Investing

The concern du jour

Markets move on to the next fear.


Our Top Market Takeaways for the week ending January 24, 2020.

This week’s rundown

Speed round

Heading into Friday, all major global stock indices were in the red, with consumer names hit particularly hard in the wake of a deadly virus outbreak in China. The virus has precipitated a global health scare, claiming at least two dozen lives and infecting hundreds. With several cities on lockdown, some authorities have expressed concerns over the potential economic toll of the disease, leaving investors on edge.

Before we get into what this virus is and its possible impact (see next section below), let’s do a quick speed round of what else to know from this week:

  • It’s that time again. Q4 2019 earnings season ramped up, and almost 20% of companies in the S&P 500 have now reported. And so far, most have surprised to the upside. Of the some 80 companies that have posted results, 67% have beaten sales expectations and 72% have surprised on earnings expectations. All in all, we remain optimistic on Q4 earnings season: While consensus has expected earnings to contract -2% year-over-year, a stall in downward revisions signals to us that Q4 could post flat-to-positive earnings growth.
  • Stock size matters. Market cap seems to be one of the most important factors for stock performance so far this year. The largest 50 stocks in the S&P 500 are up an average of +3.15%, with the next largest 50 with an average gain of +2.95%. Meanwhile, the smallest 50 stocks in the index are down an average of -0.98%. And as for narrowing leadership, Apple, Microsoft, Alphabet, Amazon and Facebook now account for 20.7% of the S&P 500’s market cap. So if you’re invested in the broad S&P 500, a fifth of that allocation is already invested in these five names.
  • Another front to the trade war. While tensions between the United States and China may be on the backburner (for now), trade rhetoric ramped up between President Trump and European leaders. At the center of the discussion is what’s called a digital tax, which aims to impose levies on big tech companies that generate revenue in a given country—a big divergence from companies’ current practices of declaring profits where they are headquartered. So far, President Trump and President Emmanuel Macron agreed to postpone a French tax, but other countries like the United Kingdom and Italy appear to be moving forward with similar plans unless a global solution is found…despite U.S. threats to retaliate with tariffs on Europe’s auto industry.
  • Invitation only. This week, a host of heads of state, policymakers and the who’s who of the business community gathered for the annual World Economic Forum (WEF) in Davos, Switzerland. The theme this year? “Stakeholders for a Cohesive and Sustainable World”—in human speak, attendees tackled big topics like climate change, fairer economies, the future of work, and technology for good. There have been a host of insightful sessions, but so far, no good pictures of central bankers on skis.


Spotlight

The concern du jour

The market’s concern du jour has shifted from military tensions between the United States and Iran to the outbreak of Novel Coronavirus (2019-nCoV). The virus, which first appeared just before the Lunar New Year holiday in Wuhan, China, is a relative of the common cold and more serious illnesses such as SARS and MERS. At this point, there have been more than 800 reported cases with 26 fatalities. The virus has spread to at least seven other countries, including the United States, Japan and Singapore.

While the human toll can be serious, as investors, we have to assess the potential economic and market impacts of the spread of the illness. The most prominent risk is that fear of contracting the virus reduces economic activity such as travel and consumption. There are several examples of similar illness scares (like H1N1, Ebola and Zika), but the most useful template for the ultimate impact is the SARS episode in 2003. Then, over 8,000 people in 29 countries were infected. Economic activity in China, the epicenter, did indeed slow. Sectors of the Chinese stock market that were particularly exposed to consumers, such as retail and casinos, took a hit. However, once the virus became contained, spending activity and markets snapped back. Similarly, during the Ebola scare, U.S. airline equities severely underperformed due to fears of contagion. Once those fears were calmed, they bounced back.

The chart shows Google search trends from 2008 through January 2020 for illness scares, including H1N1, Ebola, MERS and Zika. It displays the moments over this time period where each illness peaked in Google searches.

The chart shows Google search trends from 2008 through January 2020 for illness scares, including H1N1, Ebola, MERS and Zika. It displays the moments over this time period where each illness peaked in Google searches.

We certainly are not medical experts, but there are reasons to believe that SARS may be closer to a “worst case” scenario for nCoV. First, medical infrastructure in China and around the world has had 17 years to progress. Indeed, the Chinese have already mapped the genome of the virus, and while there have been some criticisms of the containment strategy, most indications are that medical staffs are better trained and more prepared. This suggests that market volatility (especially in Asia) may be elevated as the situation develops, but in our view, there is low likelihood of lasting impacts.

While reasons to be nervous and emotional when investing are ever present, that shouldn’t be enough to disrupt your goals and derail your investment plan.

Overall, there is always a “reason” not to invest. Each year, there has been a host of events and headlines—many of which are serious—that have made investors nervous. While some of these did indeed have a short-term negative market impact, it’s important to keep in mind that historically, the S&P 500 has always recovered to its previous peak. So while reasons to be nervous and emotional when investing are ever present, that shouldn’t be enough to disrupt your goals and derail your investment plan.

The chart shows significant economic events from 1999 through 2020 and how they affected the price return of the S&P 500 Index.

The chart shows significant economic events from 1999 through 2020 and how they affected the price return of the S&P 500 Index.

All market and economic data as of January 2020 and sourced from Bloomberg, FactSet and Gavekal unless otherwise stated.

We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.

RISK CONSIDERATIONS

  • Past performance is not indicative of future results. You may not invest directly in an index.
  • The prices and rates of return are indicative, as they may vary over time based on market conditions.
  • Additional risk considerations exist for all strategies.
  • The information provided herein is not intended as a recommendation of or an offer or solicitation to purchase or sell any investment product or service.
  • Opinions expressed herein may differ from the opinions expressed by other areas of J.P. Morgan. This material should not be regarded as investment research or a J.P. Morgan investment research report.

 

 

 

 

Important Information

All companies referenced are shown for illustrative purposes only, and are not intended as a recommendation or endorsement by J.P. Morgan in this context.

All market and economic data as of January 2020 and sourced from Bloomberg, FactSet and Gavekal unless otherwise stated.

The information presented is not intended to be making value judgments on the preferred outcome of any government decision.

This material is for informational purposes only, and may inform you of certain products and services offered by
J.P. Morgan’s wealth management businesses, part of JPMorgan Chase & Co. (“JPM”). Please read all Important Information.

  • The MSCI China Index captures large- and mid-cap representation across China H shares, B shares, Red chips, P chips and foreign listings (e.g., ADRs). With 459 constituents, the index covers about 85% of this China equity universe. Currently, the index also includes Large Cap A shares represented at 5% of their free float adjusted market capitalization.
  • The Standard and Poor’s 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The index was developed with a base level of 10 for the 1941–43 base period.
  • The STOXX Europe 600 Index tracks 600 publicly traded companies based in one of 18 EU countries. The index includes small-cap, medium-cap and large-cap companies. The countries represented in the index are Austria, Belgium, Denmark, Finland, France, Germany, Greece, Holland, Iceland, Ireland, Italy, Luxembourg, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.

This material is for informational purposes only, and may inform you of certain products and services offered by
J.P. Morgan’s wealth management businesses, part of JPMorgan Chase & Co. (“JPM”). Please read all Important Information.

GENERAL RISKS & CONSIDERATIONS

Any views, strategies or products discussed in this material may not be appropriate for all individuals and are subject to risks. Investors may get back less than they invested, and past performance is not a reliable indicator of future results. Asset allocation does not guarantee a profit or protect against loss. Nothing in this material should be relied upon in isolation for the purpose of making an investment decision. You are urged to consider carefully whether the services, products, asset classes (e.g., equities, fixed income, alternative investments, commodities, etc.) or strategies discussed are suitable to your needs. You must also consider the objectives, risks, charges, and expenses associated with an investment service, product or strategy prior to making an investment decision. For this and more complete information, including discussion of your goals/situation, contact your J.P. Morgan representative.

NON-RELIANCE

Certain information contained in this material is believed to be reliable; however, JPM does not represent or warrant its accuracy, reliability or completeness, or accept any liability for any loss or damage (whether direct or indirect) arising out of the use of all or any part of this material. No representation or warranty should be made with regard to any computations, graphs, tables, diagrams or commentary in this material, which are provided for illustration/reference purposes only. The views, opinions, estimates and strategies expressed in this material constitute our judgment based on current market conditions and are subject to change without notice. JPM assumes no duty to update any information in this material in the event that such information changes. Views, opinions, estimates and strategies expressed herein may differ from those expressed by other areas of JPM, views expressed for other purposes or in other contexts, and this material should not be regarded as a research report. Any projected results and risks are based solely on hypothetical examples cited, and actual results and risks will vary depending on specific circumstances. Forward-looking statements should not be considered as guarantees or predictions of future events.

Nothing in this document shall be construed as giving rise to any duty of care owed to, or advisory relationship with, you or any third party. Nothing in this document shall be regarded as an offer, solicitation, recommendation or advice (whether financial, accounting, legal, tax or other) given by J.P. Morgan and/or its officers or employees, irrespective of whether or not such communication was given at your request. J.P. Morgan and its affiliates and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transactions.  

IMPORTANT INFORMATION ABOUT YOUR INVESTMENTS AND POTENTIAL CONFLICTS OF INTEREST

Conflicts of interest will arise whenever JPMorgan Chase Bank, N.A. or any of its affiliates (together, “J.P. Morgan”) have an actual or perceived economic or other incentive in its management of our clients’ portfolios to act in a way that benefits J.P. Morgan. Conflicts will result, for example (to the extent the following activities are permitted in your account): (1) when J.P. Morgan invests in an investment product, such as a mutual fund, structured product, separately managed account or hedge fund issued or managed by JPMorgan Chase Bank, N.A. or an affiliate, such as J.P. Morgan Investment Management Inc.; (2) when a J.P. Morgan entity obtains services, including trade execution and trade clearing, from an affiliate; (3) when J.P. Morgan receives payment as a result of purchasing an investment product for a client’s account; or (4) when J.P. Morgan receives payment for providing services (including shareholder servicing, recordkeeping or custody) with respect to investment products purchased for a client’s portfolio. Other conflicts will result because of relationships that J.P. Morgan has with other clients or when J.P. Morgan acts for its own account.

Investment strategies are selected from both J.P. Morgan and third-party asset managers and are subject to a review process by our manager research teams. From this pool of strategies, our portfolio construction teams select those strategies we believe fit our asset allocation goals and forward-looking views in order to meet the portfolio’s investment objective.

As a general matter, we prefer J.P. Morgan managed strategies. We expect the proportion of J.P. Morgan managed strategies will be high (in fact, up to 100 percent) in strategies such as cash and high-quality fixed income, subject to applicable law and any account-specific considerations.

While our internally managed strategies generally align well with our forward-looking views, and we are familiar with the investment processes as well as the risk and compliance philosophy of the firm, it is important to note that

J.P. Morgan receives more overall fees when internally managed strategies are included. We offer the option of choosing to exclude J.P. Morgan managed strategies (other than cash and liquidity products) in certain portfolios.

The Six Circles Funds are U.S.-registered mutual funds managed by J.P. Morgan and sub-advised by third parties. Although considered internally managed strategies, JPMC does not retain a fee for fund management or other fund services. 

LEGAL ENTITY, BRAND & REGULATORY INFORMATION

In the United States, bank deposit accounts and related services, such as checking, savings and bank lending, are offered by JPMorgan Chase Bank, N.A. Member FDIC.

JPMorgan Chase Bank, N.A. and its affiliates (collectively “JPMCB”) offer investment products, which may include bank-managed investment accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC (“JPMS”), a member of FINRA and SIPC. Annuities are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. JPMCB, JPMS and CIA are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states.

References to “J.P. Morgan” are to JPM, its subsidiaries and affiliates worldwide. “J.P. Morgan Private Bank” is the brand name for the private banking business conducted by JPM.

This material is intended for your personal use and should not be circulated to or used by any other person, or duplicated for nonpersonal use, without our permission. If you have any questions or no longer wish to receive these communications, please contact your J.P. Morgan representative. 

© 2020 JPMorgan Chase & Co. All rights reserved.


Check the background of Our Firm and Investment Professionals on FINRA's BrokerCheck

To learn more about J. P. Morgan’s investment business, including our accounts, products and services, as well as our relationship with you, please review our  J.P. Morgan Securities LLC Form CRS and  Guide to Investment Services and Brokerage Products.

This website is for informational purposes only, and not an offer, recommendation or solicitation of any product, strategy service or transaction. Any views, strategies or products discussed on this site may not be appropriate or suitable for all individuals and are subject to risks. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, legal, tax and other professional advisors that take into account all of the particular facts and circumstances of an investor's own situation. 

This website provides information about the brokerage and investment advisory services provided by J.P. Morgan Securities LLC (“JPMS”). When JPMS acts as a broker-dealer, a client's relationship with us and our duties to the client will be different in some important ways than a client's relationship with us and our duties to the client when we are acting as an investment advisor. A client should carefully read the agreements and disclosures received (including our Form ADV disclosure brochure, if and when applicable) in connection with our provision of services for important information about the capacity in which we will be acting.

INVESTMENT AND INSURANCE PRODUCTS ARE: • NOT FDIC INSURED • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY • NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, JPMORGAN CHASE BANK, N.A. OR ANY OF ITS AFFILIATES • SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED
Equal Housing Opportunity logo

J.P. Morgan Chase Bank N.A., Member FDIC Not a commitment to lend. All extensions of credit are subject to credit approval 

“J.P. Morgan Securities” is a brand name for a wealth management business conducted by JPMorgan Chase & Co. (“JPMC”) and its subsidiaries worldwide. JPMorgan Chase Bank, N.A. and its affiliates (collectively “JPMCB”) offer investment products, which may include bank managed accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC (“JPMS”), a member of FINRA and SIPC. Annuities are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. JPMCB, JPMS and CIA are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states.

Please read additional Important Information in conjunction with these pages.