-end. reassured us. We’ve learned a lot from this
data, and we think you will, too.
Yet we think the long-term return outlook has
brightened. So far this year, after a historically On the following pages, we present five key
poor 2022 for both stocks and bonds, markets ideas—a distillation of our best thinking—to help
seem to agree. you navigate a well-telegraphed recession.

THE FIVE KEY IDEAS

1 2 3 4 5
Rebuild your You probably Manage your You may hold Know the risks—and
equity portfolio stay too close to concentrated too much cash opportunities—
now for the next home with your positions and not enough in regional U.S.
bull market investments bonds banks and
real estate

pp. 3–5 pp. 6–8 pp. 9–10 pp. 11–12 pp. 13–15

1 FactSet. Data as of April 30, 2023.

INVESTMENT PRODUCTS: • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE

The views and strategies expressed herein are based on current conditions, subject to change and may not be suitable for all investors, and may differ from other JPMorgan
Chase & Co. affiliates and employees. The views and strategies may not be appropriate for all investors. Investors should speak to their financial representatives before
engaging in any investment product or strategy. This material should not be regarded as research or as a J.P. Morgan Research Report. Outlooks and past performance are
not reliable indicators of future results. Please read additional regulatory status, disclosures, disclaimers, risks and other important information at the end of this material.
1

Rebuild your equity

portfolio now for
the next bull market

O ur clients were right to sell stocks in 2022,

as global equities lost almost 20%. But while
stocks have rallied since last October, our clients
have been net buyers of equities in just seven of
the 30 weeks since the market bottomed. Around
half of our clients now have a lower allocation to
equities than they did a year ago.

The good news: We think the worst of the bear 7 of

market in stocks is over. Recession or no recession,
we don’t think the market will revisit last October’s 30
lows (which are about 15% below current levels). Number of weeks our
clients have been net
buyers of equities since
The bad news: It probably isn’t a bull market yet, the market bottomed
and we expect volatility through the second half
of the year. But instead of continuing to reduce
exposure, we think our clients should consider using Source: J.P. Morgan Asset & Wealth Management. Data as of May 8,
2023. Market bottom is defined as October 17, 2022.
the potential volatility to rebuild equity portfolios.

J.P. Morgan Private Bank | Mid-Year Outlook 2023 3

INTRODUCTION KEY IDEA 1 KEY IDEA 2 KEY IDEA 3 KEY IDEA 4 KEY IDEA 5 THE UPSHOT

Here’s why: First, the potential for corporate profit As lay-offs crested over the winter, the related

growth, the engine of equity returns, looks better stocks surged. Technology and communication

than many realize. No, demand isn’t booming, and services have since ranked as the two best-

profits and margins have both dropped slightly from performing sectors in the S&P 500 this year.2

all-time highs. But sales are resilient, transportation • Semiconductor stocks are outperforming after a
and energy costs are lower, the dollar is weaker (a disastrous 2022 on signs that an inventory glut is
boon for U.S. exporters), and finally, the scramble for nearly gone, and as investors reach for potential
workers is less frantic. beneficiaries of artificial intelligence.
As a result, analysts’ earnings expectations for the • Homebuilder stocks dropped more than 40% in
United States, Europe and China over the next 12 2022 as mortgage rates soared from ~3.5% to
months have started to move higher. over 7%.3 But now rates have stabilized against
a limited supply backdrop, houses are selling,
Second, while many fixate on a coming recession for
and some of the stocks are now making new
the broad economy, several industries have already
all-time highs.
experienced their own. Consider the following:
Portfolio positioning metrics further confirm
• The technology sector spent the bulk of 2022 our view that markets aren’t likely to revisit last
retrenching, refocusing and right-sizing after a October’s lows. Like our clients, most investors are
period of excessive optimism and investment. underweight equities or are positioned for stocks to

WILL MARKETS REVISIT OCTOBER LOWS? THE 2022 BEAR ANALYST EARNINGS EXPECTATIONS ARE RISING IN THE
MARKET IS PROBABLY OVER UNITED STATES AND EUROPE
S&P 500 bear markets dating back to 1950, 100 = prior peak Analyst earnings estimates indexed to 2019

100 140 United States

Europe
Current market 130 China
90
120
80
110

70 100

60 90

80
50
70
40
0 180 360 540 720 60
Trading days from prior high Dec ’19 Jun ’20 Dec ’20 Jun ’21 Dec ’21 Jun ’22 Dec ’22
Source: Bloomberg Finance L.P. Data as of April 27, 2023. Sources: FactSet, MSCI, Standard & Poor’s, J.P. Morgan Asset
Management—Guide to the Markets. NTM EPS refers to analyst estimates
for earnings over the next 12 months. Data as of April 2023.

2 Bloomberg Finance L.P. Data as of May 15, 2023.

3 Bloomberg Finance L.P. Data as of May 15, 2023.
Past performance is no guarantee of future results. It is not possible to invest directly in an index.

J.P. Morgan Private Bank | Mid-Year Outlook 2023 4

INTRODUCTION KEY IDEA 1 KEY IDEA 2 KEY IDEA 3 KEY IDEA 4 KEY IDEA 5 THE UPSHOT

move lower. Declining markets need sellers, and at Beyond your core equity allocation that you hold
the moment, there aren’t many investors poised to as part of a multi-asset portfolio, we think you
sell. As a result, even a glimmer of good news could should consider mid- and small-cap companies
drive markets higher.4 to complement large-cap holdings, and focus
on themes such as dividend growth, the energy
transition and the next wave of digital innovation.
Across sectors, we prefer healthcare and
Markets dip when investors technology stocks.
are fearful. That is often the Strategies such as hedge funds, structured notes
time to pounce. or other hedged equity vehicles can help investors
maintain their exposures while potentially generating
income and mitigating downside risks. Private equity
can continue to be an effective way to invest over
Still, unwelcome news could trigger sell-offs. Credit multiple years.
is harder to come by, U.S. regional banks aren’t
The risks are real. They may well create choppy
out of the woods yet, inflation has been sticky,
markets that will in turn provide a potential
and valuations leave little room for error. But we
opportunity to deploy excess cash. Markets dip
expect to view market sell-offs as potential buying
when investors are fearful. That is often the time
opportunities.
to pounce.
In short, you can now build the equity portfolio you
want to carry into and through the next bull market.

4 “Investors Most Pessimistic So Far This Year, BofA Survey Shows,” BofA May Fund Manager Survey, Bank of America Global Research.
Data as of May 16, 2023.

J.P. Morgan Private Bank | Mid-Year Outlook 2023 5

2

You probably
stay too close to
home with your
investments

O ver the last 10 years, the U.S. stock market

has outperformed Europe by 90%–125%
(depending on the reference currency), and China
by a whopping 175%.

Perhaps because of this chronic underperformance,

47%
over two-thirds of our U.S. clients have no exposure
to China at all, and around half of our U.S. clients
are materially underweight Europe relative to U.S. clients who are
materially underweight
developed equity benchmarks. Clients in Europe Europe relative to developed
and Asia have a similar “home bias.” equity benchmarks

But holding that underweight could now act as a

drag. Europe has outperformed the United States Source: J.P. Morgan Asset & Wealth Management. Data as of

March 31, 2023. Clients referenced are domiciled in the United States.

over the last 12 months, and although China has

lagged, we see reason to believe the tide could
be turning.

J.P. Morgan Private Bank | Mid-Year Outlook 2023 6

INTRODUCTION KEY IDEA 1 KEY IDEA 2 KEY IDEA 3 KEY IDEA 4 KEY IDEA 5 THE UPSHOT

Europe: Defying expectations, ALMOST EVERYTHING IS ON SALE: A WIDE RANGE

trading at a discount OF EUROPEAN SECTORS TRADES AT A DISCOUNT TO
U.S. PEERS
After the euro area economy avoided recession this European sector discounts relative to their U.S. peers*
winter (defying many expectations), markets rallied,
and many are now trading near all-time highs. We Healthcare 20.7%
still see multiple reasons to be bullish on European Industrials 14.0%
equities. Among them: Cons. Staples -1.1%
Cons. Disc. -2.3%
• A wider-than-usual valuation discount to the
Materials -4.0%
United States
Tech -6.0%
• Impressive resilience in the face of several Comm. Svcs. -6.1%
external shocks Utilities -12.2%

• Purchasing manager indices at their highest Financials -15.7%

levels of the last year Index -27.9%

Energy -34.7%
• Lower energy prices, which help to ease the
Real Estate -52.7%
cost-of-living crunch
*Stoxx 600 sector NTM P/E relative to U.S. sector NTM P/E
• The escape from negative interest rate policy, Source: Bloomberg Finance L.P. Data as of May 2, 2023.
which hampered bank earnings for a decade
We take a positive view of the market overall, but
we think the so-called national champions are in
TIMELY INDICATORS OF EUROPEAN GROWTH ARE AT
THEIR STRONGEST LEVELS OF THE LAST YEAR a class of their own. These are European-based,
Euro area PMI, a level greater than 50 indicates expansion multinational corporations with a powerful global
presence. They could offer earnings power and a
60
commitment to shareholder return.
58
56 As always, you’ll want to consider the impact
54 of currency in your international investments.
52 Over the coming quarters, we expect the euro
50 to strengthen relative to the dollar, which could
48 further boost U.S. dollar–based returns. All else
46 equal, that should make European equities more
44
attractive to U.S. investors.
42
40
’16 ’17 ’18 ’19 ’20 ’21 ’22 ’23
Sources: S&P Global, Haver Analytics. Data as of April 30, 2023.

Past performance is no guarantee of future results. It is not possible to invest directly in an index.

J.P. Morgan Private Bank | Mid-Year Outlook 2023 7

INTRODUCTION KEY IDEA 1 KEY IDEA 2 KEY IDEA 3 KEY IDEA 4 KEY IDEA 5 THE UPSHOT

China: Economic reopening, improving income growth and pent-up demand

supportive policy for activities that were restricted during COVID
We turn now to China, where the global equity lockdowns will support further growth.
investor’s bias against Chinese assets has been
Of course, investing in China comes with greater
especially strong. One year ago, China watchers
risk than investing in many developed markets.
debated whether the country was investable at all.
But we think certain investors could reap a higher
It was then (at the right price), and it is now.
reward for taking that risk in the second half of
Valuations are reasonable, earnings are poised to the year.
grow at a mid-teens pace, and policymakers have
moved in the direction of more market-friendly
practices. New credit growth, an important sign
of government support for the economy, is at its We take a positive view of
highest level since before the pandemic. the European market overall,
The economic boost from reopening has been but we think the so-called
mixed, but we still expect a durable recovery. national champions are in a
First-quarter GDP data reported a rebound in class of their own.
consumption and services activity, with recent
indicators on exports, retail sales and housing
activity more mixed. However, we expect that

CHINA EQUITY VALUATIONS LOOK REASONABLE, NEW CREDIT GROWTH IN CHINA SENDS A SIGNAL:
ESPECIALLY AS POLICYMAKERS MOVE TOWARD MORE THE GOVERNMENT SUPPORTS THE ECONOMY
MARKET FRIENDLY PRACTICES
Net new credit as a % of GDP, 6-month average
China equity price-to-earnings ratios, 2008–present
20x CSI 300 (Onshore) 50%
MSCI China (Offshore)
45%
18x
40%
16x
35%
14x
30%
12x
25%
10x
20%

8x 15%

6x 10%
’08 ’10 ’12 ’14 ’16 ’18 ’20 ’22 ’06 ’08 ’10 ’12 ’14 ’16 ’18 ’20 ’22
Source: Bloomberg Finance L.P. Data as of May 1, 2023. Sources: People’s Bank of China, Haver Analytics. Data as of April 2023.

Past performance is no guarantee of future results. It is not possible to invest directly in an index.

J.P. Morgan Private Bank | Mid-Year Outlook 2023 8

3

Manage your
concentrated
positions

A longstanding issue for many of our clients, as

we have discussed over the years, is holding a
concentrated position in a single stock or security.
The recent bout of stock market volatility, capped
off by regional bank failures, has made this type of
investment a particularly pressing risk.

The Russell 3000 may be trading only 15% below 1 Number of stocks in the
Russell 3000 Index that

5
its 2021 high, but one out of every five stocks in the of have fallen more than 75%
from their 2021 highs
index have fallen more than 75% from their 2021
peaks. Unexpected drops like that can devastate
a family’s financial plan. But even a relatively mild
30% decline can force difficult trade-offs.

To illustrate the potential risks of a concentrated

Source: Bloomberg finance L.P. Data as of May 15, 2023.
stock position, we considered a family that holds
50% of their net worth in a concentrated stock
position, 50% in a diversified portfolio, and sustains
their spending with the primary earner’s income.

Past performance is no guarantee of future results. It is not possible to invest directly in an index.

J.P. Morgan Private Bank | Mid-Year Outlook 2023 9

INTRODUCTION KEY IDEA 1 KEY IDEA 2 KEY IDEA 3 KEY IDEA 4 KEY IDEA 5 THE UPSHOT

They have just two goals:5 The good news is there are many different
• To retire in five years strategies for dealing with concentrated positions
that range from the most basic (e.g., writing
• To gift 10% of their net worth to the children
covered call options, designing a target price selling
Without a decline in value in the concentrated strategy) to the more complex (e.g., principal
position, they have a high probability of achieving installment stock monetization strategies, exchange
those goals. But after a 30% decline, their funds). Current corporate insiders could consider
choices become harder. To maintain an adequate 10b5-1 plans. Some clients find the most optimal
probability of success, they would have to either: strategy is to give the position away through gifts,
trusts or charitable contributions.
• Prioritize the gift to the children, but work for five
years longer than planned; or No matter which strategy you ultimately decide to
• Stay on track to retire, but forego the gift and execute, if you have a concentrated position, you
reduce spending. should consider the consequences if—for reasons
outside of your control—the asset suffers a
The problems tend to increase as goals multiply
material loss.
or become more ambitious, and as the degree
of concentration builds. These situations can
be intensely personal. Understanding what is
important to your family and then determining how
Problems tend to increase

much of your concentrated position is required to

achieve your goals are the first steps in developing
as goals multiply or become

a plan. more ambitious, and as the

degree of concentration builds.

Every family may choose a different strategy.

The most conservative prefer to design their
portfolios and spending so that their goals would
be unaffected if their entire concentrated positions
evaporated. Others continue to carry their
concentrated positions, but make contingency
plans just in case.

5 Full details of analysis: Assumed a 57-year-old person had a current portfolio of $25MM of diversified assets (60/40 portfolio) and $17.5MM in a
concentrated position (after a 30% drop in the position) with $10MM cost basis. Included $1.5MM/year of spending and current post-tax income
of $1.5MM/year (both grown at inflation of 2.6%). Goals were to retire at 62 and gift $5MM to children. We believe an 80% probability of success
based on 1,000 simulations of future returns is adequate for most families.
All case studies are shown for illustrative purposes only and are hypothetical. Any name referenced is fictional, and may not be representative of
other individual experiences. Information is not a guarantee of future results.
Analysis, prior data, information, and statistics cited are not a guarantee of future results or events. The data referenced is for informational
purposes only, and not based on actual client experience.

J.P. Morgan Private Bank | Mid-Year Outlook 2023 10

4

You may hold too

much cash and not
enough bonds

C ash was a good place to hide in 2022. As central

banks raised interest rates, money fund and
Treasury bill yields rose significantly, while both
stocks and bonds (as proxied by the flagship
Barclays Aggregate Index) suffered their worst rout
in history. over
Our clients’ allocations to cash in investment
accounts, certificates of deposit and short-term $150B
fixed income (securities maturing in less than a Increase in clients’
allocations to cash over
year) have risen by over USD 150 billion over the the last 12 months
last 12 months. That made sense during the fastest
hiking cycle in 40 years. But now, we believe the
cycle is complete. Over the next 12 months, the
Source: J.P. Morgan Asset & Wealth Management. Data as of Q1, 2023.
Federal Reserve might even decide to reduce rates. Last 12 months represent data back to March 31, 2022.
This can mean our clients may need to reinvest over
USD 500 billion (between 25% and 30% of their
investible assets) in what we think will likely be a
lower rate environment.

J.P. Morgan Private Bank | Mid-Year Outlook 2023 11

INTRODUCTION KEY IDEA 1 KEY IDEA 2 KEY IDEA 3 KEY IDEA 4 KEY IDEA 5 THE UPSHOT

While cash outpaced most other assets in 2022, FOR SEVEN STRAIGHT CYCLES, CASH HAS
it has underperformed global equities year-to­ UNDERPERFORMED BONDS IN THE TWO YEARS
AFTER THE FED’S LAST RAKE HIKE
date and is in line with core bonds. We expect its
Bond returns after the last rate hike
underperformance to continue for the rest of this
year, into 2024 and beyond. 35% 32%
Municipal bonds*
Over the long term, we think cash rates will 30% Investment grade bonds 27%
3­month T­bills
possibly be close to the rate of inflation, which will 25%
likely run in the neighborhood of 2.5%, and we
20%
expect core investment grade bonds to return
over 4.5% per year.6 15% 13%

In the near term, we think cash rates are close to 10%

their peak and investors can be better off locking in 5%

longer-term rates now instead of rolling into lower
rates in the quarters ahead. 0%
0 2 4 6 8 10 12 14 16 18 20 22
Months from final hike
CASH INVESTORS MAY NOT BE PREPARED TO REINVEST Source: Bloomberg Finance L.P. Data as of 2018. Includes seven hiking
IN A LOWER RATE ENVIRONMENT cycles: 1981, 1984, 1989, 1995, 2000, 2006 and 2018. *Tax-equivalent
Current and market-implied, short-term fixed income yields yield assumes a 40.8% tax rate. Municipal bonds shown using the
Bloomberg Municipal Bond Total Return Index, and investment grade
bonds by the Bloomberg U.S. Aggregate Index.
6%
History isn’t a perfect guide, but it helps illustrate
5%
­0.9%
what clients could forgo when they stay in cash
4% instead of investing in core fixed income. Over the
­2.0% Fed’s last seven hiking cycles, core fixed income has
3% outperformed cash by an average 14% cumulatively
in the two years following the final interest rate
2%
increase, and has never underperformed.
1%
Finally, bonds once again are providing a stable
0% source of income and the potential for portfolio
Today June ’24 June ’25 protection in an economic downturn.
Source: Bloomberg Finance L.P. Data as of May 25, 2023.

6 J.P. Morgan Asset Management, J.P. Morgan Private Bank. Data as of April 30, 2023.
Past performance is no guarantee of future results. It is not possible to invest directly in an index.

J.P. Morgan Private Bank | Mid-Year Outlook 2023 12

5

Know the risks—

and opportunities—
in regional U.S. banks
and real estate

B eyond the profound global tail risks (including

war in Europe, energy shortages and tensions
between the United States and China), we see
two clear risks to the U.S. economy that could

$7B
potentially cause or accelerate recession: stresses
in the regional banks and commercial real estate.
Both of those issues stem from the rapid increase Client capital allocated
in interest rates, and both are intertwined, given to real assets and
private credit
regional bank exposure to commercial real
estate loans.

The acute phase of the regional banking crisis was

characterized by deposit flight. We think the swift
resolution of the failed banks and the de facto Source: J.P. Morgan Asset & Wealth Management. Data as of April 30,
2023. Last 12 months represent data back to May 1, 2022.
protection of all depositors have largely mitigated
that risk.

J.P. Morgan Private Bank | Mid-Year Outlook 2023 13

INTRODUCTION KEY IDEA 1 KEY IDEA 2 KEY IDEA 3 KEY IDEA 4 KEY IDEA 5 THE UPSHOT

Regional banks appear to have escaped the worst- HYBRID WORK SCHEDULES DRIVE UP OFFICE VACANCY
case scenario, but the sector still confronts many RATES. IS THERE AN END IN SIGHT?
serious challenges. Deposits are still fleeing for Vacancy rates by real estate sector
higher-yielding options in money markets, and 15% Office
paying higher deposit rates would pinch net interest Apartment
13% Retail
margins, a key indicator of a bank’s profitability. Industrial
In fact, data back to the 1980s shows that money
11%
market fund assets have grown by 20% after the
Fed’s last rate hike at the expense of deposits. 9%
Adding to regional bank stresses, a more onerous
regulatory environment also seems likely. 7%

Ultimately, we expect weakness in the sector 5%

until the Fed lowers interest rates. That will take
pressure off deposit flight, and could help with the 3%

mark-to-market valuation of banks’ loan books. ’07 ’09 ’11 ’13 ’15 ’17 ’19 ’21

Until then, expect a strenuous environment for Source: Costar. Data as of December 31, 2022.

regional banks.
Within commercial real estate, we are most
negative on office buildings. Remote work is still 7x
AMID HIGHER RATES, BANK LOANS CAN BE HARDER TO
COME BY more common than it was before the pandemic,7
Net % tightening lending standards, 2000–present reducing demand, and valuations have already
declined solely on the basis of higher interest rates.
100%

U.S. regional banks look especially vulnerable

80%
because they also hold almost 4.5x more exposure
60% to commercial real estate than large banks do,8 and
46%
if commercial real estate loans had to be marked
40%
to market, it could challenge the capital of many
20% regional banks. This means that banks will likely
pull back on their lending, which increases the risk
0%
of recession in the second half of the year.
­20%
In a sense, from the Fed’s perspective, the pain is
­40% the point: Higher rates and tighter monetary policy
’00 ’04 ’08 ’12 ’16 ’20 deliberately aim to curtail economic activity enough
Sources: Fed SLOOS, Bloomberg Finance L.P. Data as of April 30, 2023.
to curb inflation. That process has begun and can
likely continue.

7 IPUMS, WFH Research. Data as of April 30, 2023.

8 Bloomberg Finance L.P. Data as of April 30, 2023.
Past performance is no guarantee of future results. It is not possible to invest directly in an index.

J.P. Morgan Private Bank | Mid-Year Outlook 2023 14

INTRODUCTION KEY IDEA 1 KEY IDEA 2 KEY IDEA 3 KEY IDEA 4 KEY IDEA 5 THE UPSHOT

The investment implications are far-reaching. When On the first, private credit managers aim to extend
interest rates rise, so too does the cost of capital, at least some of the loans that banks once provided
resulting in lower asset valuations and a higher (for a price, of course). Today, base rates are higher
hurdle rate for a profitable investment. Inherently and credit spreads are wider, and they may be
leveraged entities such as banks and commercial able to reduce downside risk through lower loan­
real estate can be especially hard hit. to-value ratios. Similarly, distressed real estate
funds with specialization in certain geographies or
Invariably, risks can bring opportunities—if you
building types expect to sift through an interesting
know where to look. We think investors can uncover
opportunity set in the second half of the year. An
opportunities in two specific arenas: They can
opportunity is also developing in venture capital
extend credit to high-quality borrowers who would
and early-stage private equity, where fundraising
traditionally borrow from a bank, and they can
has been dormant for much of the past year.
snap up distressed assets at a fraction of their
intrinsic value. On balance, then, as we assess the threats from the
turmoil in U.S. regional banking and commercial
real estate, we can’t and shouldn’t ignore the
pain. But there could be considerable promise,
We think investors can nonetheless.
uncover opportunities in
two specific arenas.

PRIVATE CREDIT MARKETS CAN FILL A MARKET VOID—AND HIGH-QUALITY BORROWERS CAN BENEFIT
Leveraged buyout financing by quarter

100 98  98
Traditional bank syndicated
90 Private credit
82 
80
70 66 
61 
60 57  57 

50 46 48  47  47  46

45  43  42 
40 38  36
32 33
30  29
30 28  26
23  22 
20 18  18 
12  12  10
10 8 
1 
0
’19 ’20 ’21 ’22
Sources: Pitchbook, LCD, Morningstar LSTSA U.S., J.P. Morgan Asset Management—Guide to Alternatives. Leveraged Loan Index.
Data as of December 8, 2022.

J.P. Morgan Private Bank | Mid-Year Outlook 2023 15

 THE UPSHOT

At a moment of doubt,

WE SEE

PROMISE

We understand why many investors doubt

the recent rally. Inflation and interest rates
are still high. Growth is slowing. Recession
is coming.
Examining the same set of facts, we
see promise. Investing is about building
portfolios that can power through risks
over the long term. While it may be too
soon to say this is a new bull market,
we don’t think it’s a bear market either.
Equities can grind higher, bonds can
provide stable returns, alternatives can
access idiosyncratic opportunity. All can
potentially outperform cash over the long
run, recession or no recession.
OUR MISSION EXECUTIVE SPONSOR

The Global Investment Strategy Group Clay Erwin

provides industry-leading insights and Global Head of Investments Sales & Trading
investment advice to help our clients
achieve their long-term goals. They
draw on the extensive knowledge and
experience of the Group’s economists, GLOBAL INVESTMENT STRATEGY GROUP
investment strategists and asset-class
strategists to provide a unique perspective Tom Kennedy
across the global financial markets. Chief Investment Strategist

Elyse Ausenbaugh
Global Investment Strategist

Christopher Baggini
Global Head of Equity Strategy

Nur Cristiani
Head of LatAm Investment Strategy

Kristin Kallergis Rowland

Global Head of Alternative Investments

Jacob Manoukian
Head of U.S. Investment Strategy

Grace Peters
Head of EMEA Investment Strategy

Xavier Vegas
Global Head of Credit Strategy

Alex Wolf
Head of Asia Investment Strategy

There can be no assurance that the professionals currently employed by JPMorgan Chase Bank, N.A. will continue to be employed by JPMorgan
Chase Bank, N.A., or that the past performance or success of any such professional serves as an indicator of such professional’s future performance
or success.
IMPORTANT INFORMATION
Definitions
The MSCI World Index is a free float-adjusted market capitalization Standard and Poor’s 500 Information Technology Index
weighted index that is designed to measure the equity market comprises those companies included in the S&P 500 that are
performance of developed markets. The index consists of 23 classified as members of the GICS information technology sector.
developed market country indexes.
The MSCI Japan Index is designed to measure the performance
The Bloomberg Municipal Bond Total Return Index includes of the large- and mid-cap segments of the Japanese market. With
approximately 40,000 bonds that are fixed-rate, tax-exempt and 237 constituents, the index covers approximately 85% of the free
investment grade, are rated Baa or better, and have a year or float-adjusted market capitalization in Japan.
more to maturity and outstanding par value of $3 million or more.
The MSCI Emerging Markets Index captures large- and mid-cap
The Bloomberg Global Aggregate Index provides a broad-based representation across 23 Emerging Markets (EM) countries. With
measure of the global investment grade fixed-rate debt markets. 834 constituents, the index covers approximately 85% of the free
The Global Aggregate Index contains three major components: float-adjusted market capitalization in each country. EM countries
the U.S. Aggregate (USD 300MM), the Pan-European Aggregate include: Brazil, Chile, China, Colombia, Czech Republic, Egypt,
(EUR 300MM), and the Asian-Pacific Aggregate Index (JPY 35B). In Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru,
addition to securities from these three benchmarks (94.1% of the Philippines, Poland, Russia, Qatar, South Africa, Taiwan, Thailand,
overall Global Aggregate market value as of December 31, 2009), Turkey and United Arab Emirates.
the Global Aggregate Index includes Global Treasury, Eurodollar
(USD 300MM), Euro-Yen (JPY 25B), Canadian (USD 300MM PMI (Purchasing Managers’ Index) is an indicator of the
equivalent), and Investment Grade 144A (USD 300MM) index- economic health of manufacturing sector.
eligible securities not already in the three regional aggregate
indices. The Global Aggregate Index family includes a wide range STOXX Europe 600 Index (SXXP Index) is an index tracking 600
of standard and customized subindices by liquidity constraint, publicly traded companies based in one of 18 EU countries. The
sector, quality and maturity. A component of the Multiverse index includes small-cap, medium-cap and large-cap companies.
Index, the Global Aggregate Index was created in 1999, with index The countries represented in the index are Austria, Belgium,
history backfilled to January 1, 1990. All indices are denominated Denmark, Finland, France, Germany, Greece, Holland, Iceland,
in U.S. dollars. Ireland, Italy, Luxembourg, Norway, Portugal, Spain, Sweden,
Switzerland and the United Kingdom.
The MSCI USA Index is designed to measure the performance
of the large- and mid-cap segments of the U.S. market. With 627 The CSI 300 is a capitalization-weighted stock market index
constituents, the index covers approximately 85% of the free designed to replicate the performance of the top 300 stocks
float-adjusted market capitalization in the United States. traded on the Shanghai Stock Exchange and the Shenzhen
Stock Exchange. It has two sub-indexes: the CSI 100 Index and
The MSCI Europe Index represents the performance of large- the CSI 200 Index. Over the years, it has been deemed the
and mid-cap equities across 15 developed countries in Europe. Chinese counterpart of the S&P 500 Index and a better gauge
of the Chinese stock market than the more traditional SSE
The MSCI China Index captures large- and mid-cap representation Composite Index.
across China A shares, H shares, B shares, Red chips, P chips
and foreign listings (e.g., ADRs). With 717 constituents, the index The Russell 3000 Index is part of the FTSE Russell that provides
covers about 85% of this China equity universe. Currently, the exposure to the U.S. stock market. Its date of inception is
index includes Large Cap A and Mid Cap A shares represented at January 1, 1984. The index measures the performance of the
20% of their free float-adjusted market capitalization. largest 3,000 U.S. companies representing approximately 96% of
the investable U.S. equity market.
Earnings per Share (EPS): The portion of a company’s profit
allocated to each outstanding share of common stock. Earnings Key Risks
per share serves as an indicator of a company’s profitability. This material is for informational purposes only, and may inform
you of certain products and services offered by private banking
Standard and Poor’s 500 Index is a capitalization-weighted index businesses, part of JPMorgan Chase & Co. (“JPM”). Products and
of 500 stocks. The index is designed to measure performance of services described, as well as associated fees, charges and interest
the broad domestic economy through changes in the aggregate rates, are subject to change in accordance with the applicable
market value of 500 stocks representing all major industries. account agreements and may differ among geographic locations.
The index was developed with a base level of 10 for the 1941–43 Not all products and services are offered at all locations. If you are
base period. a person with a disability and need additional support accessing
this material, please contact your J.P. Morgan team or email us at

J.P. Morgan Private Bank | Mid-Year Outlook 2023 18

accessibility.support@jpmorgan.com for assistance. Please read in leveraging and other speculative investment practices that
all Important Information. may increase the risk of investment loss. These investments
can be highly illiquid, and are not required to provide periodic
Investing in fixed income products is subject to certain risks, pricing or valuation information to investors, and may involve
including interest rate, credit, inflation, call, prepayment and complex tax structures and delays in distributing important tax
reinvestment risk. Any fixed income security sold or redeemed information. These investments are not subject to the same
prior to maturity may be subject to substantial gain or loss. regulatory requirements as mutual funds; and often charge high
fees. Further, any number of conflicts of interest may exist in the
Diversification does not ensure a profit or protect against loss. context of the management and/or operation of any such fund.
For complete information, please refer to the applicable offering
Bonds are subject to interest rate risk, credit and default risk of memorandum. Securities are made available through J.P. Morgan
the issuer. Bond prices generally fall when interest rates rise. Securities LLC, Member FINRA, and SIPC, and its broker-dealer
affiliates.
Private equity is typically composed of Venture Capital, Leveraged
Buyouts, Distressed Investments and Mezzanine Financing, which The macroeconomic and portfolio construction views expressed
are all generally considered to be high risk, illiquid investments in this report include aggregated and anonymized selections of
designed to deliver larger expected returns than publicly traded J.P. Morgan data from the Global Private Bank, J.P. Morgan
securities as compensation for their greater risk. As a result, Advisors and Chase Wealth Management, and should be
investing in private equity is not suitable for all investors. considered in the context of other economic indicators and publicly
available information. The data used is not comprehensive.
As a reminder, hedge funds (or funds of hedge funds) often Unless otherwise stated, the data is pulled starting as of March
engage in leveraging and other speculative investment practices 2022. All cited prior data, information and/or statistics are not a
that may increase the risk of investment loss. These investments guarantee of future results or events. The data referenced is for
can be highly illiquid, and are not required to provide periodic informational purposes only, and not intended as personal advice
pricing or valuation information to investors, and may involve or an offer, solicitation for the purchase of JPMorgan Chase & Co.
complex tax structures and delays in distributing important tax (“J.P. Morgan”) stock, any other security, financial instrument,
information. These investments are not subject to the same product, strategy or service. Opinions, estimates, forecasts, and
regulatory requirements as mutual funds, and often charge high statements of financial market trends are subject to change
fees. Further, any number of conflicts of interest may exist in the without notice, and may differ from other J.P. Morgan’s affiliates
context of the management and/or operation of any such fund. and employees.
For complete information, please refer to the applicable offering
memorandum. Not all option strategies are suitable for all investors. Certain
strategies may expose investors to significant potential risks and
Investors should understand the potential tax liabilities losses. For additional risk information, please request a copy of
surrounding a municipal bond purchase. Certain municipal bonds “Characteristics and Risks of Standardized Options.” We advise
are federally taxed if the holder is subject to alternative minimum investors to consult their tax advisors and legal counsel about
tax. Capital gains, if any, are federally taxable. The investor should the tax implications of these strategies. Investors are urged to
note that the income from tax-free municipal bond funds may be carefully consider whether options or option-related products or
subject to state and local taxation and the Alternative Minimum strategies are suitable for their needs.
Tax (AMT).
Structured products involve derivatives and risks that may not
Small capitalization companies typically carry more risk than well- be suitable for all investors. The most common risks include,
established “blue-chip” companies since smaller companies can but are not limited to, risk of adverse or unanticipated market
carry a higher degree of market volatility than most large-cap developments, issuer credit quality risk, risk of lack of uniform
and/or blue-chip companies. standard pricing, risk of adverse events involving any underlying
reference obligations, risk of high volatility, risk of illiquidity/
Holders of foreign securities can be subject to foreign exchange little to no secondary market, and conflicts of interest. Before
risk, exchange-rate risk and currency risk, as exchange rates investing in a structured product, investors should review the
fluctuate between an investment’s foreign currency and the accompanying offering document, prospectus or prospectus
investment holder’s domestic currency. Conversely, it is possible supplement to understand the actual terms and key risks
to benefit from favorable foreign exchange fluctuations. associated with the each individual structured product. Any
payments on a structured product are subject to the credit risk
Private investments are subject to special risks. Individuals of the issuer and/or guarantor. Investors may lose their entire
must meet specific suitability standards before investing. This investment, i.e., incur an unlimited loss.
information does not constitute an offer to sell or a solicitation
of an offer to buy . As a reminder, hedge funds (or funds of hedge
funds), private equity funds, real estate funds often engage

J.P. Morgan Private Bank | Mid-Year Outlook 2023 19

The risks listed above are not complete. For a more comprehensive accounting, legal, tax or other) given by J.P. Morgan and/or its
list of the risks involved with this particular product, please speak officers or employees, irrespective of whether or not such
to your J.P. Morgan team. communication was given at your request. J.P. Morgan and its
affiliates and employees do not provide tax, legal or accounting
Exchange Fund: There is no guarantee that at the end of the fund’s advice. You should consult your own tax, legal and accounting
life cycle it will have outperformed the single stock originally advisors before engaging in any financial transactions.
contributedby an investor. These funds are relatively illiquid and
require a long-term hold in order to achieve their tax benefits. IMPORTANT INFORMATION ABOUT YOUR INVESTMENTS AND
It is important to note that an exchange fund is a tax-deferral POTENTIAL CONFLICTS OF INTEREST
mechanism, not a tax elimination mechanism.
Conflicts of interest will arise whenever JPMorgan Chase Bank,
General Risks & Considerations N.A. or any of its affiliates (together, “J.P. Morgan”) have an actual
Any views, strategies or products discussed in this material may or perceived economic or other incentive in its management of our
not be appropriate for all individuals and are subject to risks. clients’ portfolios to act in a way that benefits J.P. Morgan. Conflicts
Investors may get back less than they invested, and past will result, for example (to the extent the following activities are
performance is not a reliable indicator of future results. Asset permitted in your account): (1) when J.P. Morgan invests in an
allocation/diversification does not guarantee a profit or protect investment product, such as a mutual fund, structured product,
against loss. Nothing in this material should be relied upon in separately managed account or hedge fund issued or managed
isolation for the purpose of making an investment decision. You by JPMorgan Chase Bank, N.A. or an affiliate, such as J.P. Morgan
are urged to consider carefully whether the services, products, Investment Management Inc.; (2) when a J.P. Morgan entity obtains
asset classes (e.g., equities, fixed income, alternative investments, services, including trade execution and trade clearing, from an
commodities, etc.) or strategies discussed are suitable to your affiliate; (3) when J.P. Morgan receives payment as a result of
needs. You must also consider the objectives, risks, charges, purchasing an investment product for a client’s account; or (4) when
and expenses associated with an investment service, product J.P. Morgan receives payment for providing services (including
or strategy prior to making an investment decision. For this and shareholder servicing, recordkeeping or custody) with respect
more complete information, including discussion of your goals/ to investment products purchased for a client’s portfolio. Other
situation, contact your J.P. Morgan team. conflicts will result because of relationships that J.P. Morgan has
with other clients or when J.P. Morgan acts for its own account.
Non-Reliance
Certain information contained in this material is believed to be Investment strategies are selected from both J.P. Morgan and
reliable; however, JPM does not represent or warrant its accuracy, third-party asset managers and are subject to a review process
reliability or completeness, or accept any liability for any loss by our manager research teams. From this pool of strategies, our
or damage (whether direct or indirect) arising out of the use of portfolio construction teams select those strategies we believe fit
all or any part of this material. No representation or warranty our asset allocation goals and forward-looking views in order to
should be made with regard to any computations, graphs, tables, meet the portfolio’s investment objective.
diagrams or commentary in this material, which are provided
for illustration/ reference purposes only. The views, opinions, As a general matter, we prefer J.P. Morgan managed strategies. We
estimates and strategies expressed in this material constitute our expect the proportion of J.P. Morgan managed strategies will be
judgment based on current market conditions and are subject high (in fact, up to 100 percent) in strategies such as, for example,
to change without notice. JPM assumes no duty to update any cash and high-quality fixed income, subject to applicable law and
information in this material in the event that such information any account-specific considerations.
changes. Views, opinions, estimates and strategies expressed
herein may differ from those expressed by other areas of JPM, While our internally managed strategies generally align well with
views expressed for other purposes or in other contexts, and our forward-looking views, and we are familiar with the investment
this material should not be regarded as a research report. processes as well as the risk and compliance philosophy of the
Any projected results and risks are based solely on hypothetical firm, it is important to note that J.P. Morgan receives more overall
examples cited, and actual results and risks will vary depending fees when internally managed strategies are included. We offer
on specific circumstances. Forward-looking statements should the option of choosing to exclude J.P. Morgan managed strategies
not be considered as guarantees or predictions of future events. (other than cash and liquidity products) in certain portfolios.

Nothing in this document shall be construed as giving rise to any Legal Entity, Brand & Regulatory Information
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J.P. Morgan Private Bank | Mid-Year Outlook 2023 20

JPMorgan Chase Bank, N.A. and its affiliates (collectively at World Trade Centre, Tower B, Strawinskylaan 1135, 1077 XX,
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J.P. Morgan Private Bank | Mid-Year Outlook 2023 21

discretionary investment management services are provided to

you by JPMCB, Hong Kong/Singapore branch (as notified to you).
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J.P. Morgan Private Bank | Mid-Year Outlook 2023 22