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Episode 1: Market tricks or treats?Video

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Description: What might move markets next month? See what we’re thinking.

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Length (seconds): 810

Transcript: <h2>Legal disclosures:</h2> <p>INVESTMENT AND INSURANCE PRODUCTS ARE:</p> <p>NOT FDIC INSURED.</p> <p>NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY.</p> <p>NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, JPMORGAN CHASE BANK, N.A. OR ANY OF ITS AFFILIATES.</p> <p>SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.</p> <h2>On Screen:</h2> <p>This video is for informational purposes only. Opinions expressed herein are those of the speakers and may differ from those of other J.P. Morgan employees and affiliates. Neither J.P. Morgan nor any of its affiliates can represent that the statements of opinion expressed will materialize. This material should not be regarded as research or as a J.P. Morgan Research Report. Nothing in this material shall be considered a solicitation to buy or an offer to sell securities, other investments or services to any person in any jurisdiction where such an offer, solicitation, purchase or sale would be unlawful under the laws of such jurisdiction. Any mention of an individual security, investment or strategy is provided for informational purposes only and should not be construed as a recommendation. Outlooks and past performance are not guarantees of future results. Please read additional important information at the end of the video.</p> <h2>On screen:</h2> <p>Opening text: What's Moving Markets?</p> <p>Three ideas… Three guests…</p> <p>What's The Move? By J.P. Morgan.</p> <h2>On screen:</h2> <p>In a casually decorated room with a plate of gourds on a table, a man with light brown hair and blue eyes, Ted Dimig, sits on a sofa.</p> <h2>On screen:</h2> <p>Ted Dimig, Head of Investments, You Invest by J.P. Morgan.</p> <h2>Ted:</h2> <p>Welcome to the first episode of What's the Move? by J.P. Morgan. This is a new series coming to you monthly where three guests disclose what events they think will move markets the most over the next month. I'm Ted Dimig, the Head of Investments for You Invest by J.P. Morgan and your host. So, it's October. This month's a bit spookier than the rest and that's not just because of Halloween. October is also known for the infamous October Effect because historically it's one of the most volatile months for stocks. So, what might move markets? Let's see what our guests think.</p> <h2>On screen:</h2> <p>A montage shows each of Ted's guests riding in an elevator as they are introduced.</p> <h2>Ted:</h2> <p>This month, I'm joined by three colleagues and friends from J.P. Morgan. First up is Rashmi. She's a portfolio manager specializing in emerging markets and has over 17 years of investment experience. Next, we've got Jordan, who's a market strategist. He identifies and researches economic trends around the world for our clients. And last, but not least, is Mike. Mike is a portfolio manager who scours the globe for potential investment opportunities. Okay folks, let's get it on.</p> <h2>On screen:</h2> <p>Three ideas.</p> <h2>On Screen:</h2> <p>A close-up of Jordan.</p> <h2>Jordan:</h2> <p>I think it may be corporate earnings revisions.</p> <h2>On screen:</h2> <p>A close-up of Mike.</p> <h2>Michael:</h2> <p>I think it may be the U.S. consumer.</p> <h2>On screen:</h2> <p>A close-up of Rashmi.</p> <h2>Rashmi:</h2> <p>I think it could be data and policy announcements out of China.</p> <h2>On screen:</h2> <p>What's Moving Markets?</p> <h2>On screen:</h2> <p>In a spacious, sun-lit room, Rashmi, a woman with long, dark hair, Jordan, a man with a short black beard, and Mike, a man with brown eyes and short hair, all sit down with Ted. Ted smiles, holds out his arms, and greets his guests.</p> <h2>Ted:</h2> <p>What a glorious day. The sun is shining, the taxi cabs are honking, and I'm joined by three of my good friends and colleagues on the first episode of What's the Move? Rashmi, we're gonna kick it off to you to start today on your high conviction idea, specific to what's going to drive markets in October, is China. What are you looking at and what should we pay attention to?</p> <h2>On screen:</h2> <p>Policy in China.</p> <p>Rashmi Gupta, Multi Asset Portfolio Manager.</p> <h2>Rashmi:</h2> <p>So, for October I think China is going to be of great significance for markets on two fronts. First, I think that we should be looking at the data that comes out of China. Second, we should be looking for any new policy response from China either in terms of trade relations with the U.S., we’ve seen some olive branches in September, or in terms of growth stimulative measures to support their own economic growth. Why October in particular? So, October of 2019 is actually a very important month for China in particular. It is the 70th anniversary of the founding of the People's Republic of China. It is also only two years away from the 100th-year anniversary of the Communist Party of China. In light of these events, China has some economic growth targets which they're looking to achieve, and some policy goals that they're looking to achieve. So, you may see steps taken to ensure that they get to those goals.</p> <h2>On screen:</h2> <p>A close-up of Ted.</p> <h2>Ted:</h2> <p>So, specifically, if I were to take a step back and think about what you just put forward, this is the end of a very long semester and China's about to get their report card. If there’s not straight A’s, they may do some things to help improve the academics of what's going on in the economy.</p> <h2>Rashmi:</h2> <p>Exactly</p> <h2>Ted:</h2> <p>I'm a U.S. citizen, I live in New York, we've got clients that live across the country. Why does your focus on what's going on in China matter to them?</p> <h2>On screen:</h2> <p>A close-up of Rashmi.</p> <h2>Rashmi:</h2> <p>Sure. So, why China? China is the 3rd largest driver of global growth. It is also a very important driver of incremental growth. Meaning, changes to growth either positively or negatively. Additionally, many companies and consumers in the United States are affected by China. For example, we import goods from China. So, if the cost of those goods goes up, that can hurt consumers in the United States. It can also impact companies who may import goods or services from China. If China's economy is slowing or if their growth is not achieving the targets that they have, it can also impact companies here that export goods to China. And remember, China is a market of 1.4 billion people. So, we do have very strong ties to them. It can be considered a very important market for a number of our companies. Thus, it does matter a lot for any investor no matter where they are in the world.</p> <h2>On screen:</h2> <p>A close-up of Ted.</p> <h2>Ted:</h2> <p>So, lots of data points to be focused on: huge economy, biggest, or one of the biggest, drivers of growth. Stay tuned. Jordan, the primary point of focus that you want to talk about are earnings and more specifically earnings revisions.</p> <h2>On screen</h2> <p>Earnings revisions</p> <h2>Ted:</h2> <p>Why does that matter for the month of October?</p> <h2>On screen:</h2> <p>Jordan Jackson, Market Strategist.</p> <h2>Jordan:</h2> <p>Yeah, so the month of October, what we're going to see is a slew of corporate earnings revisions and essentially what that means is industry analysts will take a look at what their forecasted earnings were back in last quarter, given we have a better outlook of what the next 12 months look like, they will revise those earnings estimates up. If things are looking better than expected, they’ll revise them down if things aren't looking as good. This is really important because the fundamental driver of stock prices in the long run are earnings. And, given a market that's up close to 20 percent year to date, just got back from Vegas, I wish my checking account was up 20 percent…</p> <h2>On screen:</h2> <p>A line graph appears showing S&amp;P 500 growth from about 2,500 in January 2019 to about 3,000 in September 2019. Small print text: Date: September 19th, 2019. Source: Bloomberg Data.</p> <h2>Jordan:</h2> <p>…but given the market that's up so big, you're going to want to see, or investors are going to want to look at, is there a fundamental picture i.e. earnings estimates for stock prices to continue to rise further? I personally think that revisions are actually going to be revised lower for three main reasons. One reason is: I think there's-- growth is going to slow in the US and then the global economy next year, I think rising wage pressures are going to eat away at corporate margins, and I think that a stronger dollar year to date is going to be a headwind for earnings…</p> <h2>On screen:</h2> <p>A line graph appears showing U.S. Dollar Growth increasing from about 92 in January 2018 to about 98 in September 2019. Small print text: Date: September 19th, 2019. Source: Bloomberg Data.</p> <h2>Jordan:</h2> <p>…particularly because a large set of multinationals within the U.S. generate earnings overseas, and a stronger dollar should be a headwind for revenues going forward.</p> <h2>On screen:</h2> <p>A close-up of Ted.</p> <h2>Ted:</h2> <p>So, you've just put forward a bit of a trifecta of bearish data points that you'll be focusing on, all predicated on the fact that the direction of earnings historically may be indicative of the direction of a stock price. Michael, the consumer, it's the driving force of the U.S. economy. What are you focused on going forward specific to their health?</p> <h2>On Screen:</h2> <p>Consumer health.</p> <p>Michael Joelson, Multi Asset Portfolio Manager</p> <h2>Michael:</h2> <p>Sure. I think the health of the U.S. consumer is key when you're thinking about U.S. growth overall. U.S. growth has been slowing this year and I think the question that everyone is asking themselves right now is: will we continue to slow such that we have a recession or something close to it, or can we stabilize here and perhaps even pick up a bit as we head into next year?</p> <h2>On screen</h2> <p>A line graph appears showing U.S. Real GDP Growth decreasing from just under 3% to about 2.25%. Small print text: Date: April 1st, 2019. Source: Federal Reserve.</p> <h2>Michael:</h2> <p>And I think it's just important to remember that economic data, macro data, doesn't necessarily always give the same message that stocks give, right? So, last year if you read the newspapers, you saw economic growth was fantastic. And if you owned U.S. stocks last year you lost money. This year, growth has been slower than last year, not quite so fantastic. Specifically, very poor as it relates to the manufacturing sector and stocks are up a substantial amount. You've made a lot of money in 2019. So, stocks are going to begin to price now what the growth outlook is for next year because stocks always forward looking. So, we know that manufacturing has slowed quite substantially. The question is: the disease that currently exists in the manufacturing sector, is it going to spread to the services sector, or, more broadly, the consumer? And if the answer to that question is yes, it could be a rough ride for stocks. And so, I'm really watching three things that relates to consumer data. Number one, consumer confidence took a bit of a dip in August because we've had some negative trade headlines, want to see that pick up again. Number two, retail sales have been fantastic. We need to continue to see that remain very robust. Number three, we want jobless claims to stay low because if companies start laying off workers that's a sign, perhaps, that we're about to enter recession and it could be bad for stocks overall.</p> <h2>On screen</h2> <p>A line graph appears showing Jobless Claims decreasing from about 350,000 in January 2014 to about 200,000 in January 2019. Small print text: Date: September 7th, 2019. Source: Bloomberg Data. Next, a close-up of Ted.</p> <h2>Ted:</h2> <p>Okay. So, we've got China, we've got earnings, we've got the consumer and their health. I'm going to open it up for a bit of a discussion. Rashmi, we were talking earlier today about the consumer and you mentioned a couple of interesting things to me. Why don't you share them with Mike?</p> <h2>Rashmi:</h2> <p>Sure. So, Mike, one question, that I have as I think about the consumer. We know that of course they're one of the big bastions of strength for the U.S. economy. But, do you consider that to be a leading or a lagging indicator?</p> <h2>Michael:</h2> <p>Typically, the consumer is a lagging indicator. So, typically manufacturing might weaken first and then the consumer weakens, and then by the time you see that the consumer is weak, it's too late and stocks are already down. Me specifically, I'd like to focus on certain consumer indicators that I think tend to lead the overall growth picture. So, I mentioned jobless claims before, that's one that's particularly important. You should see jobless claims start to rise if the weakness in manufacturing is being spread to the consumer. And so, that's one of, I think, is important to keep an eye on.</p> <h2>On screen</h2> <p>A close-up of Ted.</p> <h2>Ted:</h2> <p>Jordan, back to you. Are there any sectors within the U.S. today that you think that there might be some opportunities to find attractively valued stocks?</p> <h2>Jordan:</h2> <p>Yes. Interestingly, I think that there may be opportunity in some of the value sectors of the market, particularly when I look at sectors like energy, financials, the value sectors, they actually look undervalued relative to their to their long run history. And so, energy companies generally have gotten better at keeping their costs low and fracking. You've seen higher oil prices year to date, so that should help margins within the energy sector. I also think that within financials, consumer businesses are doing fairly well as consumers remain healthy. M&amp;A activity remains pretty robust. Equity market volatility may remain elevated and so trading desk can benefit from that. And so, there are fundamental opportunities as well as a valuation case for I think some of the value sectors of the market.</p> <h2>On screen</h2> <p>A close-up of Ted.</p> <h2>Ted:</h2> <p>Rash, one final question for you, and let's go back to China and I'm going to tie it into Dr. Mike over there who's looking at the health of the U.S. consumer. Historically, China's been a big exporter…</p> <h2>Rashmi:</h2> <p>Yes</p> <h2>Ted:</h2> <p>…and we had been one of the importers of their goods. If we've got a sick U.S. consumer how is that going to play into what you're looking at specific to China?</p> <h2>Rashmi:</h2> <p>The manufacturing segment of China's economy has also been weak. But, as I mentioned China is very forward thinking, they have very long-term plans. And for, I would say at least the last 10 to 15 years, China has made a very notable shift from focusing on manufacturing and export driven growth to focusing more on consumption driven growth. And that's why I think the stimulus that you've seen out of China hasn't been focused on exports. It's been focused on things to support consumers like tax cuts, incentives for innovation, lifting people from poverty.</p> <h2>On screen</h2> <p>A close-up of Ted.</p> <h2>Ted:</h2> <p>So, the way I like to think about what you just put forward specific to China is that when emerging market countries become less emerging….</p> <h2>Rashmi:</h2> <p>Yes</p> <h2>Ted:</h2> <p>…the fundamental makeup of their economies change…</p> <h2>Rashmi:</h2> <p>Yes</p> <h2>Ted:</h2> <p>…and what may have been true in the past, in terms of weakness tied to consumer, may not be true going forward.</p> <h2>Rashmi:</h2> <p>Especially for a country like China that plans so far in advance, that is top-down driven, and has such a large population.</p> <h2>Ted:</h2> <p>Excellent. So, you’ve got three ideas: China, earnings and the consumer.</p> <h2>On screen</h2> <p>Growth in China.</p> <p>Earnings revisions.</p> <p>Consumer health.</p> <h2>Ted:</h2> <p>At the end of the day, the markets will decide. And note everybody, these are just ideas, they should not be confused as recommendations. I’d like to thank all of your for joining us again on the first episode of What’s the Move? And then, there's one little surprise.</p> <h2>On screen:</h2> <p>Rashmi, Mike, and Jordan all smile.</p> <h2>Ted:</h2> <p>Halloween is a time of tricks or treats, and I don't know if you guys have ever seen these before, but there is a type of jelly bean that you can buy that has a combination of delectable delights that are sweet and cherry and chocolate, but there's a couple of tricks in the mix.</p> <h2>On screen:</h2> <p>Ted passes around a bowl of Jellybeans.</p> <h2>Ted:</h2> <p>If you're lucky, you can get peach. If you're less lucky, that peach may be barf. And you don’t know, it’s trick or treat.</p> <h2>On screen:</h2> <p>Everyone samples a jellybean. Then, Jordan's mouth puckers in a scowl. Rashmi and Ted laugh. Suddenly, Mike grimaces. He quickly takes the jellybean out of his mouth! For better or worse, everyone enjoys the novelty jellybeans. Finally, the group leaves the room, one by one.</p> <h2>On screen:</h2> <p>J.P. Morgan</p> <h2>Note:</h2> <p>Legal disclosures appear.</p> <p>You Invest is a business of J.P. Morgan Securities LLC offering self-directed brokerage (You Invest Trade) and investment advisory services (You Invest Portfolios).</p> <p>JPMorgan Chase Bank, N.A. and its affiliates (collectively “JPMCB”) offer investment products, which may include bank managed accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC (JPMS), a member of FINRA and SIPC. 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