There’s a ‘generational opportunity’ for investors in this sector, says JPMorgan

view original post

Speculators, are you not entertained?!

In the space of just 12 days traders will have had to absorb an end-of-era Japanese election, crucial mega-tech earnings, a U.K. budget, U.S. PCE inflation data, a Bank of Japan policy meeting, the U.S. nonfarm payrolls report, a fiercely contested and tight U.S. election, and a Federal Reserve policy decision.

The chances for volatility in the short term are thus pretty high, one would expect. But it seems equity investors are not particularly fussed. The S&P 500 SPX is up 21.8% so far this year and sits a fraction shy of its record. Meanwhile the CBOE VIX index VIX, a gauge of expected stock market volatility, is around 20 and only just above its historical average of 19.5.

Still, with so many hefty catalysts looming it might be a time to take a pause and consider the longer term. Much longer.

JPMorgan Private Bank recently released the 29th edition of its long-term capital market assumptions, an antidote says global investment strategist Alan Wynne to the “short termism of modern finance.”

The assumptions provides return and risk expectations for more than 200 assets and strategies in 19 base currencies. “Importantly, as the name would suggest, these assumptions are for the long term (10–15 years), and should help guide investors when making strategic portfolio allocation decisions,” says Wynne.

The fundamental backdrop is supportive. Inflation appears to have been a cyclical event driven by the pandemic and most major central banks are now lowering borrowing costs. Wynne notes that the “misery index,” which is the sum of annual consumer price inflation (2.4%) and the unemployment rate (4.1%), stands at 6.5%, lower than it’s been 85% of the time in the last 50 years. In theory, that should mean households are happier.

“Lower inflation and stronger economic growth create a favorable investing backdrop that lends itself to opportunities across asset classes,” says Wynne.

For equities, he notes that the nearly 20% rise in global markets already this year means future gains have to start from higher valuations, particularly in the tech sector, and this lowers returns expectations. It’s a view that dovetails with recent comments from Goldman Sachs’s David Kostin and others that the market’s strong rally in recent years means it could suffer a decade of much more meagre returns.

Corporate fixed-income assets are relatively attractive as economic resilience, especially in the U.S., has led to tighter credit spreads — the yield compensation investors receive for investing in bonds that are supposedly riskier than benchmark Treasurys.

Private equity faces a number of headwinds, according to Wynne, “including the higher cost of capital; recent fund vintages’ elevated purchase price multiples; historically high levels of uncalled-yet-committed investment capital (dry powder); and a difficult exit environment.”

But it is the real estate sector that Wynne appears most positive about for the longer term. “Elevated rates and challenging debt markets have driven down commercial real estate values,” he says. “We see a generational opportunity emerging for long-term real estate investors as a direct result of valuations significantly re-rating.”

That shift boost return expectations for core assets in the United States, Europe and the United Kingdom due to higher entry yields, Wynne reckons.

“Our 2025 long-term return assumption for U.S. core real estate surges to 8.1% from last year’s 7.5%. Importantly, real estate is not a monolith, and our value-add return assumption climbs to 10.1% from 9.7%,” he says.

U.S. stock-indices SPX DJIA COMP are gaining at the opening bell as benchmark Treasury yields BX:TMUBMUSD10Y reverse early increases. The dollar index DXY is fractionally lower, while oil prices CL.1 slide and gold GC00 is trading around $2,737 an ounce.

Key asset performance

Last

5d

1m

YTD

1y

S&P 500

5808.12

-0.96%

1.22%

21.77%

41.06%

Nasdaq Composite

18,518.61

0.16%

2.20%

23.36%

46.47%

10-year Treasury

4.276

7.00

48.90

39.51

-61.93

Gold

2743.7

0.34%

3.28%

32.43%

36.80%

Oil

67.76

-2.89%

-0.78%

-5.00%

-17.96%

Data: MarketWatch. Treasury yields change expressed in basis points

For more market updates plus actionable trade ideas for stocks, options and crypto, .

Companies releasing earnings Monday include Ford Motor F, PayPal PYPL, McDonald’s MCD and Pfizer PFE, all after the closing bell.

Boeing shares BA are choppy after the troubled aerospace giant announced a larger-than-expected $19 billion capital raise, through public offerings of common stock and depositary shares.

Oil prices CL.1 are sliding more than 5% after Israel’s airstrikes over the weekend did not target Iran’ energy infrastructure.

The Japanese yen USDJPY fell to its lowest in three months — before paring losses —after the ruling coalition looked set to lose its parliamentary majority following Sunday’s election. The Nikkei 225 stock index JP:NIK rose 1.8%.

Shares of Philips NL:PHIA PHG are sliding as the Dutch healthcare devices company lowered its sales outlook for the year, citing  a “significant deterioration” in China demand.

The Middle East drug fueling war, crime and all-night parties.

Jump Trading, Virtu and the ‘hidden optical fibre cable’ under an Ohio field.

Anticipatory obedience’: newspapers’ refusal to endorse shines light on billionaire owners’ motives.

Investor buy-the-dip mentality has been on show of late. The chart from Jason Goepfert at Sentimentrader shows how the S&P 500 has not had two down days in a row for 30 sessions. When the stock benchmark has the temerity to register a negative day investors push it up the next.

Source: Sentimentrader –

“This is one of the longest streaks in its history, with the Nasdaq not far behind,” says Goepfert. Similar streaks of buy-the-dip activity preceded gains over the next 6-12 months almost without fail, he notes.

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

Ticker

Security name

TSLA

Tesla

NVDA

Nvidia

GME

GameStop

DJT

Trump Media & Technology

TSM

Taiwan Semiconductor Manyfacturing

PLTR

Palantir Technologies

AAPL

Apple

NIO

NIO

AMD

Advanced Micro Devices

PHUN

Phunware

Dwayne Wade: another in the long line of statue fails.

Not such a nice kitty!

Get Wallace and Gromit on the case. Jamie Oliver asks fans for £300,000 ‘cheese robbery’ help.

Need to Know starts early and is updated until the opening bell, but to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Check out On Watch by MarketWatch, a weekly podcast about the financial news we’re all watching – and how that’s affecting the economy and your wallet. MarketWatch’s Jeremy Owens trains his eye on what’s driving markets and offers insights that will help you make more informed money decisions. Subscribe on Spotify and Apple.