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The information provided herein is for informational purposes only and should not be construed as financial, investment, tax, accounting or legal advice.
expertise.
Navigating Market Declines & Volatility
Market Update PresentationMarch19, 2020 Presented by:
Paul Madrid, CFA®, CFP®, AIFA®, PrincipalDaniel Yu, CFA®, AIF®, Chief Investment Officer
Robert Elzholz, CRPC®, AIF®, AAMS, Senior Investment Manager
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• Welcome• Markets Over Time• Current Market Environment• Questions & Answers
agenda.
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Markets Over Time
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4
Stock market since 1900
Source: FactSet, NBER, Robert Shiller, J.P. Morgan Asset Management. Data shown in log scale to best illustrate long-term index patterns. Past performance is not indicative of future returns. Chart is for illustrative purposes only.
Guide to the Markets – U.S. Data are as of March 17, 2020.
15
Equi
ties
S&P Composite IndexLog scale, annual
1
10
100
1,000
1900 1909 1918 1927 1936 1945 1955 1964 1973 1982 1991 2000 2010 2019
Recessions
Tech boom(1997-2000)
End of Cold War
(1991)
Reagan era(1981-1989)
Post-Warboom
New Deal(1933-1940)
Roaring 20s
Progressive era (1890-1920)
World War I(1914-1918) Great
Depression(1929-1939)
World War II(1939-1945)
Korean War(1950-1953)
Vietnam War(1969-1972)Oil shocks
(1973 & 1979)
Stagflation (1973-1975)
Global financial crisis (2008)
BlackMonday(1987)
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The Market’s Response to Crisis
5
• In US dollars. • Represents cumulative total returns of a balanced strategy invested on the first day of the following calendar month of the event noted. Balanced Strategy: 12% S&P 500 Index, 12% Dimensional US Large Cap Value Index, 6% Dow
Jones US Select REIT Index, 6% Dimensional International Value Index, 6% Dimensional US Small Cap Index, 6% Dimensional US Small Cap Value Index, 3% Dimensional International Small Cap Index, 3% Dimensional International Small Cap Value Index, 2.4% Dimensional Emerging Markets Small Index, 1.8% Dimensional Emerging Markets Value Index, 1.8% Dimensional Emerging Markets Index, 10% Bloomberg Barclays Treasury Bond Index 1-5 Years, 10% FTSE World Government Bond Index 1-5 Years (hedged), 10% FTSE World Government Bond Index 1-3 Years (hedged), 10% ICE BofA 1-Year US Treasury Note Index. Assumes monthly rebalancing. For illustrative purposes only. S&P and Dow Jones data © 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. ICE BofA index data © 2019 ICE Data Indices, LLC. FTSE fixed income indices © 2019 FTSE Fixed Income LLC. All rights reserved. Bloomberg Barclays data provided by Bloomberg. Dimensional indices use CRSP and Compustat data.
• Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Not to be construed as investment advice. Returns of model portfolios are based on back-tested model allocation mixes designed with the benefit of hindsight and do not represent actual investment performance. See “Balanced Strategy Disclosure and Index Descriptions” pages in the Appendix for additional information.
Performance of a Balanced Strategy: 60% Stocks, 40% BondsCumulative Total Return
19%
-2%
16%
2%
-1%
4%7%
33%
23% 25%
2%
40%
12%
36%
76%
61%
52% 51%
81%
47%42%
After 1 year After 3 years After 5 years
October 1987:Stock Market Crash
August 1989:US Savings and
Loan Crisis
September 1998:Asian ContagionRussian CrisisLTCM Collapse
March 2000:Dot-Com Crash
September 2001:Terrorist Attack
September 2008:Bankruptcy of
Lehman Brothers
August 2011:US Debt
Downgrade
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A History of Market Ups and Downs
6
• Chart end date is 12/31/2019, the last trough to peak return of 31% represents the return through December 2019.• Bear markets are defined as downturns of 10% of greater from new index highs. Bull markets are subsequent rises following the bear market trough through the next new market high. The chart shows bear markets and bull markets,
the number of months they lasted and the associated cumulative performance for each market period. Results for different time periods could differ from the results shown.• Past performance is no guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.• Source: S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
S&P 500 Index total returns in USD, January 1926–December 2019
#65206_0618
Using a 10% threshold for downturns
1926 1931 1936 1941 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
S&P
500
Inde
x To
tal R
etur
n (L
ogar
ithm
ic S
cale
)
0%
-1%
1,000%
-100%
-14%3 months
Bull Market
Bear Market
193%44 months
815%167 months 491%
116 months
105%48 months
90%43 months
12%5 months
52%26 months
76%30 months
86%27 months
86%33 months
282%61 months
355%92 months
63%24 months
108%61 months
385%115 months
-10%7 months
-14%14 months
-17%20 months
-15%5 months
-15%2 months
-45%25 months
-51%16 months
-43%21 months
-30%3 months
-83%34 months
-22%6 months
-22%6 months
-16%8 months
-15%5 months
-29%19 months
71%30 months
31%12 months
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Average Annualized Returns after Market Decline of More than 10%
7
• In US dollars.• Past performance is no guarantee of future results. Declines are defined as months ending with the market below the previous market high by at least 10%. Annualized compound returns are computed for the relevant time periods
after each decline observed and averaged across all declines for the cutoff. There were 1,127 observation months in the sample. January 1990–present: S&P 500 Total Returns Index. S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. January 1926–December 1989; S&P 500 Total Return Index, Stocks, Bonds, Bills and Inflation Yearbook™, Ibbotson Associates, Chicago. For illustrative purposes only. Index is not available for direct investment; therefore, its performance does not reflect the expenses associated with the management of an actual portfolio. There is always a risk that an investor may lose money.
S&P 500, 1/1926–12/2019
11.3%10.2%
9.6%
0%
5%
10%
15%
1-YearLook Ahead Period
3-YearLook Ahead Period
5-YearLook Ahead Period
Annu
alize
d Co
mpo
und
Retu
rn
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Many Investors Follow Their Emotions
8
People may struggle to separate their emotions from their investment decisions.
Following a reactive cycle of excessive optimism and fear may lead to poor decisions at the worst times.
NervousnessOptimism
Fear
Elation
Optimism
-
Picking the Fastest Lane Isa Stressful Guessing Game
9
Likewise, trying to anticipate the movement of the market adds anxiety and undue risk.
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Reacting Can Hurt Performance
10
• Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.• In US dollars. For illustrative purposes. The missed best day(s) examples assume that the hypothetical portfolio fully divested its holdings at the end of the day before the missed best day(s), held cash for the missed best day(s), and
reinvested the entire portfolio in the S&P 500 at the end of the missed best day(s). Annualized returns for the missed best day(s) were calculated by substituting actual returns for the missed best day(s) with zero. • S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. “One-Month US T- Bills” is the IA SBBI US 30 Day TBill TR USD, provided by Ibbotson Associates via Morningstar Direct. Data is calculated
off rounded daily index values.
Performance of the S&P 500 Index, 1990–2019
Missing only a few days of strong returns can drastically impact overall performance.
TotalPeriod
Missed 1 Best
Day
Missed 5 Best Single
Days
Missed 15 Best Single
Days
Missed 25 Best Single
Days
One-Month
US T-Bills
Annualized Compound Return 9.96% 9.56% 8.47% 6.56% 4.99% 2.72%
$17,273
$15,480
$11,459
$6,733
$4,314
$2,235
Gro
wth
of $
1,00
0
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Markets Now
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What Affects a Stock’s Current Price?
12
Given all information, a stock’s current price reflects aggregate expectations about risk and return.
All Available Information
A company’s equity, its prospects for future earnings, and perceived risk
Price
-
13
Sources of earnings per share growth
Source: Compustat, FactSet, Standard & Poor’s, J.P. Morgan Asset Management.EPS levels are based on annual operating earnings per share except for 2019, which is quarterly. Percentages may not sum due to rounding. Past performance is not indicative of future returns. *4Q19 earnings are calculated using actual earnings for 97.8% of S&P 500 market cap and earnings estimates for the remaining companies.
Guide to the Markets – U.S. Data are as of March 17, 2020.
8
Equi
ties
S&P 500 year-over-year operating EPS growthAnnual growth broken into revenue, changes in profit margin & changes in share count
Share of EPS growth 4Q19* Avg. '01-18Margin 5.1% 4.2%Revenue 5.4% 3.2%Share Count 1.3% 0.3%Total EPS 11.8% 7.7%
-31%
19% 19%24%
13% 15%
-6%
-40%
15%
47%
15%
0%
11%5%
-11%
6%
17%22%
4% 4%
-4%
12%
4Q19*
-60%
-40%
-20%
0%
20%
40%
60%
-
14
The length and strength of expansions
Source: BEA, NBER, J.P. Morgan Asset Management. *Chart assumes current expansion started in July 2009 and continued through February 2020, lasting 128 months so far. Data for length of economic expansions and recessions obtained from the National Bureau of Economic Research (NBER). These data can be found at www.nber.org/cycles/ and reflect information through February 2020. Past performance is not a reliable indicator of current and future results.Guide to the Markets – U.S. Data are as of March 17, 2020.
16Length of economic expansions and recessions Strength of economic expansionsCumulative real GDP growth since prior peak, percent
Average length (months):
Expansions: 48 months
Recessions: 15 months
Number of quarters0
20
40
60
80
100
120
140
1900 1912 1921 1933 1949 1961 1980 2001
128 months*
-6%
4%
14%
24%
34%
44%
54%
0 8 16 24 32 40 48
4Q482Q53
3Q57
2Q60
4Q73
4Q69
1Q803Q81
3Q90
1Q01
4Q07
Prior expansion peak
-
15
Consumer finances
Source: FactSet, FRB, J.P. Morgan Asset Management; (Top and bottom right) BEA.
Data include households and nonprofit organizations. SA – seasonally adjusted. *Revolving includes credit cards. Values may not sum to 100% due to rounding. **4Q19 figure for debt service ratio is J.P. Morgan Asset Management estimate.
Guide to the Markets – U.S. Data are as of March 17, 2020.
18Consumer balance sheet Household debt service ratio4Q19, trillions of dollars outstanding, not seasonally adjusted Debt payments as % of disposable personal income, SA
3Q07 Peak $85.6tn1Q09 Low $74.6tn
Household net worthNot seasonally adjusted, USD billions
Other non-revolving: 2%Revolving*: 7%Auto loans: 7%
Other liabilities: 9%Student debt: 10%
Other financial assets: 42%
Mortgages: 66%
Pension funds: 21%
Deposits: 8%
Other tangible: 5%
Homes: 24%
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
$120
$130
$140
1Q80: 10.6%
4Q07: 13.2%
4Q19**: 9.7%
9%
10%
11%
12%
13%
14%
'80 '85 '90 '95 '00 '05 '10 '15
3Q07: $71,338
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Total liabilities: $16.6tn
Total assets: $134.9tn
4Q19: $118,368
Assets Liabilities
-
16
Oil markets
Source: J.P. Morgan Asset Management; (Top and bottom left) EIA; (Right) FactSet; (Bottom left) Baker Hughes.
*Forecasts are from the March 2020 EIA Short-Term Energy Outlook and start in 2020. **U.S. crude oil inventories include the Strategic Petroleum Reserve (SPR). Active rig count includes both natural gas and oil rigs. WTI crude prices are continuous contract NYM prices in USD.
Guide to the Markets – U.S. Data are as of March 17, 2020.
28Change in production and consumption of liquid fuels Price of oilProduction, consumption and inventories, millions of barrels per day WTI crude, nominal prices, USD/barrel
Production 2017 2018 2019 2020* 2021* Growth since '17 U.S. 15.7 17.9 19.5 20.9 20.8 32.8% OPEC 37.4 37.3 35.2 34.2 34.5 -7.8% Russia 11.2 11.4 11.5 11.6 11.5 2.8% Global 98.1 100.8 100.6 102.1 102.4 4.4%Consumption U.S. 20.0 20.5 20.5 20.5 20.7 3.8% China 13.6 14.0 14.5 14.6 15.4 13.4% Global 98.7 100.0 100.8 101.1 102.9 4.2%Inventory Change -0.6 0.8 -0.2 1.0 -0.4
U.S. crude oil inventories and rig count**Million barrels, number of active rigs
0
500
1,000
1,500
2,000
2,500
900
950
1,000
1,050
1,100
1,150
1,200
1,250
'13 '14 '15 '16 '17 '18 '19 '20
Inventories (incl. SPR) Active rigs
Jul. 3, 2008: $145.29
Feb. 12, 2009: $33.98
Jun. 13, 2014:
$106.91
Feb. 11, 2016: $26.21
Mar. 17, 2020:
$26.95$0
$20
$40
$60
$80
$100
$120
$140
$160
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
-
17
S&P 500 valuation measures
Source: FactSet, FRB, Robert Shiller, Standard & Poor’s, Thomson Reuters, J.P. Morgan Asset Management.
Price to earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months as provided by IBES since March 1995, and FactSet for March 17, 2020. Average P/E and standard deviations are calculated using 25 years of IBES history. Shiller’s P/E uses trailing 10-years of inflation-adjusted earnings as reported by companies. Dividend yield is calculated as the next 12-month consensus dividend divided by most recent price. Price to book ratio is the price divided by book value per share. Price to cash flow is price divided by NTM cash flow. EY minus Baa yield is the forward earnings yield (consensus analyst estimates of EPS over the next 12 months divided by price) minus the Moody’s Baa seasoned corporate bond yield. Std. dev. over-/under-valued is calculated using the average and standard deviation over 25 years for each measure. *P/CF is a 20-year average due to cash flow data availability.
Guide to the Markets – U.S. Data are as of March 17, 2020.
5S&P 500 Index: Forward P/E ratioValuation measure Description Latest
25-year avg.*
Std. dev. Over-/under-
ValuedP/E Forw ard P/E 14.49x 16.32x -0.58CAPE Shiller's P/E 23.59 27.27 -0.60Div. Yield Dividend yield 2.50% 2.08% -1.17P/B Price to book 2.60 2.97 -0.51P/CF Price to cash f low 10.64 10.59 0.03EY Spread EY minus Baa yield 2.79% 0.00% -1.41
25-year average: 16.32x
+1 Std. dev.: 19.46x
-1 Std. dev.: 13.17x
Mar. 17, 2020:14.49x
8x
10x
12x
14x
16x
18x
20x
22x
24x
26x
'95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19
-
18
International equity earnings and valuations
Source: FactSet, MSCI, Standard & Poor’s, Thomson Reuters, J.P. Morgan Asset Management.
*Valuations refer to NTMA P/E for Europe, U.S., Japan and developed markets and P/B for emerging markets. Valuation and earnings charts use MSCI indices for all regions/countries, except for the U.S., which is the S&P 500. All indices use IBES aggregate earnings estimates, which may differ from earnings estimates used elsewhere in the book. MSCI Europe includes the eurozone as well as countries not in the currency bloc, such as Norway, Sweden, Switzerland and the UK (which collectively make up 46% of the overall index). Past performance is not a reliable indicator of current and future results.
Guide to the Markets – U.S. Data are as of March 17, 2020.
46
Inte
rnat
iona
l
Global earnings Global valuations EPS, local currency, next 12 months, Jan. 2006 = 100 Current and 25-year historical valuations*
20
40
60
80
100
120
140
160
180
200
220
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
JapanEurope
U.S.
EM
16.32x 16.08x
14.57x
21.48x
14.26x
12.89x
10.38x
10.61x
1.78x
1.58x
0.0x
0.4x
0.8x
1.2x
1.6x
2.0x
2.4x
2.8x
3.2x
3.6x
4.0x
4.4x
4.8x
5.2x
5x
9x
13x
17x
21x
25x
29x
33x
U.S. DM Europe Japan EM
53xAxis
Pric
e-to
-ear
ning
s Price-to-book
Current25-year range25-year average
-
19
Bear markets and subsequent bull runs
Source: FactSet, NBER, Robert Shiller, Standard & Poor’s, J.P. Morgan Asset Management.
*A bear market is defined as a 20% or more decline from the previous market high. The related market return is the peak to trough return over the cycle. Periods of “Recession” are defined using NBER business cycle dates. “Commodity spikes” are defined as movement in oil prices of over 100% over an 18-month period. Periods of “Extreme Valuations” are those where S&P 500 last 12 months’ P/E levels were approximately two standard deviations above long-run averages, or time periods where equity market valuations appeared expensive given the broader macroeconomic environment. “Aggressive Fed Tightening” is defined as Federal Reserve monetary tightening that was unexpected and/or significant in magnitude. Bear and Bull returns are price returns.
Guide to the Markets – U.S. Data are as of March 17, 2020.
14
U.S. recessions and S&P 500 composite declines from all-time highs
Characteristics of bull and bear markets
1 Crash of 1929 - Excessive leverage, irrational exuberance Sep 1929 -86% 32 Jul 1926 152% 372 1937 Fed Tightening - Premature policy tightening Mar 1937 -60% 61 Mar 1935 129% 233 Post WWII Crash - Post-war demobilization, recession fears May 1946 -30% 36 Apr 1942 158% 494 Eisenhower Recession - Worldwide recession Aug 1956 -22% 14 Jun 1949 267% 855 Flash Crash of 1962 - Flash crash, Cuban Missile Crisis Dec 1961 -28% 6 Oct 1960 39% 136 1966 Financial Crisis - Credit crunch Feb 1966 -22% 7 Oct 1962 76% 397 Tech Crash of 1970 - Economic overheating, civil unrest Nov 1968 -36% 17 Oct 1966 48% 258 Stagflation - OPEC oil embargo Jan 1973 -48% 20 May 1970 74% 319 Volcker Tightening - Whip Inflation Now Nov 1980 -27% 20 Mar 1978 62% 3210 1987 Crash - Program trading, overheating markets Aug 1987 -34% 3 Aug 1982 229% 6011 Tech Bubble - Extreme valuations, .com boom/bust Mar 2000 -49% 30 Oct 1990 417% 11312 Global Financial Crisis - Leverage/housing, Lehman collapse Oct 2007 -57% 17 Oct 2002 101% 60
Current Cycle Mar 2009 274% 132- -42% 22 - 156% 54
Bull return
Duration (months)Market correction
Averages
Market peak
Bear return*
Duration (months)*
Recession Commodity Spike
Aggressive Fed
Extreme Valuation
Bull begin date
Bear Market Macro environment Bull markets
12
3
45
6
7
8
9 10
1112
-100%
-80%
-60%
-40%
-20%
0%
1928 1933 1938 1943 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018
Recession
20% Market decline*
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Markets Have Rewarded Discipline
20• In US dollars. MSCI data © MSCI 2020, all rights reserved. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. • Past performance is no guarantee of future results.
Growth of a dollar—MSCI World Index (net dividends), 1970–2019
A disciplined investor looks beyond the concerns of today to the long-term growth potential of markets.
$0
$1
$10
$100 $69
1970 1980 1990 2000 2010 2019
US home prices hit bottom
Fiscal cliff worries
Eurozone debt crisis
S&P 500 down 46%
Subprime mortgage
crisis
Hurricanes Katrina
and RitaIraq war begins
Dotcom stock crash
9/11 terrorist attacks
Y2K Scar
e
Russian financial
crisisAsian
currency crisis
Income tax rates rise
Iraq invades Kuwait
Savings and loan crisis
Dow drops 23% on Black Monday
US inflation at 13.5%
BusinessWeek: “The Death of Equities”
Gold hits record high
S&P 500 down 43%
Oil prices quadruple
Arab oil embargo
Brexit
-
21
Annual returns and intra-year declines
Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management.
Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough during the year. For illustrative purposes only. Returns shown are calendar year returns from 1980 to 2019, over which time period the average annual return was 8.9%.
Guide to the Markets – U.S. Data are as of March 17, 2020.
13S&P 500 intra-year declines vs. calendar year returnsDespite average intra-year drops of 13.8%, annual returns positive in 30 of 40 years
26
-10
1517
1
26
15
2
12
27
-7
26
47
-2
34
20
3127
20
-10-13
-23
26
9
3
14
4
-38
23
13
0
13
30
11
-1
10
19
-6
29
-22-17 -18 -17
-7
-13-8 -9
-34
-8 -8
-20
-6 -6 -5-9
-3-8
-11
-19
-12-17
-30-34
-14
-8 -7 -8 -10
-49
-28
-16-19
-10-6 -7
-12 -11
-3
-20
-7
-30
YTD
-60%
-40%
-20%
0%
20%
40%
'80 '85 '90 '95 '00 '05 '10 '15 '20
-
Distribution of US Market Returns
22• In US dollars. CRSP data provided by the Center for Research in Security Prices, University of Chicago. The CRSP 1−10 Index measures the performance of the total US stock market, which it defines as the aggregate capitalization
of all securities listed on the NYSE, AMEX, and NASDAQ exchanges. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.
CRSP 1–10 Index returns by year1926–2019 1949
20.2195120.7196321.0
199311.1
198221.0
19700.0
201411.6
201721.1
Positive Years: 70 74% 19530.7200412.0
199621.4
Negative Years: 24 26% 20110.8195912.7
194421.5
19601.2
195213.4
198322.0
201930.4
19871.7
201613.6
197922.6
199731.4
19482.1
196814.1
199824.3
200331.6
1966-8.7
19392.8
196514.5
195525.2
198532.2
1932-8.6
19473.6
200615.5
199925.2
193632.3
1973-18.1
1940-7.1
19344.1
194216.1
197626.8
198032.8
1929-15.2
1946-6.2
19844.5
196416.1
196126.9
192733.5
2000-11.4
1990-6.0
20075.8
197116.1
193828.2
199134.7
2001-11.1
2018-5.0
20056.2
201216.2
194328.4
201335.2
1969-10.9
1977-4.3
19787.5
198616.2
196728.7
199536.8
1930-28.8
1962-10.2
1981-3.6
19568.3
197216.8
200928.8
192838.4
193544.4
2008-36.7
1974-27.0
1941-10.1
2015-0.5
19268.4
201017.7
198928.9
194538.5
195845.0
1931-43.5
1937-34.7
2002-21.1
1957-10.0
1994-0.1
19929.8
198818.0
195029.6
197538.8
195450.0
193356.7
-50% to -40% -40% to -30% -30% to -20% -20% to -10% -10% to 0% 0% to 10% 10% to 20% 20% to 30% 30% to 40% 40% to 50% 50% to 60%Annual Return Range
Sheet1
194920.2
195120.7
196321.0
199311.1198221.0
19700.0201411.6201721.1
Positive Years:7074%19530.7200412.0199621.4
Negative Years:2426%20110.8195912.7194421.5
19601.2195213.4198322.0201930.4
19871.7201613.6197922.6199731.4
19482.1196814.1199824.3200331.6
1966-8.719392.8196514.5195525.2198532.2
1932-8.619473.6200615.5199925.2193632.3
1973-18.11940-7.119344.1194216.1197626.8198032.8
1929-15.21946-6.219844.5196416.1196126.9192733.5
2000-11.41990-6.020075.8197116.1193828.2199134.7
2001-11.12018-5.020056.2201216.2194328.4201335.2
1969-10.91977-4.319787.5198616.2196728.7199536.8
1930-28.81962-10.21981-3.619568.3197216.8200928.8192838.4193544.4
2008-36.71974-27.01941-10.12015-0.519268.4201017.7198928.9194538.5195845.0
1931-43.51937-34.72002-21.11957-10.01994-0.119929.8198818.0195029.6197538.8195450.0193356.7
-50% to -40%-40% to -30%-30% to -20%-20% to -10%-10% to 0%0% to 10%10% to 20%20% to 30%30% to 40%40% to 50%50% to 60%
Annual Return Range
-
23
Time, diversification and the volatility of returns63
Source: Barclays, Bloomberg, FactSet, Federal Reserve, Robert Shiller, Strategas/Ibbotson, J.P. Morgan Asset Management.
Returns shown are based on calendar year returns from 1950 to 2019. Stocks represent the S&P 500 Shiller Composite and Bonds represent Strategas/Ibbotson for periods from 1950 to 2010 and Bloomberg Barclays Aggregate thereafter. Growth of $100,000 is based on annual average total returns from 1950 to 2019.
Guide to the Markets – U.S. Data are as of March 17, 2020.
Range of stock, bond and blended total returnsAnnual total returns, 1950-2019
Annual avg. total return
Growth of $100,000 over 20 years
Stocks 11.3% $844,684Bonds 5.9% $313,75850/50 portfolio 8.9% $555,161
-39%
-8%
-15%-3% -2%
1%
-1% 1% 2%6%
1%5%
47%43%
33%28%
23% 21% 19%16% 16% 17%
12% 14%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
1-yr. 5-yr.rolling
10-yr.rolling
20-yr.rolling
-
24
Diversification and the average investor64
Source: J.P. Morgan Asset Management; (Top) Barclays, Bloomberg, FactSet, Standard & Poor’s; (Bottom) Dalbar Inc.
Indices used are as follows: REITS: NAREIT Equity REIT Index, EAFE: MSCI EAFE, Oil: WTI Index, Bonds: Bloomberg Barclays U.S. Aggregate Index, Homes: median sale price of existing single-family homes, Gold: USD/troy oz., Inflation: CPI. 60/40: A balanced portfolio with 60% invested in S&P 500 Index and 40% invested in high-quality U.S. fixed income, represented by the Bloomberg Barclays U.S. Aggregate Index. The portfolio is rebalanced annually. Average asset allocation investor return is based on an analysis by Dalbar Inc., which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior. Returns are annualized (and total return where applicable) and represent the 20-year period ending 12/31/18 to match Dalbar’s most recent analysis.
Guide to the Markets – U.S. Data are as of March 17, 2020.
Portfolio returns: Equities vs. equity and fixed income blend
20-year annualized returns by asset class (1998 – 2018)
$30,000
$60,000
$90,000
$120,000
$150,000
$180,000
$210,000
$240,000
$270,000
$300,000
Oct '07 Oct '08 Oct '09 Oct '10 Oct '11 Oct '12 Oct '13 Oct '14 Oct '15 Oct '16 Oct '17 Oct '18 Oct '19
40/60 stocks & bonds60/40 stocks & bondsS&P 500
Mar. 2009: S&P 500 portfolio loses over $50,000
Nov. 2009: 40/60
portf olio recov ers
Oct. 2010:60/40 portf olio
recov ers
Mar. 2012: S&P 500 recov ers
Oct. 2007: S&P 500 peak
9.9%
7.7%7.0%
5.6% 5.2% 5.0% 4.5% 4.0% 3.4%2.2% 1.9%
0%
2%
4%
6%
8%
10%
12%
REITs Gold Oil S&P 500 60/40 40/60 Bonds EAFE Homes Inflation AverageInvestor
-
25
Source: Barclays, Bloomberg, FactSet, MSCI, NAREIT, Russell, Standard & Poor’s, J.P. Morgan Asset Management.
Large cap: S&P 500, Small cap: Russell 2000, EM Equity: MSCI EME, DM Equity: MSCI EAFE, Comdty: Bloomberg Commodity Index, High Yield: Bloomberg Barclays Global HY Index, Fixed Income: Bloomberg Barclays US Aggregate, REITs: NAREIT Equity REIT Index, Cash: Bloomberg Barclays 1-3m Treasury. The “Asset Allocation” portfolio assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EME, 25% in the Bloomberg Barclays US Aggregate, 5% in the Bloomberg Barclays 1-3m Treasury, 5% in the Bloomberg Barclays Global High Yield Index, 5% in the Bloomberg Commodity Index and 5% in the NAREIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. Annualized (Ann.) return and volatility (Vol.) represents period of 12/31/04 – 12/31/19. Please see disclosure page at end for index definitions. All data represents total return for stated period. The “Asset Allocation” portfolio is for illustrative purposes only. Past performance is not indicative of future returns.
Guide to the Markets – U.S. Data are as of March 17, 2020.
60
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD Ann. Vol.EM
Equity REITsEM
EquityFixed
IncomeEM
Equity REITs REITs REITsSmall Cap REITs REITs
Small Cap
EM Equity Cash
Large Cap
Fixed Income
Large Cap REITs
34.5% 35.1% 39.8% 5.2% 79.0% 27.9% 8.3% 19.7% 38.8% 28.0% 2.8% 21.3% 37.8% 1.8% 31.5% 1.8% 9.0% 22.2%
Comdty. EM Equity Comdty. CashHigh Yield
Small Cap
Fixed Income
High Yield
Large Cap
Large Cap
Large Cap
High Yield
DM Equity
Fixed Income REITs Cash REITs
EM Equity
21.4% 32.6% 16.2% 1.8% 59.4% 26.9% 7.8% 19.6% 32.4% 13.7% 1.4% 14.3% 25.6% 0.0% 28.7% 0.5% 8.3% 22.1%
DM Equity
DM Equity
DM Equity
Asset Alloc.
DM Equity
EM Equity
High Yield
EM Equity
DM Equity
Fixed Income
Fixed Income
Large Cap
Large Cap REITs
Small Cap
High Yield
Small Cap Comdty.
14.0% 26.9% 11.6% -25.4% 32.5% 19.2% 3.1% 18.6% 23.3% 6.0% 0.5% 12.0% 21.8% -4.0% 25.5% -14.5% 7.9% 18.6%
REITs Small CapAsset Alloc.
High Yield REITs Comdty.
Large Cap
DM Equity
Asset Alloc.
Asset Alloc. Cash Comdty.
Small Cap
High Yield
DM Equity
Asset Alloc.
EM Equity
Small Cap
12.2% 18.4% 7.1% -26.9% 28.0% 16.8% 2.1% 17.9% 14.9% 5.2% 0.0% 11.8% 14.6% -4.1% 22.7% -17.0% 7.8% 17.7%
Asset Alloc.
Large Cap
Fixed Income
Small Cap
Small Cap
Large Cap Cash
Small Cap
High Yield
Small Cap
DM Equity
EM Equity
Asset Alloc.
Large Cap
Asset Alloc.
Large Cap
High Yield
DM Equity
8.1% 15.8% 7.0% -33.8% 27.2% 15.1% 0.1% 16.3% 7.3% 4.9% -0.4% 11.6% 14.6% -4.4% 19.5% -21.4% 7.2% 17.3%
Large Cap
Asset Alloc.
Large Cap Comdty.
Large Cap
High Yield
Asset Alloc.
Large Cap REITs Cash
Asset Alloc. REITs
High Yield
Asset Alloc.
EM Equity Comdty.
Asset Alloc.
Large Cap
4.9% 15.3% 5.5% -35.6% 26.5% 14.8% -0.7% 16.0% 2.9% 0.0% -2.0% 8.6% 10.4% -5.8% 18.9% -23.1% 6.6% 14.0%
Small Cap
High Yield Cash
Large Cap
Asset Alloc.
Asset Alloc.
Small Cap
Asset Alloc. Cash
High Yield
High Yield
Asset Alloc. REITs
Small Cap
High Yield REITs
DM Equity
High Yield
4.6% 13.7% 4.8% -37.0% 25.0% 13.3% -4.2% 12.2% 0.0% 0.0% -2.7% 8.3% 8.7% -11.0% 12.6% -24.1% 5.3% 10.9%
High Yield Cash
High Yield REITs Comdty.
DM Equity
DM Equity
Fixed Income
Fixed Income
EM Equity
Small Cap
Fixed Income
Fixed Income Comdty.
Fixed Income
EM Equity
Fixed Income
Asset Alloc.
3.6% 4.8% 3.2% -37.7% 18.9% 8.2% -11.7% 4.2% -2.0% -1.8% -4.4% 2.6% 3.5% -11.2% 8.7% -25.7% 4.1% 10.0%
Cash Fixed IncomeSmall Cap
DM Equity
Fixed Income
Fixed Income Comdty. Cash
EM Equity
DM Equity
EM Equity
DM Equity Comdty.
DM Equity Comdty.
DM Equity Cash
Fixed Income
3.0% 4.3% -1.6% -43.1% 5.9% 6.5% -13.3% 0.1% -2.3% -4.5% -14.6% 1.5% 1.7% -13.4% 7.7% -29.1% 1.3% 3.4%
Fixed Income Comdty. REITs
EM Equity Cash Cash
EM Equity Comdty. Comdty. Comdty. Comdty. Cash Cash
EM Equity Cash
Small Cap Comdty. Cash
2.4% 2.1% -15.7% -53.2% 0.1% 0.1% -18.2% -1.1% -9.5% -17.0% -24.7% 0.3% 0.8% -14.2% 2.2% -33.5% -2.6% 1.0%
2005 - 2019
-
Paul Madrid, CFA®, CFP®, AIF®, Principal
Daniel Yu, CFA®, AIF®, Chief Investment Officer
Robert Elzholz, CRPC®, AIF®, AAMS, Senior Investment Manager
Q&A
Navigating Market Declines & Volatilityagenda.Markets Over TimeSlide Number 4The Market’s Response to CrisisA History of Market Ups and DownsAverage Annualized Returns �after Market Decline of More than 10%Many Investors Follow Their EmotionsPicking the Fastest Lane Is�a Stressful Guessing GameReacting Can Hurt PerformanceMarkets NowWhat Affects a Stock’s Current Price?Slide Number 13Slide Number 14Slide Number 15Slide Number 16Slide Number 17Slide Number 18Slide Number 19Markets Have Rewarded DisciplineSlide Number 21Distribution of US Market ReturnsSlide Number 23Slide Number 24Slide Number 25Q&A
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