Kate Moore

Kate Moore is an Executive Director and Chief Investment Strategist for the U.S. J.P. Morgan Private
Bank. She is a member of the Global Investment Committee.

Before joining J.P. Morgan, Kate was a Senior Global Equity Strategist at Bank of America Merrill Lynch
Global Research. In this role, she was responsible for macro equity strategy, asset allocation and thematic
investment advice for both institutional and individual investors. Prior to Bank of America Merrill
Lynch, Kate was an Emerging Markets Strategist for Moore Capital Management, where she conducted
macro research and developed trade ideas in equity, credit and commodity markets. Prior to Moore
Capital, Kate was a member of the Global Strategy team at Morgan Stanley Investment Management.

Kate has been featured by major news outlets, including CNBC, The Wall Street Journal, the Financial
Times, The New York Times and Bloomberg.

Kate holds a B.A. from the University of Virginia, and an M.A. in Political Economy from the
University of Chicago.
KATE MOORE
Chief Investment Strategist
United States
J.P. Morgan Private Bank
MICHAEL VAKNIN
Chief Economist
J.P. Morgan Private Bank
J ULY 2014
market thoughts
Q U A R T E R L Y
RICHARD MADIGAN
Chief Investment Ofcer and
Head of Investment Strategy
J.P. Morgan Private Bank
Page 3
A young cycle, largely unhindered
Advanced economies have room to grow without imbalances aris-
ing, which means the current expansion has a lot of life left.
Slow and steady
A mid-year report card
With markets initially of to a slow start, we wanted to revisit in this edition of Market
Thoughts what we thought would happen across markets, as well as what hasand
hasntworked in portfolios. For what hasnt worked, we want to focus on what were
doing about it, and if our view has changed.
We have three central investment themes that we believe are particularly important to
our current portfolio positioning.
Stocks should beat bonds this year. Although
equity markets are no longer cheap, we continue
to feel strongly that we remain in a bull market
in which earnings will drive returns.
When it comes to bonds, the best ofense is a
good defense. We continue to play defense in
our xed income investments. In our view,
interest rates arent high enough to warrant
buying longer-maturity, xed-rate bonds.
We expect a good year for manager alpha.
With asset class and stock correlations lower,
as well as stock dispersion reasonably broad,
we expect 2014 to be another good year for
manager alpha generationparticularly for
hedge fund strategies.
Lets take a look in more detail by asset class
at how we are incorporating these views into
our portfolios.
FI GURE 1
Key equity statistics
2 MARKET THOUGHTS UNI TED STATES QUARTERLY
EQUITIES
Stocks should beat bonds
again this year
Current portfolio positioning
We maintain our global equity market
overweights from the beginning of
the year across portfolios. In the
United States, we remain overweight
cyclical sectors and mid-cap stocks;
we are overweight small- and mid-cap
stocks in Japan, as well as overweight
Asia, excluding Japanincluding
markets such as India, Indonesia,
Korea, Singapore and Taiwan. That
said, we think broader emerging
markets (particularly outside of Asia)
remain exposed to the risk of rising
U.S. interest ratestheyre not out of
the woods quite yet.
We are also overweight European
equity markets. However, Europe has
a great deal to prove regarding the
sustainability of a still weak recovery;
this is a region in which we are
watching earnings growth carefully.
Recent easing actions by the European
Central Bank (ECB) have been well
received as constructive for European
equity and credit markets, but for
multiples to hold, we need to see more
meaningful earnings growth.
Its all about earnings growth
We came into this year saying equity
market returns would be driven by
earnings growth. Last year, about 75%
of world equity market returns were
driven by multiple expansion as
investors returned to equity markets
and pushed valuations higher. In
comparison, over the past 25 years,
about 15% of the S&P 500 Indexs
returns were generally driven by
multiple expansion. By historical
standards, then, last years strong
multiple expansion was quite unusual.
This year, investors are focused on
earnings growth to validate continued
upside in equity markets.
NTM P/E P/B P/CF ROE
CURRENT
10Y
AVERAGE
CURRENT
10Y
AVERAGE
CURRENT
10Y
AVERAGE
CURRENT
10Y
AVERAGE
S&P 500 15.6 13.8 2.6 2.4 11.5 10.2 15.7 15.7
MSCI Europe 14.3 11.8 1.9 1.9 9.2 8.2 10.5 13.6
MSCI Japan 13.6 15.8 1.3 1.4 7.6 7.8 8.5 6.6
MSCI EM 10.9 10.8 1.5 2.0 7.8 8.4 11.9 14.5
Source: Datastream, MSCI, S&P, IBES, Shiller, BCA Analytics. Data as of June 2014.
3 MI D-YE AR 2 01 4
Although equity markets are no longer
cheap, we believe valuations are in line
with where we are in the investment
cycle. We continue to hold to our original
view that earnings will drive performance
in 2014. However, in a low-ination and
low-growth world where equity
valuations are not fundamentally over-
bought, there is some potential for
valuations to move higher.
One thing we feel certain about: Broad
equity markets do not currently warrant
a bubble discussion. That doesnt mean
we shouldnt expect pullbacksthere
is a strong argument that we havent
seen enough market pullbacks and
consolidation over the past 18 months.
As this equity bull market matures, we
are staying invested, not overreaching
for risk, and keeping a close eye on
both earnings growth and valuations.
Our overweight to global equity markets
during the rst half of 2014 has been
the biggest driver of year-to-date
portfolio performance.
In the United States, where large-cap
equities reached new all-time highs in
the rst half of 2014, investors still seem
skeptical. The recent strength of the
bond market has added to a sense of
unease. Conventional market wisdom is
that bond markets tend to lead equity
markets. But falling yields do not always
predict a sell-of in stocks, and we
believe the decline in Treasury yields
year-to-date should not be interpreted as
a negative sign for risk assets in 2014.
A young cycle, largely unhindered
MICHAEL VAKNIN
Chief Economist
J.P. Morgan Private Bank
We came into the year arguing that the global recovery would
be led higher by developed market (DM) economies. Indeed,
after moving beyond the unusually cold U.S. winter, recent
data conrm that DM growth continues to trend up at 2.25%
a rate only modestly below the pre-crisis trend. Cyclically, the
growth impulse in DM is strong because economic imbalances
in labor markets, household balance sheets and scal borrowing
have been largely cleared. Structurally, industrial output in
DM is becoming a tailwind to growth after decades of growth
outsourcing to emerging markets (EM) made manufacturing
a growth headwind. EM is nding a cyclical bottom as well,
but the recovery will remain shallower, with trend growth staying
at 5.5%, below the 8% trend pre-crisis. Most of the drag is
coming from China and commodity-exporting economies,
which remain secularly challenged by the end of outsourcing
and reduced competitiveness. On the other hand, the rest of
EM has room to grow before labor markets tighten to the point
where growth is restrained and cost ination hinders corporate
protability. We cannot overemphasize the importance of economic
slack, which is most pronounced in DM, and to a lesser extent
in Asia ex-China and Eastern Europe; it commands interest
rates that are unusually low relative to where we are at this
stage of the business cycle.
J.P. Morgan Private Bank Economics Forecast Summary
GDP GROWTH INFLATION
2012 2013 2014 2012 2013 2014
World 3.1 2.9 3.3 3.2 3.1 3.5
Developed markets 1.4 1.3 1.6 2.0 1.3 1.7
Eurozone -0.6 -0.4 1.2 2.5 1.4 1.0
Core 0.3 0.2 1.4 2.1 1.4 1.2
Periphery -2.4 -1.6 0.8 2.6 1.0 0.5
United States 2.8 1.9 1.7* 2.1 1.5 1.9
Japan 1.4 1.5 1.5 0.0 0.4 2.6
Emerging Markets 5.5 5.1 4.9 4.9 5.4 6.0
China 7.7 7.7 7.0 2.6 2.6 2.8
EM Asia ex-China 5.8 4.8 5.1 7.0 8.4 7.7
EM EMEA 3.0 2.2 1.7 5.9 6.5 6.2
LatAm 2.9 2.7 2.5 6.0 7.0 10.4
Source: J.P. Morgan Private Bank Economics. Note: Aggregates are PPP-weighted.
*U.S. GDP contracted 2.9% in Q1 2014, largely attributable to an inventory
adjustment and the efects of an unusually harsh winter. The 1.7% forecast for
2014 masks our view that growth will accelerate to 3%+ for the rest of the year.
4 MARKET THOUGHTS UNI TED STATES QUARTERLY
Over the last few years, the market has
rewarded companies that have engaged
in stock buybacks or have raised their
dividends. As we highlighted last year, we
continue to see follow-through in global
merger and acquisition activity with $1.7
trillion through June. While this has been
supportive of share prices and valuations,
U.S. companies continue to sit on a
record $1.8 trillion in cash, amounting
to over 10% of gross domestic product
(GDP). How companies continue to
deploy this cash will be critical to equity
markets as well as future economic
growth. We are looking for rms to
direct some cash away from buybacks
and dividends toward capital
expenditures this year, which should
bode well for equities.
In Europe, the absolute level of
earnings growth has started to improve.
Due to persistently below target
ination, the ECB eased monetary policy
in June, with a focus on targeting
increased bank lending. This should
allow credit growth in Europe to improve.
Depressed credit growth has been one of
the key factors holding back a stronger
European recovery, and we are optimistic
that these extraordinary programs will
help to address this issue.
Japans equity markets got of to a weak
start this year, after a signicant rally in
2013. Investors are watching for assurance
about the governments commitment to
structural reforms. Bank of Japan (BoJ)
Governor Haruhiko Kurodas recent
warning that a lack of reform would be
a risk to Japans reation pursuit echoed
our long-held belief that monetary
policy is, by itself, not enough to
support Japans economic expansion or
0
20
40
60
80
100
120
140
160
180
200
Buybacks
Dividends
$159
$82
$ billion
2004 2005 2006 2007 2008 2009 2010
2011 2012 2013 2014
FI GURE 2
S&P 500 rms used cash for buybacks
Source: S&P. Data as of Q1 2014.
5 MI D-YE AR 2 01 4
equity market normalization. For that
to happen, we need to see earnings
growth, fueled by broad and deep
reforms that make Japanese
corporations more adaptive and exible.
Recently, weve seen signs that things
are moving in the right direction, and
we continue to be constructive, but
cautious, on the long-term outlook for
Japan. We expect that low double-digit
earnings growth this year will be
enough to drive Japanese equity
markets higher ahead.
Emerging markets equities have posted
solid returns so far this year. This has
been largely due to the respite brought
on by stable to lower risk-free rates and
to a repositioning by investors, which
together have brought investment
inows back into emerging markets (EM).
Across the EM regions, Latin America
generally represents a case of missed
opportunities and subpar policy
diagnosis. With the exception of Colombia
and Mexico, countries made little
structural use of the windfall brought
about by the China and commodities
boom of the past decade, and by the
large inows of capital that followed the
Asian nancial crisis of 15 years ago.
Only in EM Asia do we nd a region that
continues to grow with few ination
pressures, and where current accounts,
in aggregate, are in surplus. Moreover,
the election of Narendra Modi in India
this past May marks an important
inection point for the country and is
indicative of a society that wishes to
move forward. That does not appear to
be the case with Brazil or Turkey, both
of which are undergoing important
elections in 2014.
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
1999 2001 2003 2005 2007
MSCI EMU 12m Trailing EPS
YOY % Change
Model Estimates
2009 2011 2013 2015
FI GURE 3
Euro area EPS growth vs. proprietary model estimates
Source: Haver, Datastream, J.P. Morgan Private Bank. Data as of June 2014.
6
Should we be worried about ination?
Ination is perhaps the single biggest driver
of future monetary policy decisions.
While ination is rising gradually in the United
States and Japan, deleveraging and low wage
growth have led to signicant disinationary
pressure in Europe. We believe developed market
inationary pressures remain benign and should
provide a constructive backdrop for equity market
valuations over the next 12 to 18 months.
Quantitative easing (QE) has not created
too much liquidity.
After three rounds of QE and a signicant
increase in the size of the Fed balance sheet,
investors are wondering whether a sharp pickup
in ination is imminent. While Fed asset
purchases in theory encourage banks to take
more risk, QE has coincided with a structural
change (part higher capital requirements, part
risk aversion) in the banking system. Because
of this, we expect any inationary impulse to
remain contained until credit demand expands
more aggressively.
Price and wage pressures in the United
States are contained.
Over the last 20 years, the two major
components of core consumer prices in the
United States have shown very diferent
patterns. Recently, prices for goodsparticularly
those sourced outside of the United Stateshave
been weaker. A stronger dollar and weaker
currencies for U.S. trade partners have been
disinationary. But prices for core services
(which are more domestically sensitive) have
trended higher than the Feds 2.0% target for
overall ination. Further, wage growth has been
anemicgrowing at just 2.0% per year, well
below the 3.0% to 4.0% Fed Chair Yellen is
looking forand we do not see signicant
upward pressure in the near term.
Ination in Europe and Japan is moving in
diferent directions.
In Europe, consumer prices continue to soften,
spurring the ECB to ease policy at its recent June
meeting, and to cut future ination guidance as
well. The ECB is also aiming to free up the
blocked credit channel as banks continue to
deleverage and improve capital ratios ahead of
the release of the results of the Asset Quality
Review later this fall. Draghis promise in July
2012 to do whatever it takes to promote
European growth provided a critical level of
support for risk assets in the region. We believe
further central bank support will continue to be
a market-positive.
While the BoJ has disappointed some investors
by failing to announce additional QE in 2014,
we believe the central bank remains committed
to reating its economy. In fact, the BoJ has
had good reason to hold of on increasing asset
purchases: Stimulus has seemingly broken Japan
out of its deationary rut as price levels and
wages have begun to gradually move higher.
A little ination is good for equities.
The low and improving ination picture around
the world should be good news for the global
economy, and supportive for risk assets as well.
For now, we still believe we are in the sweet spot
for equities in terms of ination: Price pressure is
not rising fast enough to induce tightening, but is
nevertheless moving higher, in line with growth.
MARKET THOUGHTS UNI TED STATES QUARTERLY
FIXED INCOME
The best ofense remains
a good defense
Current portfolio positioning
Given the slow economic start to the
year because of weather, we have
revised down our U.S. economic
growth target, along with our year-end
target for 10-year U.S. Treasury yields.
While we continue to believe the U.S.
economy is accelerating to above
+3.00% in the second half of this year
given the rst-quarter contraction, full
year growth will now be close to 1.5%
to 2.00% for 2014. Accordingly, weve
taken down our mid-point year-end
target for 10-year Treasury yields to
3.25% (+/- 25 basis points).
We continue to believe that a
cautious stance on interest rate
duration is a prudent investment
strategy, and we maintain a 2.5-year
duration target for portfolios.
With risk-free rates at current low
levels and limited scope for credit
spreads to compress much further,
a coupon-type return is arguably the
best-case scenario ahead. However,
given the bond rally weve seen so far
this yearwe reached what we
believed were almost full-year returns
in the rst half of the yearits
important not to lose sight of the
fundamentals, as current market
pricing leaves little room for error.
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2003 2004 2005 2006 2007
U.S. Investment Grade
U.S. High Yield
2008 2009 2010 2012 2011 2013 2014
Emerging Markets Debt
Source: Bloomberg. Data as of June 2014.
FI GURE 4
Credit is trading tight relative to history
Spread in basis points
7 MI D-YE AR 2 01 4
From a portfolio positioning
perspective, we recently reduced
investment positions we held in
extended credit, and we are being
disciplined in taking gains and
trimming back overweight positions.
We still like the fundamentals around
credit marketsjust not as much as we
did when we held larger overweights at
the start of this year.
The impact of not owning more bonds in
portfolios this year
Coming into the year, we held a clear
preference for credit over interest rate
duration, with the view that corporate
fundamentals were strong but that
rising interest rates would hurt long-
duration, xed income investments.
Consequently, we were more cautious
about U.S. Treasuries, and even
investment grade credit, given the
limited yield available to ofset potential
losses from rising rates. We favored
extended credit, where we found
attractive yields and an environment
where default risk is currently low.
However, through mid-year, we have
seen robust total returns across the
xed income landscape, primarily due
to the tailwind from falling risk-free
rates and the associated liquidity
benets. The U.S. 10-year Treasury
yield has fallen, driven by
disinationary pressures in Europe,
the limited supply of Treasury and
high-quality bonds available to invest
in, and an abundance of short
Treasury positions that were forced to
capitulate as rates fell. The weather-
induced slowdown in rst-quarter U.S.
economic activity and a are-up in
geopolitical tensions additionally
helped keep bond yields lower.
-0.2
-0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
Mar 11 Jun 11 Sep 11 Dec 11 Mar 12
Benchmark-Aware Fund
Benchnark-Agnostic Fund
Jun 12 Sep 12 Dec 12 Jun 13 Mar 13 Sep 13 Dec 13 Mar 14 Jun 14
FI GURE 5
Beta comparison of Benchmark-Aware vs. Benchmark-Agnostic Funds
Rolling 60-day beta
Source: J.P. Morgan Private Bank. As of June 2014. Benchmark-Aware Fund proxy by JPM High Yield Fund (OHYFX) and Benchmark-
Agnostic Fund proxy by JPM Multi-Sector Income Fund (JSISX). Fund betas are calculated with respect to the Merril Lynch U.S. High Yield Index.
8 MARKET THOUGHTS UNI TED STATES QUARTERLY
We recognize the negative impact of
not owning long-maturity government
bonds on portfolio performance this
year. However, we continue to play
defense in our xed income
investments, holding to the view, as
already noted, that we see little
evidence that warrants buying core
xed income in portfolios.
None of this is meant to be taken as
a bearish view on bonds, since we
continue to hold fixed income
investments across portfolios.
However, it is meant to be a clear
observation that we believe it isnt
time yet to add to core bond
positions. Given where yields are
currently, we believe the downside of
owning long-maturity, fixed-rate
government bonds is equal to, if not
greater than, the upside return over
the next 12 months. We are simply
being pragmatic as bonds yields
slowly move higher.
ACTIVE MANAGEMENT
Favoring alpha strategies
Current portfolio positioning
We continue to favor equity long/
short, event driven and relative value
strategies, and have high conviction
in the ability of our managers to
potentially generate returns in line
with their risk taking.
With asset class and stock correlations
lower, as well as stock dispersion
reasonably broad, we came into 2014
expecting it to be another good year
for stock picking and alpha generation
across long-only active equity
managers and hedge fund strategies.
In the long-only active manager equity
space, we held a signicant amount of
our equity allocation across portfolios
in active managers last year, and were
rewarded for it. This year, weve been
slowly rebalancing our active manager
overweights back into passive equity
strategies. Having had as much as
+70% in active equity managers last
year, we are working our way toward a
+50% target allocation this year. We
are doing this rebalancing where there
are specic market sectors we like
tactically, as well as for overall equity
market overweightswhere the
liquidity of passive vehicles allows us
the exibility to be nimble.
Hedge funds, where its suitable for
clients to own them, remain a signicant
overweight across our portfolios. We
continue to fund that overweight from
core bonds. Having seen hedge fund
allocations return 8.0% to 10.0% above
core bonds last year, we expect to see
our tactical tilts in hedge funds again
outperform bonds.
We have been reducing
our allocation to long-only
equity active managers,
but continue to favor
hedge funds in our search
for alpha.
9 MI D-YE AR 2 01 4
There has been a great deal of focus
on the fact that hedge funds have
generated low returns so far in 2014.
In a year where equity markets went
almost nowhere through the end of
April, we still need to see the alpha
cycle play outits too early to rush to
judgment on this years performance.
Were not reducing our overweight to
hedge fund strategies currently.
COMMODITIES
Supply-demand imbalances
present opportunity
Current portfolio positioning
For the balance of 2014, we
remain focused on idiosyncratic
opportunities within commodity
marketsnotably those with apparent
supply-demand imbalances. For
example, U.S. natural gas inventories
are well below normal levels
following a harsh winter, which
should result in ongoing price
support during the low demand
injection season (when natural gas
storage supplies are replenished)
that runs from April to October.
We also see supply constraints in
palladium (long term) and platinum
(short term), given the long-lasting
miners strike in South Africa and the
potential for escalating sanctions
with Russia. Finally, the shape of the
curve in oil futures provides
compelling yield opportunities.
Commodities tend to be a very volatile
space, and in 2014 this has proven to
be no exception. A particularly long
and cold winter in the United States,
heightened geopolitical risks and
supply-side disruptions caused
unexpected price swings across a
number of commodity markets.
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
12/31/2013 1/31/2014 2/28/2014
Commodity Spot Prices
Backwardation Note
3/31/2014 4/30/2014 5/31/2014
FI GURE 6
Targeting backwardation has delivered consistent performance
Year-to-date cumulative change
Source: Dow Jones-UBS, Bloomberg, J.P. Morgan. Data as of June 2014.
10 MARKET THOUGHTS UNI TED STATES QUARTERLY
Coming into this year, our view was
that commodity prices would not
generate strong directional returns.
Our preferred approach has been
to target backwardation along
commodity curves, which we would
characterize as collecting premiums
from commodity producers for taking
on the price risk of their goods. This
has proven to be a more consistent
way to generate returns this year.
Notably, since the run-up in spot prices
we saw over the rst few months of
the year, this backwardation strategy
has continued to accrue gains from roll
yield, even as spot prices themselves
have fallen over this time.
PRIVATE EQUITY
A positive view on global
buyout activity
Leveraged buyout activity continues to
remain strong, driven in part by low
nancing rates and favorable loan
terms. While traditional leveraged
buyouts are still attractive, our
managers are also pursuing strategies
such as corporate carve-outs and
growth equity investments in certain
sectors. In addition, several of our
managers have acquired platform
companies with the intention of rapidly
expanding these businesses through
add-on acquisitions. The acquisitions
can bring important operating
synergies, which help to reduce the
efective acquisition multiple of the
combined business.
In general, we remain positive on
the global private equity opportunity,
and anticipate seeing steady capital
deployment from our managers
of 20112013 vintage years, with
an exposure-tilt toward energy,
technology, media and telecommunications,
and industrials. Other areas where we
are optimistic include middle-market
buyouts of growing private businesses,
corporate carve-outs and platform
companies; energy investmentsboth
upstream and midstream where
operators are faced with greater
requirements for infrastructure and
expansion capital; and growth equity
in late-stage technology companies
beneting from secular shifts in
consumer adoption. In the credit
space, despite the continued low
borrowing rates and low default
environment, our private credit
managers have been able to
selectively source their investments
and underwrite to their target returns.
11 MI D-YE AR 2 01 4
WHAT ARE WE WATCHING AHEAD?
While there are many risks in the
marketplace today, there are two in
particular that we are watching very closely.
Central bank policy
In the United States, we believe Fed
tightening will provide the next
inection point, signaling the direction
not only of the recovery, but the
investment cycle ahead. In Europe,
there is still some doubt the ECB has
done enough to put the region back on
track to sustainable and more balanced
growth. In Japan, the key question is
how fast the BoJ is willing to accelerate
its program of extraordinary measures.
Additionally, there is some concern of
secular stagnation creeping into the
global economythat is, growth in real
per capita income simply stalling out
(or modestly contracting) over a
protracted period. We put a low
probability on this risk, but, as we
noted in our January outlook, we are
watching real wages, capital spending
and credit growth in Japan, Europe and
some pockets across EM economies to
validate our base case for slow-but-
improving global growth.
Geopolitical risk
Geopolitical risk is rising and is
something we have continued to
highlight. We were even-handed in
arguing earlier this year not to
exaggerate the risks we saw in Russias
annexation of Crimea. However,
improving Sino-Russian relations may
add to geopolitical tensionpotentially
in headline hotspots like greater Syria,
Iran, Iraq and Southeast Asia.
Were being balanced as we watch new
and more nationalistic governments take
charge in Japan, the Koreas and China.
Each is positioning for center stage
geopolitical relevance, but we continue
to believe mutually aligned interests will
prevail (with the exception perhaps of
North Korea). That said, regional tension
remains high, and we expect headlines
to stay inammatory.
Risks in global housing
Residential investment was a positive driver
of GDP growth last year, but signicantly
less so than before the crisis. Nevertheless, a
signicant slowdown in the housing market
could threaten the economic recovery and
may shake fragile consumer sentiment.
Further, as the Fed continues the process
of slowly normalizing policy rates over the
next few years, mortgage rates will rise from
historically low levels and continue to weigh
on housing activity.
As real estate is often the single largest asset
on most consumer balance sheets, home
values can have a signicant impact on risk
appetite. This phenomenon is not limited to
the United States: Low global rates and high
liquidity have led to signicant increases in
house prices around the world. According to
recent analysis released by the IMF, house
prices remain well above the historical averages
for many countries (relative to incomes
and rents), including: Canada, Belgium,
New Zealand, the United Kingdom, Norway,
the Netherlands, France and Australia.
12 MARKET THOUGHTS UNI TED STATES QUARTERLY
Perhaps of greatest concern
geopolitically is how markets remain,
for the moment, somewhat indiferent
about escalating fundamentalism
across the Middle Eastsomething we
also see creeping into China, Malaysia
and Indonesia. We continue to
carefully watch rising engagement in
Iraq, Pakistan, Syria and Afghanistan.
Things are getting worse in a region
that has the potential to create a
signicant commodity price shock for
global markets.
WHAT DO WE EXPECT AHEAD?
We really havent changed our view
though weve adjusted macro forecasts
lower to recognize that the rst
quarter was somewhat of a lost
quarter for U.S. growth. It was also an
exaggerated quarter for growth in
Japan because of economic activity
that was pulled forward ahead of
Aprils consumption tax increase.
Europe remains on track to recovery,
but its a tepid recovery. Across EM,
we continue to see growth slowing.
Ination across developed markets isnt
a policy challenge this year. Thats true
even in Japan, where reation is the
policy goal. In Japan, we are watching
that it doesnt err by doing less when
more is needed, or declaring policy
victory too soon.
The ECBs June policy easing was
notable. However, where markets have
again taken solace is in the promise that
there is more to come, if needed. Weve
said for the past year that the ECB has
been the most efcient of developed
market central banksgetting the most
out of doing the least. As we watch the
Fed exit QE and address raising policy
rates next year, the ECB may look
prescient for having done less, in case it
needs to do more.
Given the tentative start to this year,
market hesitancy is understandable.
Since 2010, there has been $1 trillion
reinvested in global equity and bond
markets funded from cash. The
strongest inows into equity markets
happened last year, with about 70% of
all equity inows since 2010 occurring
in 2013. We believe this is long-term
money being reinvested after the
Great Recessionbut it was late
reinvesting and wants validation.
Markets have been stuck in a low
volume and low volatility trading
environment. We believe that reects
investor hesitancy for where we go next
in the investment cycle. The key is to
recognize that markets are waiting for
the next inection point. We mentioned
in our January outlook that equity
markets would be less exuberant this
year. They have been, for the right
13 MI D-YE AR 2 01 4
reasons. The balancing act ahead rests
on the ability of consumer and corporate
condence to sustain investment,
earnings, consumption and growth.
We continue to believe equity markets
are fully valued. That is why we are so
focused on our earnings outlook. We
continue to believe return expectations
need to be managed down to earnings
growth and dividends this yearbut we
feel that creates an environment where
equity markets are still the asset class
that drives portfolio returns over the
next year. Thats why we are overweight.
We have a pro-cyclical view of the
world that it is clearly reected in our
investment positioning.
Markets got of to a false start this year.
Macro data and earnings are getting
markets back on track. Weve certainly
seen re-engagement with recent equity
market strength. Perhaps the most
important point to make is that the pace
of inows into all risk assets is more
balanced. Weve seen over $150 billion
invested in global equity and bond
markets so far this year, with ows into
bond markets outpacing equity market
inows by 2:1. Last year, efectively all
net ows went into equity markets.
Flows are a poor leading indicator for
markets, but they are an important
validation for who is investing and how.
More balanced ows between stocks and
bonds show investors are focused on
fundamentals. That is very good news.
We believe the next inection point for
markets will come as the Fed begins to
raise short-term policy rates next year.
Regardless of how clear its messaging
is, higher U.S. interest rates will begin
a process of re-pricing risk assets that
markets will try to anticipate. If you
believe the world is getting better, you
believe interest rates are also moving
higher. Interest rates are moving
higher because of stronger global
growth, which in turn supports our
current pro-cyclical outlook. Slow
and steady.
14 MARKET THOUGHTS UNI TED STATES QUARTERLY
LARGE
UNDERWEIGHT

UNDERWEIGHT

NEUTRAL

OVERWEIGHT
LARGE
OVERWEIGHT
PORTFOLI O THEMES
EQUI TY
U.S. Midcap
Tech, Industrials,
Financials
Healthcare
EM Asia
Europe
Japan
HEDGE FUNDS
Event Driven
Equity Long/Short
Relative Value
Opportunistic Macro
HARD ASSETS
FI XED I NCOME
Core Bonds
Extended Credit

Cash
Portfolio tilts vs. benchmark
Benchmark consists of MSCI World (40%), HFRI FOF Diversied (20%), DJ/UBS Commodities (5%), Barclays Global Aggregate (35%), Cash (5%).
PORTFOLI O POSI TI ONI NG ( VS. BENCHMARK)
Large Underweight Underweight Neutral Overweight Large Overweight
15 MI D-YE AR 2 01 4
Contributors
16 MARKET THOUGHTS UNI TED STATES QUARTERLY
CSAR PREZ
Chief Investment StrategistEurope,
Middle East and Africa
J.P. Morgan Private Bank
RICHARD MADIGAN
Chief Investment Ofcer and
Head of Investment Strategy
J.P. Morgan Private Bank
MICHAEL VAKNIN
Chief Economist
J.P. Morgan Private Bank
FAN JIANG
Chief Investment StrategistAsia
J.P. Morgan Private Bank
KATE MOORE
Chief Investment StrategistUnited States
J.P. Morgan Private Bank









Fan Jiang

Fan Jiang is a Managing Director and Chief Investment Strategist of J.P. Morgan Private Bank in Asia.
Based in Hong Kong, he is responsible for developing and implementing the investment strategy for Asia
as well as tailoring it for client portfolios in the region. As a member of the firms Global Investment
Committee, he is also responsible for generating alpha across all discretionary multi-asset portfolios.

Prior to joining J.P. Morgan, Mr. Jiang spent nearly 20 years at Goldman Sachs and was most recently
Chief Market Strategist for its Private Wealth Management business across the Asia Pacific region.
Before that, he worked in its Fixed Income Division, where he started the groups Asia credit strategy
and trading team.

Fan holds an undergraduate and a graduate degree from the University of Notre Dame where he majored
in economics and a Ph.D. in finance from the Kellogg School of Management. A native Shanghainese,
he lived and worked in the U.S. before relocating to Hong Kong in 1996.









Kate Moore

Kate Moore is an Executive Director and Chief Investment Strategist for the U.S. J.P. Morgan Private
Bank. She is a member of the Global Investment Committee.

Before joining J.P. Morgan, Kate was a Senior Global Equity Strategist at Bank of America Merrill Lynch
Global Research. In this role, she was responsible for macro equity strategy, asset allocation and thematic
investment advice for both institutional and individual investors. Prior to Bank of America Merrill
Lynch, Kate was an Emerging Markets Strategist for Moore Capital Management, where she conducted
macro research and developed trade ideas in equity, credit and commodity markets. Prior to Moore
Capital, Kate was a member of the Global Strategy team at Morgan Stanley Investment Management.

Kate has been featured by major news outlets, including CNBC, The Wall Street Journal, the Financial
Times, The New York Times and Bloomberg.

Kate holds a B.A. from the University of Virginia, and an M.A. in Political Economy from the
University of Chicago.
TULIO VERA
Chief Investment StrategistLatin America
J.P. Morgan Private Bank
GEORGIY ZHIKHAREV
U.S. Head of Portfolio Construction
J.P. Morgan Private Bank
MICHAEL STOHLER
International Head of Portfolio Construction
J.P. Morgan Private Bank



Michael Stohler

Michael is the International Head of Portfolio Construction, for J.P. Morgan Private Bank and is
responsible for delivering our the firms investment insights across $100 Billion billion of
discretionary client assets across Europe, Latin America and Asia.

Previously at J.P. Morgan, Michael was the Chief Risk Officer of the Alternatives Platform at
JPMorgan. In this role, he was charged with manager selection, market risk and operational due
diligence for all hedge fund strategies at theJ.P. Morgans Private Bank. In addition, he
monitored portfolio-level and fund-specific risk across client accounts and proprietary fund of
hedge funds.

Michael joined the Private Bank in 2005 working on hedge fund portfolio construction. He has
also specialized in quantitative risk modeling, front and back office due diligence and market
research across various asset classes.



Michael has a B.A. in Physics from St. Olaf College (summa cum laude, Physics Department
academic distinction), an M.B.A. specializing in quantitative Quantitative finance Finance from
NYU Stern and a Ph.D. in Physics from Purdue University. His dissertation and research focus
was were on quantum Quantum information Information theoryTheory. Prior to joining J.P.
Morgan, he was an Assistant Professor of Physics at Wabash College from 2002 to -2004.

Michael joined J.P. Morgans Private Bank in 2005 working on hedge fund portfolio
construction. He has also specialized in quantitative risk modeling, front and back office due
diligence and market research across various asset classes.

Formatted: Indent: Left: 0"
17 MI D-YE AR 2 01 4
All index performance information has been obtained from
third parties and should not be relied on as being complete or
accurate. Indices are shown for comparison purposes only. While
an investor may invest in vehicles designed to track certain
indices, an investor cannot invest directly in an index.
Barclays 10-Year Municipal Bond Index
To be included in the Barclays 10-Year Municipal Bond Index,
bonds must be rated investment grade (Baa3/BBB- or higher) by
at least two of the following ratings agencies: Moodys, S&P, Fitch.
If only two of the three agencies rate the security, the lower rating
is used to determine index eligibility. If only one of the three
agencies rates a security, the rating must be investment grade.
They must have an outstanding par value of at least $7 million
and be issued as part of a transaction of at least $75 million. The
bonds must be xed rate, have a dated-date after December 31,
1990, and must be at least one year from their maturity date.
Remarketed issues, taxable municipal bonds, bonds with oating
rates, and derivatives are excluded from the benchmark.
J.P. Morgan Corporate EMBI Global Index
The J.P. Morgan Corporate EMBI Global Index includes U.S. dollar-
denominated Brady bonds, Eurobonds, traded loans and local market
debt instruments issued by sovereign and quasi-sovereign entities.
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The J.P. Morgan Domestic High Yield Index is an index designed
to track the performance of the investable universe of the U.S.
dollar domestic high yield corporate debt market.
J.P. Morgan U.S. High Grade Index (U.S. Investment Grade)
The J.P. Morgan Domestic High Yield Index is an index designed
to track the performance of the investable universe of the U.S.
dollar domestic high yield corporate debt market.
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The MSCI Emerging Markets Index is a free oat-adjusted market
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performance in the global emerging markets.
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The MSCI Europe Index is a capitalization-weighted index that
monitors the performance of stocks listed in the continent of Europe.
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The MSCI Japan Index is a free oat-adjusted market
capitalization index that is designed to measure equity market
performance in Japan.
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MSCI World Index is a capitalization-weighted index that monitors the
performance of developed market stocks from around the world.
S&P 500 Index
The S&P 500 is a capitalization-weighted index of 500 stocks
from a broad range of industries. The component stocks are
weighted according to the total market value of their outstanding
shares. The impact of a components price change is proportional
to the issues total market value, which is the share price times
the number of shares outstanding. S&P 500 is a trademark of
Standard and Poors Corporation.
Dow Jones/UBS Commodity Index
A broadly diversied index that allows investors to track
commodity futures contracts on physical commodities.
INDEX DEFINITIONS
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