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Hi. Thanks for sharing part of your day with us. My name is Clay Irwin, and I am responsible for your sales and trading business at J.P. Morgan Wealth Management Solutions. Today I'm joined by Abby Yoder, our US equity strategist, and Tom Kennedy, our chief investment strategist. And over the next 30 minutes, we aim to cover our mid-year outlook.
And we want to talk about the key components there within, some of the economic backdrop and our outlook, as well as investment opportunities within your portfolios. And I hope by the end of the call it is clear to you why it is that we titled it a Strong Economy in a Fragile World. And maybe we'll pick it up right there.
Tom, no shortage of negative headlines in the world around us today. Yet despite it all, when you dig through the economy of the United States and the rest of the world has remained resilient. Help walk us through that resiliency and what's taking place in the world around us.
I feel like the narrative on the street, Clay, is using this word resilient. Because you just can't believe that despite the Federal Reserve as an example, hiking rates 500 basis points, that the economy can still do so well. We're going with strong economy instead, because it is so surprising how well we have weathered that interest rate hiking cycle. Some stats, first, despite the hikes, the US economy has outperformed economists expectations for two years in a row. What does that mean?
GDP growth coming in here, and expectations were something below that. Unemployment rate in the US at 4% or below for about 2 and 1/2 years. Last time you saw something like that, Clay, late 1960s. So there is something unique and very different about this going on.
So look, we'll talk about the differences between expectations and reality in a minute because I think that's an important point. Before we do, just a quick second on mortgages. Right? Because it's interesting when you think about this sustainably high interest rate environment, yet we have a strong economy behind it. I would think that by now some of the higher rates would have weighed on the real economy. And I've got family in Florida who just in time moved from the North to the South and they were able to get a reasonable mortgage rate.
But now, I mean, the rest of the world, they must be somewhat stuck in these positions. Yeah, the housing market is clear evidence that the Fed has put interest rates to a restrictive place. The average American has an existing mortgage right now, 30-year fixed, Clay, 3 and 1/2%. But want to walk into one of our great branches, you're going to see a mortgage rate around 7% or even higher. But the bigger zoom-out on the growth picture for America is really being driven by three things. And housing is a piece of it.
First is that consumption is high because the labor market is tight. Most Americans are going to feel their income growth north of 5% on average. That's higher than where we were pre-COVID. Second is on housing. Now you hit the point. Rates are restrictive and it is causing an affordability problem. But the average American has about 70% equity in their home. What am I saying? The value of the home is, say, a million bucks. 70% of that is equity. That if and when rates come down, they can monetize by selling or adding leverage.
The last piece, powering growth, is what's happening in the corporate space. Profit margins have widened in the last 12 to 18 months, and CEO confidence is high. That should support investing in businesses despite high interest rates, and a hiring and keeping that labor market quite robust.
So I want to go back on the rates conversation in a second because a lot of what you described of consumer confidence, of disposable income, of having that sense of wealth feels inflationary to me. So I want to talk about that. But before we do, let's talk about confidence.
We just wrapped first quarter earnings and you got a snapshot into the state of public equities. CEO confidence remains high. I want to hear your thoughts on that. But before we do, you shared with me the results of a survey that you saw just recently over the last couple of days talking about an individual's confidence in the economy around them, and how that might be inconsistent one's view of themself versus the broader world. Give me the details on that.
Yeah, so that was a Fed survey. And what it was doing, it was asking individuals, it gave them four choices to choose from. And it was saying, how do you feel about your own financial position? And 72% of respondents said, I feel good or I feel exceptional, basically. And then they asked alternatively, well, how do you feel about the economy?
And only 22% of those respondents said that they felt good about the economy. And that divergence, that huge divergence, has always existed. There's always been a gap, but it is doubled since 2019. And I think to your point around this whole conversation around mortgages and what's happening with the consumer, from a fundamental standpoint, they're in a very strong spot. But from a sentiment standpoint, when you have prices, inflation increasing over the past couple of years, the way that they did, there's a hit to confidence to a certain extent.
Interesting.
But-- sorry. Go ahead.
Well, I wanted to see if I could drive you to the to the earnings conversation. And so you spoke about this divergence perhaps between an individual's perception. What are the CEOs telling you? Well, what the CEOs are telling you is that that confidence that you're getting from consumers that you're seeing that 72% feeling secure is coming through, through spending. Right? So we just, as you mentioned, are finishing up 1Q earnings, and it was a really good quarter, probably the best in two years, let's call it. And that was driven by really solid revenue growth, which as Tom mentioned, was driven by this better than expected economic growth.
We also saw profit margins expand for the first time in seven quarters, and that led to a really healthy bottom line. And the Mag Seven technology related companies drove 50% of that growth rate that we saw in 1Q. But importantly, we did see strength broadening out. We saw all 11 sectors beat earnings expectations this quarter. That's important because that means what we're seeing is more companies and more sectors are exiting this rolling earnings recession that we had been talking about over the past, let's call it 18 months. And, you know, and this all fed through. We saw the lowest number of mentions of recessions through transcripts since Q4 of 2021.
Interesting. The other part that you hit that I think is really important is this concept of expectations and reality. So you're talking about it at the micro level, the corporate level. Tom was talking about at the macro level and the economic level. And the thing that's interesting that sometimes we forget is it's not good enough just to have good numbers. You need numbers that are better than what the expectations were, and that's what causes markets to continue to grind higher.
You had mentioned Mag Seven or Magnificent Seven, or those big companies that are driving a lot of the returns. I want to come back to that on a second. But before we do, Tom, let's transition back to the rates conversation. So we heard from Chair Powell yesterday talking about what he thinks the economic backdrop looks like, helping guide expectations towards the direction of rates. What is it that you learn from the call?
I think two things really jumped out to me. First is a mantra we have in our midyear outlook, higher for longer, but not forever. Powell and the team at the Fed updated their projections for interest rates going forward. They're still expecting the next move to be a cut just like us, but it's going to happen later. They're now calling for the median FOMC participant thinks you'll cut one time this year, four times next year, very similar to what we're expecting to happen.
The second thing, and I think is more interesting and more important for a multi-asset investor, is the Fed expects to cut rates despite growth staying high and the unemployment rate staying low. It's quite odd historically. Usually they would be cutting into economic downturns. What's affording them that luxury is that inflation has fallen precipitously in the last 12 to 18 months. And in fact, never in American history have we seen core inflation fall by 3 percentage points without a recession. That's what we just experienced.
And Powell went out of his way to talk about how that could exist, and to overly simplify, Clay, but inflation is high demand, meaning insufficient supply. So you can bring demand down or bring supply up. And Powell talked about how the labor supply surge in America has really helped rebalance the economy. And he's talking about immigration. In the last 100 years, you have never seen what we experienced in 2023. So 2023 saw the population of America grow by 1 percentage point from immigration. You have to go back to 1910 to see something like that.
Now, that's not without social consequence and things we read about in the media. But putting that aside for a minute and sticking to what I think our core competency is, that's helping to rebalance the economy and bring inflation down to more reasonable levels. So for a multi-asset investor, it supports the soft landing narrative.
The soft landing, this is an important thing. We've been talking about that for a long period of time. As you said, it is uncommon for the Fed to be reducing interest rates in a period of strong economic growth. You go back over the last 60 years, you see there's been about 12 or 13 rate cutting cycles. Only four times have we actually seen that take place in a period of positive economic activity. In each of those cases, it's been a fantastic backdrop for, I would call it, risk assets or investment portfolios.
One other thing that you said, I don't know that we compliment Fed chairs very often, but it's interesting, a stat that someone on your team shared with me yesterday. If the Fed were to wait until November or December to cut rates, this gap between the last hike and the first cut, I think is the longest gap that we've seen on record.
That's right.
I mean, it's pretty remarkable to get to that level of comfort level and maintain it for such a long period of time.
But the superlatives just keep adding up about how unique this situation is. And that is one stat that should we get to November or December, that's one we'll be reading about in the media.
All right, superlatives. So we've talked about a lot of the unique circumstances in the economy around us today. Let's talk about some of the superlatives in the equity market as well. I mean, yesterday we hit new highs in US equities. How do you think about that backdrop today?
So record high levels, but valuations seem elevated as well. Where do you get your confidence from?
Yeah, so I actually think the valuation argument within US equities is probably the most controversial or contrarian that we have in terms of our outlook. And I would also say importantly, our optimistic outlook for a year from now where we expect equity markets to be higher and hit new all-time highs is not driven by valuation. We are expecting a little bit of valuation contraction in that math that we come up with that number.
But that being said, we're in a higher for longer rate environment, not forever, but for longer. And typically, that would have an inverse relationship with the multiple. We would expect to see that lower. But I think the most important difference in today's environment really has to do with index composition. We're thinking about those tech companies and tech-related companies or AI-related companies. Those make up now around 30% to 40% of the index.
If you look back to the mid 1990s, that was less than 10% And why is that important? That's important because these are the most profitable companies in the index. They have the highest profit margins, the highest free cash flow, the highest return on equity. They're more efficiently using shareholder equity to generate income. And so that in and of itself makes not only historical comparisons a little bit less useful, argues for a higher multiple despite the higher rate environment.
Got it. I think that's a really important point. So you see higher equity levels. The part that is not reflected as often is that we're at record levels of earnings as well. Now that push-back is that the multiple, the valuations as you say that you have to pay for those earnings, is higher than average levels. But if you normalize it for this tech component, maybe it's not as high as some might fear.
There's that. Yes, that is what I was getting at before. But there's also the component of the fact that you're getting, so 75% of trailing earnings were returned to shareholders in the form of dividends and buybacks.
Interesting.
So when you're buying an equity, or a company, a corporation in the public equity markets, you're buying a portion of their future earnings. Right? And the reason we would argue that interest rates make it less attractive is because you have to discount that back at a higher rate and makes it lower. But if you're getting a growing share of earnings returned back to you, a bigger portion of that being given back to you today, that in and of itself, I think also underscores why you would pay more for that.
So a higher return on equity, a higher return of equity shouldn't be surprising we're getting higher returns within the equity markets as well.
Yes, exactly.
Let's dig in to one of the mega trends that you spend a lot of time talking about. You had mentioned at the top of the call this concept of the Magnificent Seven. Where do you see the disproportionate growth in the equity markets today?
Yeah, so I think, so talking about just a theme generally, is it resonates because it's to a certain extent acyclical, right? We're not worried about the theme of AI is not going to be derailed if the Fed cuts 25 basis points this year or January. It's irrespective of cyclicality. And I think that resonates a lot.
And look, we're not the only people talking about this. This is across the Street, obviously, the most widely talked about topic. But I think where we differentiate is where we think there will be winners in the next couple of years. Right? Today's winners are relatively well known. But for us, the next couple of years are going to be we're going to focus on where companies or which companies are going to benefit from this revolution from a revenue enhancement standpoint, a productivity standpoint, or both.
Well, make it real for me. I feel like artificial intelligence is something that the world broadly started talking about with energy about a year and a half ago with the release of ChatGPT. Right? There became a consumer product that everyone could play with and actually see that, wow, this feels different. This could be a differentiator. But at a corporate level, it feels kind of gimmicky.
Like, great, write me a limerick. But how is this going to impact the businesses that you're investing in?
Well, I think it's going to depend. I think it's going to evolve. Right? I think right now, businesses are in the phase where they're trying to figure out what is the best use case for me and how do I optimize this. But I think health care is a really good example because, one, it's tangible to all of us and it is important that we have technological advancements within health care. And I think one of the easiest things to look at is drug discovery. Right? And AI can basically-- this is a long, complicated, expensive and inefficient process.
How long?
10 years, $2 billion, 7% are successful.
In order to create a new drug.
Yeah, exactly.
And what AI can do is help streamline not only the initial drug discovery, so help whittle down all of those molecules, then pick the best patients for a trial design, and then help commercially market that drug. Right? So every single step of the way AI can help with efficiencies, productivity, which again, not only is revenue enhancing gets drugs to market faster, that has health outcomes, benefits for all of us. Right? So just an all over win-win, I would assume.
Excellent. So that's one example. Within health care. It applies everywhere else. Tom, you have something on this?
You talked about interest rates not being the risk to AI. I think as we start to broaden out, the risk to AI is probably the compute power and the compute capacity. How quickly can we adopt this technology when ChatGPT queries are 6 to 10 times more energy intensive than a traditional Google search, and 95% of all energy that's coming online in America or in queue to come online is wind and solar. These are not consistent forms of energy.
So there are risks to this trade. But I think we can make those risks really tangible and investable for clients too. But you need an ecosystem around AI. It's not just you walk into that large language model and it gives you the answer. So that risk profile, I think we can take advantage of and invest alongside.
Let's hard pivot away from artificial intelligence and maybe back to something a little more tangible, interest rates. Again, we started this year cash rates something around the order of 5%. And actually there they remain more or less. Where do you think we should be going with respect to the direction of rates in the near term? And then what should we be doing in our fixed income portfolios as a result?
Yeah, I think I love a 5% cash yield as much as anybody else. So we should be thinking about how can we lock that in for a longer period of time. Throughout the year, longer duration bonds, longer maturity bonds, say a five-year year investment grade bond, yields have risen. Now I can actually trade that cash yield of 5-plus percent and buy an investment grade bond for, say, five years at that same yield. That's a trade I think people should be thinking about.
I think the next move on cash yield is down, likely starting towards the end of the year. It could be sooner. So I think that's the first thing. And municipal bonds, investment grade bonds fit there. But in a soft landing scenario, you can take a little bit more risk, too.
And there I'm talking about direct lending or what the media will often talk about private credit, a big bucket. Despite the negative headlines, Clay, I feel like we read them all the time on private credit. I think this is a great opportunity for folks to get a yield that is low double digits.
Hold on, pause for just a second on private credit itself. So you talked about extending from cash into investment grade fixed income, generally publicly traded bonds, large companies that issue them. There's an entire universe of borrowers that exist in the non-public space or the private space, as we say. And so what you're talking about here is actually making these direct loans to those businesses outside of the public sphere.
Yeah. Historically, a small or medium sized business might come to J.P. Morgan or a bank to say, I want to borrow money to build my business or expand. What's happening from regulatory environments and just the way banks are using their balance sheet, lenders are going elsewhere into this, quote-unquote, "private credit space." I think it gets negative headlines because it's growing so rapidly. And any time things grow rapidly, people think it could be a bubble.
But a way that I get comfortable with it is to look at middle market businesses, what their profits are doing, and their total amount of leverage. Agnostic to where they're borrowing, they're growing together, Clay. That's not a bubble. That's just private credit taking market share from high yield.
So I think we know this product. Yet there's still this disbelief and it offers 2 to 3 percentage points of income per year in excess of a leveraged loan or high yield. I think we should take advantage of that. I think it's a great opportunity for people to use fixed income. There's finally income back in fixed income, and use it to our advantage.
One of the reasons that opportunity exists is because another source of capital to those businesses has been in the public equity markets. That some of these private businesses could actually IPO and then they would become public, and perhaps be able to tap the public markets on the debt side. What are some of the other ripples or opportunities that you're seeing as a lack or coming from a lack of activity in the syndicate market?
Yeah, I think private equity as a business is predicated on leverage and interest rates hit them very closely. So what's a private equity business? They buy another business, public or private, optimize the operating structure, and sell it for a higher price. But higher interest rates are impacting them negatively and they're unable to exit, unable to make that sale. Maybe interest rates are too high in the business or the person who wants to buy it needs leverage and interest rates are too high. Exits from private equity are down 50% from 2021, but it creates opportunity.
Private equity firms need liquidity, so they're going to what's called the secondary market. I made an investment in this business three to five years ago, and I'm not going to exit it, but I'll sell it to you, Clay, at a discount. So it's a more seasoned product. You can look at some of the financials and historically these return mid-teens type of return. So a new piece, a new opportunity in private equity is showing its face. I think it's got good risk adjusted ideas.
So mid-teens potential returns in the equity space is materially higher than what we're expecting in the large cap US arena. Abby, talk to us a little bit about opportunities within the equity space on the public side, beyond those mega cap companies that you were just talking about, and perhaps beyond the shores of the United States.
Yeah, well, I mean, I think to your point, a lot of the focus has been around tech, where can you get that exposure, this US exceptionalism. So there are a few areas that we view as not only a better valuation, like a more attractive valuation, and that's on the mid cap space in the US and then Europe and Japan, internationally. And they all kind of share similar attributes, and one that their valuation is more attractive. They've been beaten up basically over the past couple of years, basically used as a funding source for tech.
And I would say mid cap has a lot of industrial exposure. So think about what Tom was just talking about in terms of what we need in terms of energy infrastructure, who's going to build that. That's going to be industrial companies. And then as it relates to Europe and Japan, they're both adopting more shareholder friendly policies. They're returning much more cash to shareholders in the form of dividends and buybacks. And they're much more cyclically oriented, much like mid cap. So they are going to be participating in what would be a global growth uptick, more so than, I would say, the large cap US equity space.
All right. Thank you. So as we just highlighted, the economy perhaps stronger than many would expect. There are investment opportunities within the equity space and investment opportunities within the fixed income space. Let's spend a second on the risks. Let's spend a second on the fragility. It's interesting that this year, 2024, is a unique year in that about half of the world's population has gone to the polls. We are electing new leaders.
And in November of this year, the United States will be doing the same thing. Tom, when you think about some of the maybe more obvious or tangible risks that we're facing from this election, how do you think about that in terms of your market outlook?
Historically, elections haven't had a lasting impact on the equity market. You could stop there. But I think we'd all be forgiven to think that maybe this US election is going to be different. For us, I think there's three things we need to focus on. First is fiscal woes, what can mean from this election. Second is on supply chain security and then immigration.
So starting with the fiscal woes, both candidates, President Trump and President Biden, seem like they're going to continue to lean on the deficit to fund this economy. The debt to GDP ratio is north of 100, and I think we all agree at some point we'll have to deal with that. There'll be a reckoning. I don't know when, Clay. But here's a good question for you. You can close a deficit by raising revenue or reducing expenses. What do you think is more likely?
Well, how do we raise revenue again?
Taxes, higher tax rates. So I think that's the more likely scenario. So getting efficient, if we're worried about this risk, getting tax efficient, thinking about municipal bonds, preferred stocks, even some tax loss harvesting strategies, I think this should be a real key piece of the advice toolkit.
I think that that is a commonly shared perception, that the pressures on taxes will remain. While perhaps not appropriate for everyone, it is a conversation that we should all be having. Whether or not it's munis as you highlight, tax loss harvesting strategies, talk with your advisor about whether or not some of these might make sense for you. It's a conversation that's only going to grow as the elections get closer.
The second is supply chain security, and that's decoupling from China. President Biden and President Trump both are focused on this. Their attacks have been different. President Biden has favored tax incentives for people to spend and decouple in America, and with allies. President Trump has favored tariffs, but those things are converging. Just last week, president Biden announced tariffs on EVs, batteries, renewables. And they were small. I think it's just emblematic of the separation.
But for me, it's just how hard it's going to be to separate. About half of all imported lithium ion batteries to America come from China. 70% of rare earths, critical minerals needed in renewables are produced by China. It's going to be a heavy CapEx lift, a long road, and I think that CapEx will have to happen in industrials in America, and with allies, most likely in Latin America, and Canada.
The two biggest themes that you talked about, continued fiscal spending and tariffs. I know that there's a lot of other things that we need to consider as we go into the election cycle. But these all feel inflationary to me. So I would ask that you and your team continue to spend the time that you are on researching these and the potential impacts and outcomes that we could expect. I think over the course of the next six months, we owe it to everybody on this call to continue to talk about those two issues.
Yeah.
All right, Abby, part of our responsibilities from an investment perspective is sometimes separating what is the emotional part of the activity around the world, and focusing a little bit more clinically on the investing part of a portfolio. We talk about different fragilities or challenges that the world is facing. Help us think about geopolitics and how much it does or does not play into the way that you think about investing.
Yeah. I mean, so emotions aside, we have to think about the environment over the past two years has been of increased geopolitical tension and that's globally really all over, with armed conflict, I think, at an 80-year high.
Correct.
And so from an equity market perspective, though, it's very hard for us to underwrite a valuation or an earnings hit based on that, just because of elevated tensions. Right? And we also looked historically what has happened to a diversified equity portfolio in 36 isolated geopolitical events-- wars, invasions, since World War II. And what we found is at 6 and 12 months later, the returns were identical to periods that didn't include those events.
So that's to say if you are globally diversified, you are more or less insulated from those events. That's not to say not in the near term. Typically, what you see in the short term is a sell-off in equity markets because it's risk off and there's uncertainty and there are ways to offset that. Namely, I would say oil and gold. Those are usually typically good short-term hedges around that. But I think what we're trying to get at in terms of this geopolitical fragility is the fact that we don't think it's going to change anytime soon.
Right?
You talked about supply chains. We've talked about energy a little bit. Just defense spending generally from both a sovereign and a corporate standpoint is increasing. And this is creating longer term investment.
But you're right. So the capital consumption, capital deployment is shifting and these could be durable trends. What was the statistic that you shared with me respect to nation state spending and defense itself?
So NATO members, that was on NATO members, 11 of the 32 NATO members currently today are meeting their 2% defense spend of GDP. That is supposed to increase to 18 by the end of the year. And it increased, I think, 13% between Europe and France last year alone, and compares to three countries in 2010. So just a markedly different backdrop as it relates to spend. And again, that's on the sovereign side, not even including the corporate side.
And so some of this increase in capital deployment you think will accrue to industrials, materials, and energy as well, I would presume.
Yeah, exactly. So it's going to span, I would say, more old economy type sectors. And you think about the growth rates that those sectors have seen over the past couple of years. It's been, let's call it low single digits, 2% to 5%. And that's somewhere closer to say, 6% to 12% over the next 10 years, let's call it.
So there's a number of things that we need to continue to look at from a geopolitical or fragility standpoint. But as you said, it's incumbent upon you and many of your partners in the investments landscape to separate that emotional component from the investments component when you think about portfolio building and portfolio construction. I'd love to think that everybody on the call now is going to go dig into the piece and read all of the work that you all have done.
But maybe in anticipation of that, let's offer a quick summary of this call and let's do it in a lightning round format. Tom, over to you first. Over the course of the next 12 months, do you expect for rates to be higher or lower?
Lower.
Abby, within the equity space, do you think that the investment opportunity for the next 12 months is greater within the United States or beyond the borders?
Europe and Japan.
Europe and Japan over the US.
Tom, what is the biggest durable investment trend that you see available in the world today?
Artificial intelligence, but not just the big tech hyperscaler names. I think you need to find opportunity in the ecosystem around it-- energy, infrastructure, natural resources, which is this industrial spend that Abby and I've been talking about.
And Abby, final question to you. What do you think is the biggest risk that we face today?
I think it's around inflation and rates. I think that's really underscoring everything that we've been talking about. It took up at least every part of our conversation. It would derail the consumer outlook, the corporate outlook, if rates were to remain higher or move higher from here. But again, that's not our base case.
Excellent. Well, look, we're counting on both of you to maintain us informed of everything taking place around here. Thanks for your time today. Thank you to all of you for sharing part of your days with us. We appreciate the confidence that you put in us at J.P. Morgan. Should you have questions about this content or anything else, please do reach out to your J.P. Morgan advisors, and we look forward to hearing from you.
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Text: Clay Erwin, Global Head Of Investment Sales & Trading
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Hi. Thanks for sharing part of your day with us. My name is Clay Irwin, and I am responsible for your sales and trading business at J.P. Morgan Wealth Management Solutions. Today I'm joined by Abby Yoder, our US equity strategist, and Tom Kennedy, our chief investment strategist. And over the next 30 minutes, we aim to cover our mid-year outlook.
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Text: Mid-Year Outlook 2024, A Strong Economy In A Fragile World
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And we want to talk about the key components there within, some of the economic backdrop and our outlook, as well as investment opportunities within your portfolios. And I hope by the end of the call it is clear to you why it is that we titled it a Strong Economy in a Fragile World. And maybe we'll pick it up right there.
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Tom, no shortage of negative headlines in the world around us today. Yet despite it all, when you dig through the economy of the United States and the rest of the world has remained resilient. Help walk us through that resiliency and what's taking place in the world around us.
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Text: The economy is stronger than you think. We think the global market rally should continue.
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I feel like the narrative on the street, Clay, is using this word resilient. Because you just can't believe that despite the Federal Reserve as an example, hiking rates 500 basis points, that the economy can still do so well.
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Text: Tom Kennedy, Chief Investment Strategist
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We're going with strong economy instead, because it is so surprising how well we have weathered that interest rate hiking cycle. Some stats, first, despite the hikes, the US economy has outperformed economists expectations for two years in a row. What does that mean?
GDP growth coming in here, and expectations were something below that. Unemployment rate in the US at 4% or below for about 2 and 1/2 years. Last time you saw something like that, Clay, late 1960s. So there is something unique and very different about this going on.
So look, we'll talk about the differences between expectations and reality in a minute because I think that's an important point. Before we do, just a quick second on mortgages. Right? Because it's interesting when you think about this sustainably high interest rate environment, yet we have a strong economy behind it. I would think that by now some of the higher rates would have weighed on the real economy. And I've got family in Florida who just in time moved from the North to the South and they were able to get a reasonable mortgage rate.
But now, I mean, the rest of the world, they must be somewhat stuck in these positions. Yeah, the housing market is clear evidence that the Fed has put interest rates to a restrictive place. The average American has an existing mortgage right now, 30-year fixed, Clay, 3 and 1/2%. But want to walk into one of our great branches, you're going to see a mortgage rate around 7% or even higher. But the bigger zoom-out on the growth picture for America is really being driven by three things. And housing is a piece of it.
First is that consumption is high because the labor market is tight. Most Americans are going to feel their income growth north of 5% on average. That's higher than where we were pre-COVID. Second is on housing. Now you hit the point. Rates are restrictive and it is causing an affordability problem. But the average American has about 70% equity in their home. What am I saying? The value of the home is, say, a million bucks. 70% of that is equity. That if and when rates come down, they can monetize by selling or adding leverage.
The last piece, powering growth, is what's happening in the corporate space. Profit margins have widened in the last 12 to 18 months, and CEO confidence is high. That should support investing in businesses despite high interest rates, and a hiring and keeping that labor market quite robust.
So I want to go back on the rates conversation in a second because a lot of what you described of consumer confidence, of disposable income, of having that sense of wealth feels inflationary to me. So I want to talk about that. But before we do, let's talk about confidence.
We just wrapped first quarter earnings and you got a snapshot into the state of public equities. CEO confidence remains high. I want to hear your thoughts on that. But before we do, you shared with me the results of a survey that you saw just recently over the last couple of days talking about an individual's confidence in the economy around them, and how that might be inconsistent one's view of themself versus the broader world. Give me the details on that.
Yeah, so that was a Fed survey. And what it was doing, it was asking individuals, it gave them four choices to choose from.
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Text: Abigail Yoder, US Equity Strategist
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And it was saying, how do you feel about your own financial position? And 72% of respondents said, I feel good or I feel exceptional, basically. And then they asked alternatively, well, how do you feel about the economy?
And only 22% of those respondents said that they felt good about the economy. And that divergence, that huge divergence, has always existed. There's always been a gap, but it is doubled since 2019. And I think to your point around this whole conversation around mortgages and what's happening with the consumer, from a fundamental standpoint, they're in a very strong spot. But from a sentiment standpoint, when you have prices, inflation increasing over the past couple of years, the way that they did, there's a hit to confidence to a certain extent.
Interesting.
But-- sorry. Go ahead.
Well, I wanted to see if I could drive you to the to the earnings conversation. And so you spoke about this divergence perhaps between an individual's perception. What are the CEOs telling you? Well, what the CEOs are telling you is that that confidence that you're getting from consumers that you're seeing that 72% feeling secure is coming through, through spending. Right? So we just, as you mentioned, are finishing up 1Q earnings, and it was a really good quarter, probably the best in two years, let's call it. And that was driven by really solid revenue growth, which as Tom mentioned, was driven by this better than expected economic growth.
We also saw profit margins expand for the first time in seven quarters, and that led to a really healthy bottom line. And the Mag Seven technology related companies drove 50% of that growth rate that we saw in 1Q. But importantly, we did see strength broadening out. We saw all 11 sectors beat earnings expectations this quarter. That's important because that means what we're seeing is more companies and more sectors are exiting this rolling earnings recession that we had been talking about over the past, let's call it 18 months. And, you know, and this all fed through. We saw the lowest number of mentions of recessions through transcripts since Q4 of 2021.
Interesting. The other part that you hit that I think is really important is this concept of expectations and reality. So you're talking about it at the micro level, the corporate level. Tom was talking about at the macro level and the economic level. And the thing that's interesting that sometimes we forget is it's not good enough just to have good numbers. You need numbers that are better than what the expectations were, and that's what causes markets to continue to grind higher.
You had mentioned Mag Seven or Magnificent Seven, or those big companies that are driving a lot of the returns. I want to come back to that on a second. But before we do, Tom, let's transition back to the rates conversation. So we heard from Chair Powell yesterday talking about what he thinks the economic backdrop looks like, helping guide expectations towards the direction of rates. What is it that you learn from the call?
I think two things really jumped out to me. First is a mantra we have in our midyear outlook, higher for longer, but not forever.
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Text: Rates will be higher for longer, not forever. Dislocations in interest-rate-sensitive sectors may not last.
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Powell and the team at the Fed updated their projections for interest rates going forward. They're still expecting the next move to be a cut just like us, but it's going to happen later. They're now calling for the median FOMC participant thinks you'll cut one time this year, four times next year, very similar to what we're expecting to happen.
The second thing, and I think is more interesting and more important for a multi-asset investor, is the Fed expects to cut rates despite growth staying high and the unemployment rate staying low. It's quite odd historically. Usually they would be cutting into economic downturns. What's affording them that luxury is that inflation has fallen precipitously in the last 12 to 18 months. And in fact, never in American history have we seen core inflation fall by 3 percentage points without a recession. That's what we just experienced.
And Powell went out of his way to talk about how that could exist, and to overly simplify, Clay, but inflation is high demand, meaning insufficient supply. So you can bring demand down or bring supply up. And Powell talked about how the labor supply surge in America has really helped rebalance the economy. And he's talking about immigration. In the last 100 years, you have never seen what we experienced in 2023. So 2023 saw the population of America grow by 1 percentage point from immigration. You have to go back to 1910 to see something like that.
Now, that's not without social consequence and things we read about in the media. But putting that aside for a minute and sticking to what I think our core competency is, that's helping to rebalance the economy and bring inflation down to more reasonable levels. So for a multi-asset investor, it supports the soft landing narrative.
The soft landing, this is an important thing. We've been talking about that for a long period of time. As you said, it is uncommon for the Fed to be reducing interest rates in a period of strong economic growth. You go back over the last 60 years, you see there's been about 12 or 13 rate cutting cycles. Only four times have we actually seen that take place in a period of positive economic activity. In each of those cases, it's been a fantastic backdrop for, I would call it, risk assets or investment portfolios.
One other thing that you said, I don't know that we compliment Fed chairs very often, but it's interesting, a stat that someone on your team shared with me yesterday. If the Fed were to wait until November or December to cut rates, this gap between the last hike and the first cut, I think is the longest gap that we've seen on record.
That's right.
I mean, it's pretty remarkable to get to that level of comfort level and maintain it for such a long period of time.
But the superlatives just keep adding up about how unique this situation is. And that is one stat that should we get to November or December, that's one we'll be reading about in the media.
All right, superlatives. So we've talked about a lot of the unique circumstances in the economy around us today. Let's talk about some of the superlatives in the equity market as well. I mean, yesterday we hit new highs in US equities. How do you think about that backdrop today?
So record high levels, but valuations seem elevated as well. Where do you get your confidence from?
Yeah, so I actually think the valuation argument within US equities is probably the most controversial or contrarian that we have in terms of our outlook. And I would also say importantly, our optimistic outlook for a year from now where we expect equity markets to be higher and hit new all-time highs is not driven by valuation. We are expecting a little bit of valuation contraction in that math that we come up with that number.
But that being said, we're in a higher for longer rate environment, not forever, but for longer. And typically, that would have an inverse relationship with the multiple. We would expect to see that lower. But I think the most important difference in today's environment really has to do with index composition. We're thinking about those tech companies and tech-related companies or AI-related companies. Those make up now around 30% to 40% of the index.
If you look back to the mid 1990s, that was less than 10% And why is that important? That's important because these are the most profitable companies in the index. They have the highest profit margins, the highest free cash flow, the highest return on equity. They're more efficiently using shareholder equity to generate income. And so that in and of itself makes not only historical comparisons a little bit less useful, argues for a higher multiple despite the higher rate environment.
Got it. I think that's a really important point. So you see higher equity levels. The part that is not reflected as often is that we're at record levels of earnings as well. Now that push-back is that the multiple, the valuations as you say that you have to pay for those earnings, is higher than average levels. But if you normalize it for this tech component, maybe it's not as high as some might fear.
There's that. Yes, that is what I was getting at before. But there's also the component of the fact that you're getting, so 75% of trailing earnings were returned to shareholders in the form of dividends and buybacks.
Interesting.
So when you're buying an equity, or a company, a corporation in the public equity markets, you're buying a portion of their future earnings. Right? And the reason we would argue that interest rates make it less attractive is because you have to discount that back at a higher rate and makes it lower. But if you're getting a growing share of earnings returned back to you, a bigger portion of that being given back to you today, that in and of itself, I think also underscores why you would pay more for that.
So a higher return on equity, a higher return of equity shouldn't be surprising we're getting higher returns within the equity markets as well.
Yes, exactly.
Let's dig in to one of the mega trends that you spend a lot of time talking about. You had mentioned at the top of the call this concept of the Magnificent Seven. Where do you see the disproportionate growth in the equity markets today?
Yeah, so I think, so talking about just a theme generally, is it resonates because it's to a certain extent acyclical, right? We're not worried about the theme of AI is not going to be derailed if the Fed cuts 25 basis points this year or January. It's irrespective of cyclicality. And I think that resonates a lot.
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Text: AI is just getting started. The path is uncertain, but the impact could be massive.
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And look, we're not the only people talking about this. This is across the Street, obviously, the most widely talked about topic. But I think where we differentiate is where we think there will be winners in the next couple of years. Right? Today's winners are relatively well known. But for us, the next couple of years are going to be we're going to focus on where companies or which companies are going to benefit from this revolution from a revenue enhancement standpoint, a productivity standpoint, or both.
Well, make it real for me. I feel like artificial intelligence is something that the world broadly started talking about with energy about a year and a half ago with the release of ChatGPT. Right? There became a consumer product that everyone could play with and actually see that, wow, this feels different. This could be a differentiator. But at a corporate level, it feels kind of gimmicky.
Like, great, write me a limerick. But how is this going to impact the businesses that you're investing in?
Well, I think it's going to depend. I think it's going to evolve. Right? I think right now, businesses are in the phase where they're trying to figure out what is the best use case for me and how do I optimize this. But I think health care is a really good example because, one, it's tangible to all of us and it is important that we have technological advancements within health care. And I think one of the easiest things to look at is drug discovery. Right? And AI can basically-- this is a long, complicated, expensive and inefficient process.
How long?
10 years, $2 billion, 7% are successful.
In order to create a new drug.
Yeah, exactly.
And what AI can do is help streamline not only the initial drug discovery, so help whittle down all of those molecules, then pick the best patients for a trial design, and then help commercially market that drug. Right? So every single step of the way AI can help with efficiencies, productivity, which again, not only is revenue enhancing gets drugs to market faster, that has health outcomes, benefits for all of us. Right? So just an all over win-win, I would assume.
Excellent. So that's one example. Within health care. It applies everywhere else. Tom, you have something on this?
You talked about interest rates not being the risk to AI. I think as we start to broaden out, the risk to AI is probably the compute power and the compute capacity. How quickly can we adopt this technology when ChatGPT queries are 6 to 10 times more energy intensive than a traditional Google search, and 95% of all energy that's coming online in America or in queue to come online is wind and solar. These are not consistent forms of energy.
So there are risks to this trade. But I think we can make those risks really tangible and investable for clients too. But you need an ecosystem around AI. It's not just you walk into that large language model and it gives you the answer. So that risk profile, I think we can take advantage of and invest alongside.
Let's hard pivot away from artificial intelligence and maybe back to something a little more tangible, interest rates. Again, we started this year cash rates something around the order of 5%. And actually there they remain more or less. Where do you think we should be going with respect to the direction of rates in the near term? And then what should we be doing in our fixed income portfolios as a result?
Yeah, I think I love a 5% cash yield as much as anybody else. So we should be thinking about how can we lock that in for a longer period of time. Throughout the year, longer duration bonds, longer maturity bonds, say a five-year year investment grade bond, yields have risen. Now I can actually trade that cash yield of 5-plus percent and buy an investment grade bond for, say, five years at that same yield. That's a trade I think people should be thinking about.
I think the next move on cash yield is down, likely starting towards the end of the year. It could be sooner. So I think that's the first thing. And municipal bonds, investment grade bonds fit there. But in a soft landing scenario, you can take a little bit more risk, too.
And there I'm talking about direct lending or what the media will often talk about private credit, a big bucket. Despite the negative headlines, Clay, I feel like we read them all the time on private credit. I think this is a great opportunity for folks to get a yield that is low double digits.
Hold on, pause for just a second on private credit itself. So you talked about extending from cash into investment grade fixed income, generally publicly traded bonds, large companies that issue them. There's an entire universe of borrowers that exist in the non-public space or the private space, as we say. And so what you're talking about here is actually making these direct loans to those businesses outside of the public sphere.
Yeah. Historically, a small or medium sized business might come to J.P. Morgan or a bank to say, I want to borrow money to build my business or expand. What's happening from regulatory environments and just the way banks are using their balance sheet, lenders are going elsewhere into this, quote-unquote, "private credit space." I think it gets negative headlines because it's growing so rapidly. And any time things grow rapidly, people think it could be a bubble.
But a way that I get comfortable with it is to look at middle market businesses, what their profits are doing, and their total amount of leverage. Agnostic to where they're borrowing, they're growing together, Clay. That's not a bubble. That's just private credit taking market share from high yield.
So I think we know this product. Yet there's still this disbelief and it offers 2 to 3 percentage points of income per year in excess of a leveraged loan or high yield. I think we should take advantage of that. I think it's a great opportunity for people to use fixed income. There's finally income back in fixed income, and use it to our advantage.
One of the reasons that opportunity exists is because another source of capital to those businesses has been in the public equity markets. That some of these private businesses could actually IPO and then they would become public, and perhaps be able to tap the public markets on the debt side. What are some of the other ripples or opportunities that you're seeing as a lack or coming from a lack of activity in the syndicate market?
Yeah, I think private equity as a business is predicated on leverage and interest rates hit them very closely. So what's a private equity business? They buy another business, public or private, optimize the operating structure, and sell it for a higher price. But higher interest rates are impacting them negatively and they're unable to exit, unable to make that sale. Maybe interest rates are too high in the business or the person who wants to buy it needs leverage and interest rates are too high. Exits from private equity are down 50% from 2021, but it creates opportunity.
Private equity firms need liquidity, so they're going to what's called the secondary market. I made an investment in this business three to five years ago, and I'm not going to exit it, but I'll sell it to you, Clay, at a discount. So it's a more seasoned product. You can look at some of the financials and historically these return mid-teens type of return. So a new piece, a new opportunity in private equity is showing its face. I think it's got good risk adjusted ideas.
So mid-teens potential returns in the equity space is materially higher than what we're expecting in the large cap US arena. Abby, talk to us a little bit about opportunities within the equity space on the public side, beyond those mega cap companies that you were just talking about, and perhaps beyond the shores of the United States.
Yeah, well, I mean, I think to your point, a lot of the focus has been around tech, where can you get that exposure, this US exceptionalism. So there are a few areas that we view as not only a better valuation, like a more attractive valuation, and that's on the mid cap space in the US and then Europe and Japan, internationally. And they all kind of share similar attributes, and one that their valuation is more attractive. They've been beaten up basically over the past couple of years, basically used as a funding source for tech.
And I would say mid cap has a lot of industrial exposure. So think about what Tom was just talking about in terms of what we need in terms of energy infrastructure, who's going to build that. That's going to be industrial companies. And then as it relates to Europe and Japan, they're both adopting more shareholder friendly policies. They're returning much more cash to shareholders in the form of dividends and buybacks. And they're much more cyclically oriented, much like mid cap. So they are going to be participating in what would be a global growth uptick, more so than, I would say, the large cap US equity space.
All right. Thank you. So as we just highlighted, the economy perhaps stronger than many would expect. There are investment opportunities within the equity space and investment opportunities within the fixed income space. Let's spend a second on the risks. Let's spend a second on the fragility. It's interesting that this year, 2024, is a unique year in that about half of the world's population has gone to the polls. We are electing new leaders.
And in November of this year, the United States will be doing the same thing. Tom, when you think about some of the maybe more obvious or tangible risks that we're facing from this election, how do you think about that in terms of your market outlook?
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Text: The US election will have global effects. Don't let them disrupt your plans.
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Historically, elections haven't had a lasting impact on the equity market. You could stop there. But I think we'd all be forgiven to think that maybe this US election is going to be different. For us, I think there's three things we need to focus on. First is fiscal woes, what can mean from this election. Second is on supply chain security and then immigration.
So starting with the fiscal woes, both candidates, President Trump and President Biden, seem like they're going to continue to lean on the deficit to fund this economy. The debt to GDP ratio is north of 100, and I think we all agree at some point we'll have to deal with that. There'll be a reckoning. I don't know when, Clay. But here's a good question for you. You can close a deficit by raising revenue or reducing expenses. What do you think is more likely?
Well, how do we raise revenue again?
Taxes, higher tax rates. So I think that's the more likely scenario. So getting efficient, if we're worried about this risk, getting tax efficient, thinking about municipal bonds, preferred stocks, even some tax loss harvesting strategies, I think this should be a real key piece of the advice toolkit.
I think that that is a commonly shared perception, that the pressures on taxes will remain. While perhaps not appropriate for everyone, it is a conversation that we should all be having. Whether or not it's munis as you highlight, tax loss harvesting strategies, talk with your advisor about whether or not some of these might make sense for you. It's a conversation that's only going to grow as the elections get closer.
The second is supply chain security, and that's decoupling from China. President Biden and President Trump both are focused on this. Their attacks have been different. President Biden has favored tax incentives for people to spend and decouple in America, and with allies. President Trump has favored tariffs, but those things are converging. Just last week, president Biden announced tariffs on EVs, batteries, renewables. And they were small. I think it's just emblematic of the separation.
But for me, it's just how hard it's going to be to separate. About half of all imported lithium ion batteries to America come from China. 70% of rare earths, critical minerals needed in renewables are produced by China. It's going to be a heavy CapEx lift, a long road, and I think that CapEx will have to happen in industrials in America, and with allies, most likely in Latin America, and Canada.
The two biggest themes that you talked about, continued fiscal spending and tariffs. I know that there's a lot of other things that we need to consider as we go into the election cycle. But these all feel inflationary to me. So I would ask that you and your team continue to spend the time that you are on researching these and the potential impacts and outcomes that we could expect. I think over the course of the next six months, we owe it to everybody on this call to continue to talk about those two issues.
Yeah.
All right, Abby, part of our responsibilities from an investment perspective is sometimes separating what is the emotional part of the activity around the world, and focusing a little bit more clinically on the investing part of a portfolio. We talk about different fragilities or challenges that the world is facing. Help us think about geopolitics and how much it does or does not play into the way that you think about investing.
Yeah. I mean, so emotions aside, we have to think about the environment over the past two years has been of increased geopolitical tension and that's globally really all over, with armed conflict, I think, at an 80-year high.
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Text: Prepare for continued conflict. Diversify, and consider investing in security, defense, and infrastructure.
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Correct.
And so from an equity market perspective, though, it's very hard for us to underwrite a valuation or an earnings hit based on that, just because of elevated tensions. Right? And we also looked historically what has happened to a diversified equity portfolio in 36 isolated geopolitical events-- wars, invasions, since World War II. And what we found is at 6 and 12 months later, the returns were identical to periods that didn't include those events.
So that's to say if you are globally diversified, you are more or less insulated from those events. That's not to say not in the near term. Typically, what you see in the short term is a sell-off in equity markets because it's risk off and there's uncertainty and there are ways to offset that. Namely, I would say oil and gold. Those are usually typically good short-term hedges around that. But I think what we're trying to get at in terms of this geopolitical fragility is the fact that we don't think it's going to change anytime soon. Right?
You talked about supply chains. We've talked about energy a little bit. Just defense spending generally from both a sovereign and a corporate standpoint is increasing. And this is creating longer term investment.
But you're right. So the capital consumption, capital deployment is shifting and these could be durable trends. What was the statistic that you shared with me respect to nation state spending and defense itself?
So NATO members, that was on NATO members, 11 of the 32 NATO members currently today are meeting their 2% defense spend of GDP. That is supposed to increase to 18 by the end of the year. And it increased, I think, 13% between Europe and France last year alone, and compares to three countries in 2010. So just a markedly different backdrop as it relates to spend. And again, that's on the sovereign side, not even including the corporate side.
And so some of this increase in capital deployment you think will accrue to industrials, materials, and energy as well, I would presume.
Yeah, exactly. So it's going to span, I would say, more old economy type sectors. And you think about the growth rates that those sectors have seen over the past couple of years. It's been, let's call it low single digits, 2% to 5%. And that's somewhere closer to say, 6% to 12% over the next 10 years, let's call it.
So there's a number of things that we need to continue to look at from a geopolitical or fragility standpoint. But as you said, it's incumbent upon you and many of your partners in the investments landscape to separate that emotional component from the investments component when you think about portfolio building and portfolio construction. I'd love to think that everybody on the call now is going to go dig into the piece and read all of the work that you all have done.
But maybe in anticipation of that, let's offer a quick summary of this call and let's do it in a lightning round format. Tom, over to you first. Over the course of the next 12 months, do you expect for rates to be higher or lower?
Lower.
Abby, within the equity space, do you think that the investment opportunity for the next 12 months is greater within the United States or beyond the borders?
Europe and Japan.
Europe and Japan over the US.
Tom, what is the biggest durable investment trend that you see available in the world today?
Artificial intelligence, but not just the big tech hyperscaler names. I think you need to find opportunity in the ecosystem around it-- energy, infrastructure, natural resources, which is this industrial spend that Abby and I've been talking about.
And Abby, final question to you. What do you think is the biggest risk that we face today?
I think it's around inflation and rates. I think that's really underscoring everything that we've been talking about. It took up at least every part of our conversation. It would derail the consumer outlook, the corporate outlook, if rates were to remain higher or move higher from here. But again, that's not our base case.
Excellent. Well, look, we're counting on both of you to maintain us informed of everything taking place around here. Thanks for your time today. Thank you to all of you for sharing part of your days with us. We appreciate the confidence that you put in us at J.P. Morgan. Should you have questions about this content or anything else, please do reach out to your J.P. Morgan advisors, and we look forward to hearing from you.
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LEGAL ENTITY, BRAND & REGULATORY INFORMATION, In the Netherlands, this material is distributed by J.P. Morgan SE - Amsterdam Branch with registered office at World Trade Centre, Tower B. Strawinskylean 1135, 1077 XX, Amsterdam, The Netherlands, authorized by the Bundesanstalt für Finanzdienstieistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB): J.P. Morgan SE - Amsterdam Branch is also supervised by De Nederlandsche Bank (DNB) and the Autoriteit Financiele Markten (AFM) in the Netherlands. Registered with the Kamer van Koophandel as 8 branch of J.P. Morgen SE under registration number 72610220. In Denmark this material is distributed by J.P. Morgan SE - Copenhagen Branch, filial af J.P. Morgan SE, Tyskland with registered office at Kalvebod Brygge 39-41. 1560 Kebenhavn V. Denmark authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB): J.P. Morgan SE - Copenhagen Branch, filial at J.P. Morgan SE. Tyskland is also supervised by Finanstilsynet (Danish FSA) and is registered with Financillaynet as a branch of J.P. Morgan SE under code 29010. In Sweden, this material is distributed by J.P. Morgan SE - Stockholm Bankfilial, with registered office at Hamngatan 15. Stockholm 11147. Sweden, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB): J.P. Morgan SE - Stockholm Bankfilial is also supervised by Finanainapektionen (Swedish FSA): registered with Finansinspektionen as a branch of J.P. Morgan SE.
In Belgium this material is distributed by J.P. Morgan SE - Brussels Branch with registered office at 35 Boulevard du Régent 1000 Brussels Belgium, authorized by the Bundesanstalt für Finarzdienstieistungsaufsicht (BaFin) and jointly supervised by the BaFin the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB): J.P. Morgan SE Brussels Branch is also supervised by the National Bank of Belgium (NBB) and the Financial Services and Markets Authority (FSMA) in Belgium registered with the NBB under registration number 0715.622.844. In Greece this material is distributed by J.P. Morgan SE -Athens Branch with its registered office jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB) J.P. Morgan SE - Athens Branch is also supervised by Bank of Greece registered with Bank of Greece as a branch of J.P. Morgan SE under code 124; Athens Chamber of Commerce Registered Number 158683760001 VAT Number 99676577. In France. this material is distributed by JPMorgan Chase Bank, N.A. Paris Branch, registered office at 14,Place Vendome Paris 75001. France, registered at the Registry of the Commercial Court of Paris under number 712 041 334 and licensed by the Autorité de contrôle prudentiel et de resolution (ACPR) and supervised by the ACPR and the Autorité des Marchés Financiers. In Switzerland this material is distributed by J.P. Morgan (Suisse) SA, with registered address at rue du Rhône, 35. 1204. Geneva, Switzerland which is authorised and supervised by the Swiss Financial Market Supervisory Authority (FINMA) as a bank and a securities dealer in Switzerland.
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