The J.P. Morgan View Themes to buy, and not to buy ::JPMorgan

 Asset allocation –– Our investment strategy is driven by the themes of
relative growth, low macro volatility and value, and not by global growth,
asset reflation, inflation, or fading tail risks. We stay long equities and credit
vs cash, safe gov’t debt and commodities.
 Economics –– Offsetting growth forecasts changes, up in US and Japan,
and down in China and Euro area, keep the global growth view unchanged.
 Fixed Income –– Disinflationary impulse appears largely in the price for
breakevens.
 Equities –– We raise our end-2013 S&P500 target to 1715. In Japan, we
add a new end-2014 target of 1800 for Topix, while maintaining an end-
2013 target of 1400.
 Credit –– We see modest upside risk to our original full-year return
forecast of 7-8% for US HY. We pencil in 9-10%.
 Currencies –– Forecasts for commodity currencies lowered vs USD on
weaker growth in China.
 Commodities –– We stay OW energy vs. base metals.

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 Global stocks reached new cycle highs this week, with the US at a new alltime
high. Bonds got hurt in the move, dragging credit down with them,
while commodities fell slightly on weaker manufacturing data.
 The unrelenting rally in stocks in an environment of no great news on
earnings and the economy is making many investors uncomfortable. We use
the opportunity to reconfirm our investment strategy in terms of a number
of market themes/forces that we buy into and a number that we not buy into.
 On growth, we do not buy into a global growth surge. The current
rebound in growth in H1 from the low in Q4 is no more than expected. If
anything, we see manufacturing weakening in Q2 and are UW global
cyclical stocks and industrial metals on that. However, we do buy into the
relative growth theme, overweighting stocks where we have upgraded
growth – US and Japan – against those where we cut forecasts – Euro area
and EM (charts p. 2). This week alone, we did exactly that on stronger retail
sales in the US, a better Q1 in Japan, against a weaker Q1 in the Euro area,
and softer IP and retail sales in China.
 We buy into low macro volatility and Value as market drivers rather
than the asset relation and fading tail risks we relied on last year. Asset
reflation denotes the price-boosting impact of the massive QE injection of
excess liquidity into the financial system. We find that excess cash is
concentrated among banks and corporates, and not among investors. Fading
tail risks, largely around fiscal risks, were the main drivers of higher risk
prices last year. Investors are no longer driven by fear anymore.
 Low macro volatility and Value are related, but still different. They denote
our view that risk premia price in more risk than we think will be delivered,
but that not each of these risk premia is equally attractive.