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Weekly Market Recap: Jan. 13, 2020

The week in review

  • Markit services PMI at 52.8
  • ISM non-mfg. PMI at 55.0
  • Unemployment at 3.5%
  • Trade deficit narrowed to $43.1bn

The week ahead

  • CPI, PPI
  • Retail sales
  • Industrial production
  • Consumer sentiment
  • Philly Fed survey
  • Empire mfg. survey
  • JOLTS

Thought of the week

Entering 2020, despite increased tensions in the Middle East, global equities have risen and U.S. stocks have continued to outperform their international counterparts. However, this trend of U.S. outperformance is unlikely to be sustainable in the long run. The current price-to-book ratio for the MSCI Emerging Markets Index is at 1.70x, below its 20-year average of 1.81x. Moreover, as shown in this week’s chart, there is a strong negative relationship between its valuation and the subsequent 5-year returns. Historically, today’s price-to-book of EM stocks would be associated with a return of 12.5% in U.S. dollars. This compares very favorably to a similar analysis applied to U.S. stocks, in which the current price-to-earnings ratio of 18.3x is well above its average of 15.9x over the last 20 years, and would be associated with a 5-year return of 4.0%. In a world of strong U.S. equities performance and uncertainty over geopolitical issues abroad, it may look like sticking to the U.S. market is the right move. However, the trade-off is the sacrifice of broad global diversification. In this late economic cycle that the U.S. is experiencing, it could be a good idea for investors to look into other regions and consider that EM equities could deliver higher returns than the U.S. in the long term.

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Past performance does not guarantee future results.

Diversification does not guarantee investment returns and does not eliminate the risk of loss.

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

The price of equity securities may rise or fall because of changes in the broad market or changes in a company’s financial condition, sometimes rapidly or unpredictably. International investing involves a greater degree of risk and increased volatility. There is no guarantee that companies that can issue dividends will declare, continue to pay, or increase dividends. Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage.

JPMorgan Distribution Services, Inc., member of FINRA.

J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. Those businesses include, but are not limited to, J.P. Morgan Investment Management Inc., Security Capital Research & Management Incorporated and J.P. Morgan Alternative Asset Management, Inc. and JPMorgan Asset Management (Canada) Inc.

©JPMorgan Chase & Co., January 2020

Unless otherwise stated, all data is as of January 13, 2020 or as of most recently available.

Disclosure: J.P. Morgan

Past performance does not guarantee future results.

Diversification does not guarantee investment returns and does not eliminate the risk of loss.

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

The price of equity securities may rise or fall because of changes in the broad market or changes in a company’s financial condition, sometimes rapidly or unpredictably. International investing involves a greater degree of risk and increased volatility. There is no guarantee that companies that can issue dividends will declare, continue to pay, or increase dividends. Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage.

JPMorgan Distribution Services, Inc., member of FINRA.

J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. Those businesses include, but are not limited to, J.P. Morgan Investment Management Inc., Security Capital Research & Management Incorporated and J.P. Morgan Alternative Asset Management, Inc. and JPMorgan Asset Management (Canada) Inc.

 

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from J.P. Morgan and is being posted with permission from J.P. Morgan. The views expressed in this material are solely those of the author and/or J.P. Morgan and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

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