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Investing

5 reasons to be grateful this Thanksgiving

Despite the rough road for investors, there’s plenty to be thankful for — even in these markets.


Our Top Market Takeaways for November 23, 2022

Written by Global Investment Strategy

Happy Thanksgiving: Calm before the food

The S&P 500 is now up over 10% from early October lows (down 17% from year-to-date highs), breaching the 4,000 mark for the first time in two months. The VIX Index, which measures implied equity volatility, is at lows not seen since the end of summer.

Meanwhile, short-term Treasury yields are still approaching cycle highs as longer-term yields have barely dropped off their peak. The MOVE Index, which measures implied rates volatility, persists at historically elevated levels.

The idea that we may be approaching the beginning of the end of the policy tightening cycle is providing welcome relief to investors. The recent optimism could be attributed to a number of factors, whether it’s signs from both U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) that peak price pain may be in the rearview, hints from FOMC members that the Fed may execute a slowed tempo of rate hikes from here, upside surprises to earnings reports, or early World Cup wins.

Although a few positive developments have made way over the past week or so, it’s certainly not all rosy (think: acute pain in interest rate-sensitive segments of the economy and the crypto ecosystem). We can’t say we’d be the one at the Thanksgiving dinner table betting that market volatility is purely behind us.

Regardless, the holiday season is here, and we spend today’s note taking a much-needed moment to reflect.

Spotlight: Giving thanks

Despite the fact that pretty much everything that could go wrong this year did, it’s tradition for us to give thanks. Through it all, and before we get to the celebrations with friends, family and a thick turkey, here are five things we’re grateful for this holiday season:

  1. In-person gathering. We’re thankful to have the chance to travel around the country, meet different people and talk about markets on behalf of J.P. Morgan. One of our personal favorite parts is learning about the financial goals and dreams that people are investing for in the first place, and helping them feel empowered to pursue them by offering investment insights in an approachable way.
  2. The democratization of investing. Just a few generations ago, investing was really only in the purview of the wealthy. But recently, the rise and scale of self-directed online investing has made markets approachable for the masses, regardless of income bracket or career path. For one, investment entry levels and trading costs have fallen significantly as convenient investment vehicles like exchange-traded funds (ETFs) and markets-oriented briefings like Top Market Takeaways have continued growing.
  3. What may be the most compelling market entry point in over a decade. History has shown us that the equity market tends to move up and to the right over time. If you’re a picture-perfect investor, you buy at the low and sell at the high. In reality, that is a difficult game to play – especially when over the past 20 years, seven of the 10 best days for the S&P 500 occurred within just fifteen days of the 10 worst days.
    Instead of trying to time the market perfectly, focus on the big picture: Today’s selloff across asset classes is giving investors the luxury of choice. Oftentimes when things seem perhaps the most bleak, there are likely opportunities to uncover.
    For some, that could mean adding to stocks, which are about 20% down from January highs. Over the past 50 years, the S&P 500 has only entered bear market territory (aka the familiar 20% or more from highs) a mere nine times.
    For others, it could mean considering deploying capital in high-quality bonds, which are yielding about 6% for the first time in 10 years. The annualized performance of the S&P 500 over the past 20 years is ~6.5%. For the first time in a long time, markets are revealing a broad range of options to help investors achieve financial goals while taking less risk.
  4. The survival of the 60/40 (you can’t be revived if you were never dead). The stalwart 60/40 stock-bond portfolio has seen one of its worst performances on record this year. It’s painful for investors when stocks are down over 20%, and especially painful when bonds join alongside. In our view, we’re likely embarking on the beginning of the end of the hiking cycle that has catalyzed these losses in the first place. We think investors are now well-positioned to benefit on the other side.

Over the long run, our Long-Term Capital Market Assumptions stress that today’s attractive levels lend to impressive compounding future returns. Over the past 25 years, the rolling 10-year return of a 60/40 stock-bond portfolio has averaged 6.1%. Our forecast annual return over the next 10-15 years has leapt from the 4.3% that was expected just last year to 7.2%, well above the historical average.

  1. Health. We know people say that a lot, but it’s often taken for granted. When something goes wrong health-wise, you are forced to learn and practice so many things at once: humility, patience, gratitude and compassion, to name a few. It’s also a surefire way to get someone to slow down and reassess what is important, and we could all use a nudge sometimes.

Bonus! We’re also thankful for… Family. Friends. Our colleagues. Healthcare workers. The San Jose Sharks. Nick Saban’s process. Tua Tagovailoa’s spiral. The Long-Term Capital Market Assumptions. Sturgill Simpson. Coffee. Central Park. Galadriel and Cassian Andor’s backstories. Dogs. Winning records for New York football teams. Harry Kane. Tim Weah. Interesting currency markets. And the bears for letting us buy all these stocks at lower prices.

Above all, wishing you and yours a happy holiday season.

 

DISCLOSURES

All market and economic data as of November 23, 2022 and sourced from Bloomberg and FactSet unless otherwise stated.

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 Bloomberg Eco Surprise Index shows the degree to which economic analysts under- or over-estimate the trends in the business cycle. The surprise element is defined as the percentage difference between analyst forecasts and the published value of economic data releases.

Investing in fixed income products is subject to certain risks, including interest rate, credit, inflation, call, prepayment and reinvestment risk.  Any fixed income security sold or redeemed prior to maturity may be subject to substantial gain or loss.

The price of equity securities may rise or fall due to the changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Equity securities are subject to 'stock market risk' meaning that stock prices in general may decline over short or extended periods of time

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.

Bonds are subject to interest rate risk, credit and default risk of the issuer. Bond prices generally fall when interest rates rise.​ Investing in fixed income products is subject to certain risks, including interest rate, credit, inflation, call, prepayment and reinvestment risk. Any fixed income security sold or redeemed prior to maturity may be subject to substantial gain or loss. ​


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