4) But it’s not just a short-term story — Europe is home to some of the growth trends of tomorrow.

This isn’t the same old Europe. The European market has seen its sector makeup shift from inherently lower growth industries like telecoms and banks toward higher quality companies like luxury goods and semiconductors. Further, as the pandemic and war exposed supply-side vulnerabilities, we believe that a capex cycle focused on developing the real economy is underway (think supply chain resiliency, energy and food security, infrastructure, and defense) — in stark departure from the era of low interest rates that fuelled mega cap tech in the last cycle. Such a shift could benefit Europe’s higher weighting to industrials, materials, and energy versus its U.S. peers.

5) A weaker dollar adds an extra kicker for U.S. investors.

The U.S. dollar has weakened about 10% from its highs as U.S. inflation cools, other developed world central banks catch up to the Fed’s rate hikes, and growth outside the U.S. has markedly improved. Meanwhile, the euro has rallied and the dynamics above should also give it further support. That means USD-based investors could see even more enhanced returns when investing in European assets. For example, since the start of October, the Stoxx Europe 600 has generated a compelling approximate 20% return in local currency terms, but an even higher about 30% in dollars!

Investment implications: Think outside the box

Europe accounts for only about 3% of U.S. investors’ total equity allocation, despite accounting for about 20% of the global equity universe. 2022 was also one of the worst years for flows out of European equities in the last decade. Many investors are underweight Europe, and looking ahead, while there remain risks around the war and the evolving business cycle, we believe the latest green shoots warrant a closer look.

In the multi-asset portfolios we manage, we've been increasing exposure. Some might also consider adding to broad markets with downside protection through structured notes. We likewise see opportunity in Europe’s national leaders across luxury, semiconductors and energy — many of which are aligned with policymakers’ priorities and may also provide stability in the face of any further volatility.

That said, at the same time, stresses remain, and a window appears to be opening for investors with expertise in special situations to acquire at assets at a discount and restructure troubled credit and real estate. Such strategies can generate yield and offer diversification if things go the other way.

Your J.P. Morgan team is here to discuss these insights and their impact on your portfolio.

DISCLOSURES

All market and economic data as of February 10, 2023 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.

The NASDAQ 100 Index is a basket of the 100 largest, most actively traded U.S companies listed on the NASDAQ stock exchange. The index includes companies from various industries except for the financial industry, like commercial and investment banks. These non-financial sectors include retail, biotechnology, industrial, technology, health care, and others.

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. ​