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Why it's an attractive entry point for long-term investors now - JPMorgan

markets rewiers watch

It feels like everything is going wrong in the market. The major indexes fell below their 200-day averages, and about 60% of companies that reported results subsequently traded lower.

This is despite the fact that the reality is actually not that bad. The U.S. economy just posted its fastest growth in two years, inflation is falling and three-quarters of S&P 500 companies reporting earnings beat analysts' estimates.

“Overall, markets seem to be rejecting the idea that everything is rosy and good. And to be honest, it's not true. There's no denying there's a lot to worry about, from ongoing tensions in the Middle East to the central bank's 'higher for longer' policy and its consequences, to large budget deficits and consumer pressure points,” says Madison Faller, the firm's global investment strategist. . JPMorgan Private Bank.

Still, isn't there too much pessimism in the air? She thinks so. “Growth will slow, but this is very different from calls for a complete shutdown of economic activity. For example, a consumer may start spending less and switch to cheaper brands, but for the most part there is a job for everyone who still wants it. This dynamic is actually the key to a soft landing, which requires not accelerating growth, but slowing it down enough to ensure that inflationary pressures can make it through the last mile of progress,” says Faller.

Another point she makes is that if the economy does slow, bond yields should fall, making stocks easier to value. “We may be in a pocket of discomfort, but the more markets rely on pessimism, the greater the potential for future profits,” she says. “When markets are volatile, it can help to refocus on what you want from your portfolio over the long term.”

She points to the bank's 28th annual long-term capital market assumptions: 2.9% annual return for cash, 5.1% for bonds, 7% for U.S. large-cap stocks and 7.8% return for global equities. Don't get into bonds and relax—every major asset class has historically performed better than cash over a 10- to 15-year horizon, she says. The bank also recommends alternatives such as real estate, infrastructure, private equity and hedge funds as inflation hedges (though it should be noted that private equity is struggling with higher interest rates).

risk on off gauge

Market drivers

Israel launched a ground offensive on Gaza, and Russia was forced to close the airport in Dagestan after hundreds of people tried to storm a plane flying in from Tel Aviv.

The economic calendar is busy this week with the Employment Value Index on Tuesday, jobs, the ISM manufacturing report and the Fed decision on Wednesday, and non-farm payrolls on Friday.

There are also funding estimates published by the Treasury, as well as the November announcement of refunds. “Either Treasury borrowing will cause further supply fluctuations, or the event will fall into the 'sell the rumor and buy the fact' category, thereby paving the way for yields to return to familiar territory to leave the 10-year yield's run above 5%. like a fading (and fading) memory,” BMO analysts say.

Former Marvel executive Ike Perlmutter is buying Walt Disney (DIS), according to the Wall Street Journal.

McDonald's (MCD) reports earnings for Monday, a week that also includes earnings from Pfizer (PFE), Advanced Micro Devices (AMD) and powerhouse Apple (AAP) after the close on Thursday.

President Joe Biden is set to sign an executive order that will require the industry to develop safety and security standards for artificial intelligence.

Better bonds than stocks

chart 2023 10 30

Julius de Kempenaer, senior technical analyst at StockCharts, offers this chart of the S&P 500 ETF SPY versus the iShares 7-10 Year Treasury IEF Index - a quick and dirty comparison of stocks and bonds. He notes that after an uptrend that began in March, the ratio has moved sideways since July, but now it looks like a top has formed. “As a result, the outlook for the next few weeks remains (firmly) in favor of bonds over stocks ,” he says.

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