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5 Insights from the J.P. Morgan Guide to the Markets (4Q15)

(Don’t Fear) The Reaper

Here are my top insights from J.P. Morgan Asset Management’s recently released Guide to the Markets for the 4th quarter of 2015.

Some very interesting observations can be made from the charts in this report.

1. The S&P 500 is Slightly Undervalued Now

S&P 500 Valuation Chart

Check out the chart above. Compared to its 25-year long term average, the S&P 500 looks to be slightly undervalued in terms of Forward P/E, Shiller’s P/E, P/B, and P/CF, yet dividend yields are slightly higher than average and corporate profits are still expected to be strong in the last two quarters of the year.

2. Technology Stocks are Currently Very Cheap

Sectors

If I had to choose a sector, I’d put my money (literally!) in Technology stocks, where valuations are way below historical averages. Other attractive sectors? What about Health Care, Industrials, Materials, and Telecom (if analysts’ earnings estimates for the next twelve months are indeed correct).

3. Oil Prices Aren’t Likely to Recover in the Near Future

Crude Oil Market

The EIA (U.S. Energy Information Administration) expects oversupply conditions in the global oil market to last through at least the end of 2016 (although it looks like the supply-demand curve will continue to shift toward an equilibrium point). Expect oil prices to remain around current levels in 2016.

4. There Are Many Pockets of Opportunity Outside the U.S.

Developed Countries

Emerging Markets

Compared to both their own history and the rest of the world, Germany, Australia, the U.K., Canada, and Japan (Developed Countries); and Russia, China, Brazil, Turkey, Taiwan, and South Korea (Emerging Markets) are all undervalued or at least fairly valued. It’s up to you to determine which of these valuations have been driven by media scares and overly pessimistic outlooks, and which valuations are actually warranted.

5. Don’t Fear the Reaper…

Interest Rate Hikes

I don’t know what’s going to happen to stock prices when the Fed finally raises rates –  rates are lower than they’ve ever been before and the market’s reaction to any type of rate news over the past year or so has been completely unpredictable. My personal view is that any minute disadvantage of higher interest rates will be more than offset by making the economy more stable over the longer run.

But no matter what you think of the matter, past experience tells us that rate hikes are actually associated with rising stock prices. So.. maybe we shouldn’t fear the reaper when it comes.


Want more charts? Check out the full J.P. Morgan report below or download it as a PDF here.


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  • CS

    Thanks for the reply back and for the advice! Very helpful.

  • CS

    This is a great round up! Thanks for breaking all of it down so easily. Which insight do you think is the most valuable to consider or focus on?

    • I think the “Valuations by Sector” chart and the “Global Equity Valuations” charts would be the most helpful in helping you to allocate and diversify your money wisely !