coronavirus update: covid-19 and the markets · michael cembalest march 20, 2020 coronavirus...
TRANSCRIPT
Michael Cembalest
March 20, 2020
Coronavirus update: COVID-19 and the markets
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1
Where can I find all these charts and what they mean
Private Bank
Asset Management
www.jpmorgan.com/coronavirusupdates
www.jpmorgan.com/coronavirus-research
2
Infection counts
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
T0
T3
T6
T9
T1
2
T1
5
T1
8
T2
1
T2
4
T2
7
T30
T3
3
T3
6
T3
9
T4
2
T4
5
T4
8
T51
T5
4
Source: JHU. March 18, 2020. T0: China = Jan 22, Outside China = Feb 4.
Coronavirus T days after respective region's outbreakCumulative number of cases
World ex-China
China
3
East vs West: cultural differences; SARS impact on behaviors; ability of federal and local governments to monitor and enforce population movement restrictions; testing capabilities, etc
0
20
40
60
80
100
120
140
160
180
200
Jan 22 Feb 01 Feb 11 Feb 21 Mar 02 Mar 12
Hubei (China)
Europe
Dev Asia (Sing, HK, SKor, Jpn, Tai)
Can-US
China ex Hubei
Infections per 1 million people by region
Source: Johns Hopkins University, IMF, JPMAM. March 18, 2020.
4
The example of Taiwan
• QR code scanning and online reporting of each person’s travel history
• Health symptoms were used to classify traveler infectious risks based on flight origin and travel history in
the past 14 days
• People with low risk were sent a health declaration border pass via SMS to their phones for faster
immigration clearance
• Those with higher risk were quarantined at home and tracked through their mobile phone to ensure that
they remained there during the incubation period
• Taiwan also proactively seeks out patients with severe respiratory symptoms (based on information from a
national health database) to see who had tested negative for influenza so that they could be retested for
COVID-19
5
Infection rates
Italy
Switzerland
Spain
Norway
IranAustriaDenmark
South Korea
GermanyFrance
Sweden
Finland
Singapore
U.S.Japan
0
50
100
150
200
250
300
350
400
450
500
550
600
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
HubeiItalySwitzerlandSpainNorwayIranAustriaDenmarkSouth KoreaGermanyFranceBelgiumSwedenNetherlandsFinlandIrelandSingaporeIsraelPortugalGreeceU.K.MalaysiaHong KongU.S.AustraliaCanadaRomaniaChina ex HubeiJapanPolandSaudi ArabiaIraqEgyptPhilippinesBrazilIndia
Reported infections per 1 million people for countries with over 100 reported cases for at least the last 5 days
# of days after total reported cases reaches 100
Source: Johns Hopkins University, IMF, J.P. Morgan Asset Management. March 18, 2020.
6
GreenlandFinland, Sweden, IcelandNorway, AlaskaEstonia, RussiaUK, DenmarkIreland, Quebec, Saskatchewan, BelarusGermany, Belgium, Netherlands, Poland, OntarioBrColumbia, Ukraine, N Dakota, Slovakia, HeilongjiangCroatia, Switzerland, Romania, Washington, Minnesota, FranceItaly, Oregon, Wisconsin, Michigan, JilinNY, Massachusetts, Illinois, Pennsylvania, Ohio, Beijing, XinjiangSpain, Greece, Colorado, Portugal, Virginia, Maryland, Hebei, Shanxi, Tianjin, TurkeyJapan, California, Oklahoma, N. Carolina, S.Korea, Shandong, QinghaiArizona, Arkansas, Mississippi, Iraq, Afghanistan, Henan, JiangsuPakistan, Texas, Louisiana, Iran, Hubei, Anhui, Shanghai, TibetNepal, Algeria, Florida, Hunan, JiangxiEgypt, Qatar, FujianUAE, Mexico, Saudi Arabia, Bangladesh, Guangdong, Guangxi, TaiwanIndia, Hong Kong, Macau, Cuba, OmanDominican Republic, Hainan, JamaicaVietnam, HondurasThailand, Philippines, Sudan, SenegalCambodia, Burkina Faso, TrinidadNigeria, Costa Rica, Panama, EthiopiaSri Lanka, VenezuelaCameroon, Colombia, Maldives, Guyana, BruneiSingapore, Malaysia
0 4,000 8,000 12,000 16,000 20,000 24,000 28,000 32,000 36,000 40,000
72.5°
67.5°
62.5°
57.5°
52.5°
47.5°
42.5°
37.5°
32.5°
27.5°
22.5°
17.5°
12.5°
7.5°
2.5°
Global reported infections by latitude
Source: Johns Hopkins, JPMAM. March 18, 2020
89k
Everything below 2.5 N: Argentina, Australia, Bolivia, Brazil, Chile, Congo, Ecuador, Indonesia, Kenya, New Zealand, Paraguay, S Africa
Reported infections as a function of latitude: for now, the one third of the world’s population below 22.5°N has not experienced meaningfully high levels of infection
95% of all infections in a latitude
band encompassing 55% of the
world’s population
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
72.5° 62.5° 52.5° 42.5° 32.5° 22.5° 12.5° 2.5° -7.5° -17.5° -27.5° -37.5° -47.5°
% of infections
% of world population
Infections and world population as a function of latitude
Source: Johns Hopkins University, NASA, JPMAM. March 17, 2020.
7
Infections as a function of temperature and humidity: 90% still in the blue zone
Infections as a function of prevailing temperature and relative humidity
Relative humidity (percent)
Below 5 to 20 to 35 to 50 to 65 to 80 to
5 20 35 50 65 80 95
Below -10 - - 1 - - 232 -
-10 to -5 - 125 246 1,123 470 234 -
-5 to 0 - 2,601 8,466 1,142 1,280 3,302 899
0 to 5 58 1,749 2,858 444 1,212 4,024 25
5 to 10 - 2,705 53,944 19,232 4,950 448 173
10 to 15 - - 9,550 81,748 2,102 164 -
15 to 20 - 279 452 1,817 106 536 65
20 to 25 269 196 202 991 1,016 1,171 -
25 to 30 76 - 11 30 - - -
30 to 35 61 11 6 - - - -
35 to 40 - - - - - - -
Source: WHO, Johns Hopkins, OpenWeatherMapAPI, JPMAM, March 18, 2020
Tem
pera
ture
(C
els
ius)
8
What we have learned about the virus
• Up to 85% of infections occur in family clusters
• Most of the remainder occurred due to contact with hard surfaces in the immediate
environment of those with infection
• Limited instances of hospital-borne infection
• Although asymptomatic patients were reported for SARS, no known transmission
occurred from these patients
• Basic reproductive number (a measure of transmissibility): similar to SARS
• Incubation time (how long it takes to show symptoms): similar to SARS
• Serial interval (how long it takes to become infectious to others): different, and
that’s the root of the problem
• Average symptoms show up on Day 5, contagiousness can begin on Day 4
9
COVID-19 (SARS-CoV-2) and surfaces: rapid time-decay of viral load
Source: van Doremalen et al, “Aerosol and Surface Stability of SARS-CoV-2 as Compared with SARS-CoV-1”, National Institute of Allergy and Infectious Diseases. 2020.
1
10
100
1,000
10,000
0 10 20 30 40 50 60 70 80
Decay of SARS-CoV-2 on CopperViral load measure, TCID50 per ml of medium
Hours
99% dissipation in 8 hrs
1
10
100
1,000
10,000
0 10 20 30 40 50 60 70 80
Decay of SARS-CoV-2 on CardboardViral load measure, TCID50 per ml of medium
Hours
97% dissipation in 8 hrs
1
10
100
1,000
10,000
0 10 20 30 40 50 60 70 80
Decay of SARS-CoV-2 on Stainless SteelViral load measure, TCID50 per ml of medium
Hours
97% dissipation in 24 hrs
99.8% dissipationin 48 hrs
1
10
100
1,000
10,000
0 10 20 30 40 50 60 70 80
Decay of SARS-CoV-2 on PlasticViral load measure, TCID50 per ml of medium
Hours
45% dissipation in 24 hrs
98% dissipationin 48 hrs
10
Some promising news in development of anti-viral medications
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
0 10 20 30 40 50 60 70 80 90 100
Source: Wuhan Institute of Virology. February 4, 2020.
Remdesivir tests against 2019-nCoV in cell cultures% virus inhibition % cytoxicity
Inhibition
Cytoxicity
Dosage (micrometers)
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
0 10 20 30 40 50 60 70 80 90 100
Source: Wuhan Institute of Virology. February 4, 2020.
Chloroquine tests against 2019-nCoV in cell cultures% virus inhibition % cytoxicity
Inhibition
Cytoxicity
Dosage (micrometers)
11
Some promising news in development of anti-viral medications
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 1 2 3 4 5 6
Source: Gautret et al, IHU-Méditerranée Infection. March 2020.
Treatment results of patients with COVID-19% of patients that test positive for infection
Control group
Hydroxychloroquine only
Hydroxychloroquineand azithromycin
combination
Days
12
Drug development underway:vaccines, direct viral inhibitors and immunomodulators
Drug Companies Status Type Drug Companies Status Type Drug Companies Status Type
FavipiravirFujifilm; Medivector; Zhejiang
Hisun PharmaceuticalLaunched Antiviral INO-4800
Beijing Advaccine
Biotech; GeneOne Life
Science; Inovio
Preclinical VaccineDendritic cell
vaccine
Beijing Dingcheng
Taiyuan Biotechn;
Betta Pharma
Discovery Vaccine
Actemra Genentech/Roche LaunchedImmuno-
modulatorCYNK-001
Celularity; Sorrento
TherapeuticsPreclinical Cell Therapy
Recombinant
vaccine
Clover
BiopharmaceuticalsDiscovery Vaccine
RintatolimodAim Immunotech; GP Pharm
SA; Goethe UniversityLaunched
Immuno-
modulator
SARS-CoV-2
vaccine
Chongqing Zhifei
Biological; Institute of
Microbiology
Preclinical VaccineLive-attenuated
vaccine
Codagenix; Serum
Institute of IndiaDiscovery Vaccine
ASC-09 + ritonavir Ascletis Pharma Phase III Anti-retroviralAdjuvant/COVID-
19 vaccineNovavax Preclinical Vaccine
SARS-CoV-2
mRNA vaccineCurevac AG Discovery Vaccine
Remdesivir Gilead Phase III Antiviral S-protein/ACE2Sichuan Kelun
PharmaceuticalPreclinical
Prophylactic
polypeptide
Monoclonal
antibodies/vaccine
Dyadic International;
Israel Institute for
Biological Res
DiscoveryAntibody/
Vaccine
Kevzara Regeneron/Sanofi Phase III/IIImmuno-
modulator
ChAdOx1 nCoV-
19Jenner Institute Preclinical Vaccine
SARS-CoV-2
vaccine
Fudan University; ID
PharmaDiscovery Vaccine
BDB-1 Beijing Defengrei Biotechnology Phase II AntibodyMesenchymal
stem cells
Wuhan Hamilton
BiotechnologyPreclinical Cell Therapy Z-VacciRNA
Guanhao Biotech; Zy
TherapeuticsDiscovery Vaccine
Brilacidin Innovation Pharmaceuticals Phase II Antibody
Protein subunit
vaccineUniversity of Queensland Discovery Vaccine Antibodies
Regeneron
PharmaceuticalsDiscovery Antibody
SARS-CoV-2
vaccine
Medigen' National
Institutes of HealthDiscovery Vaccine
Monoclonal
antibodiesVir Biotechnology Discovery Antibody
Protein subunit
vaccineSanofi Pasteur Discovery Vaccine mRNA-1273 Moderna Therapeutics Discovery Vaccine
Anti-SARS-CoV-2
programNanoviricides Discovery Nanoviricide
Coronavirus
vaccineVaxart Discovery Vaccine Antibodies
Immunoprecise
AntibodiesDiscovery Antibody
Source: Cortellis, Bioworld, Johns Hopkins, JPMAM. As of March 5, 2020.
13
China equity markets and infections
2800
2900
3000
3100
3200
3300
0
100
200
300
400
500
600
700
800
900
1,000
Jan 23 Jan 31 Feb 08 Feb 16 Feb 24 Mar 03 Mar 11 Mar 19
Source: Bloomberg, Johns Hopkins University. March 18, 2020.
Chinese daily infections versus Chinese equitiesDaily number of cases Index level
Chinaexcluding Hubei
Shanghai Stock Exchange A Share
Index
14
A key litmus test for the world: what will happen to infection rates in China as lockdown provisions and quarantine provisions are relaxed? Risks of a “second wave” of infections
3/1
4
2/2
5
3/1
7
3/1
7
3/1
7
2/1
8
3/1
2
3/1
1
0%
20%
40%
60%
80%
100%
Railwaycoal
deliveries
Electricityuse
/factorycapacity
Trafficjams
Coalconsum.
Homesales
Roadand railtravel
Transporthub
passeng.flows
Boxoffice
revenues
20 days after Chinese New Year (2/14)
Most recent level
High frequency Chinese economic indicatorsIndicated level as a % of historical average
Source: J.P. Morgan Emerging Markets Research, Goldman Sachs. Mar 18, '20.
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Jan 23 Jan 31 Feb 08 Feb 16 Feb 24 Mar 03 Mar 11 Mar 19
Source: Bloomberg, Johns Hopkins University. March 18, 2020.
Chinese daily infections: Hubei vs ex-HubeiDaily number of cases
Hubei
China ex-Hubei
15
One possible scenario for the US
Best guess epidemiology outcomes for the US
James Lawler, MD, MPH, FIDSA, University of Nebraska
Region VII disaster health response ecosystem webinar
Reproductive number 2.5
Doubling time 7-10 days
Community attack rate 30-40%
Cases 96 million
Hospital admissions 4.8 million (5%)
Cases requiring ICU care 1.9 million (1-2%)
Cases requiring ventilatory support 1%
Deaths 480,000 (0.5%)Source: Region VII Disaster Health Response Ecosystem. Feb 27, 2020.
16
Where “flattening the curve” comes from
0
50
100
150
200
250
300
Mar '20 Apr '20 May '20 Jun '20 Jul '20 Aug '20 Sep '20 Oct '20
Do Nothing
Closing schools and universities
Case isolation
Case isolation and household quarantine
Case isolation, home quarantine, socialdistancing of >70s
Source: "Impact of non-pharmaceutical interventions (NPIs) to reduce COVID19 mortality and healthcare demand", N Ferguson et al, Imperial College of London, March 2020.
Great Britain critical care beds occupied per 100,000 of population
Surge critical care bed capacity
17
Mortality as a % of reported infections
Pandemic measures:
(a) population of a given geographical area
(b) infected individuals, including both asymptomatic
people and people that get sick
(c) people that are infected, get sick and self-report
(d) number of people that die
During the haze of a pandemic, best estimates that
entities like the World Health Organization often derive
are based on (a), (c) and (d), and even things like (d) are
complicated by pandemics affecting older individuals
with pre-existing conditions. They do not know (b)
upfront, and sometimes it is never known, or only known
with the passage of time. Swine Flu (H1N1/2009)
example. Early mortality rate estimates in fall 2009:
1.0%-1.3%. Four years later: just 0.02%.
GIMBE Foundation: Italy infections likely ~100,000,
which would reduce observed mortality rate to 2%
Diamond Princess cruise ship: ability to observe both
symptomatic and asymptomatic individuals
Wuhan, 5.0%
Hubei, 4.6%
China, 4.0%
Italy, 8.3%
Iran, 6.5%
Beijing, 1.7%Henan, 1.7%
World ex China, 4.1%
Chongqing, 1.0%
Shanghai, 0.8%China ex-Hubei, 0.9%
Diamond Princess, 1.0%South Korea, 1.0%
Anhui, 0.6%Guangdong, 0.6%
Hunan, 0.4%Jiangxi, 0.1% Germany, 0.2%
Spain, 4.5%
France, 1.6%
Switzerland, 0.9%
United States, 1.5%
Netherlands, 2.8%
Norway, 0.4%
United Kingdom, 2.7%
Belgium, 0.9%
Austria, 0.2%
Cholera (2010), 3.2%
Spanish flu (1918-1920), 3.5%
Swine Flu (2009/Initial), 1.3%
US Flu, 2019, Age 65+, 0.8%Measles, 0.7%
US Flu, 2019, 0.1%
Hepatitis A, 0.5%Swine Flu (2009/Revised), 0.0%
West Nile Virus (2013), 4.2%
Yellow Fever, 4.9%
Lyme disease, Chicken Pox, 0.0%0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
COVID-19
Other diseases
Mortality rates: COVID-19 vs other diseases, and the impact of Wuhan/HubeiMortality rate; bubble size indicates relative number of fatalities for COVID-19 only
Mortality rates shown for all countries with at least 1,000 infections to date. Sources: CDC, China National Health Commission, Center for Health Protection (HK), Global Health Data Exchange, Johns Hopkins University, Netherlands Institute for Health Services Research, ImperialCollege of London, Mayo Clinic, World Health Organization, JPMAM. March 18, 2020.
China Rest of World
18
Infection and mortality rates
Card
iova
sc
ula
r d
ise
as
e
Dia
be
tes
Ch
ron
ic r
es
pir
ato
ry d
ise
as
e
Hyp
ert
en
sio
n
Can
ce
r
No
pre
-ex
isti
ng
co
nd
itio
ns
0%
2%
4%
6%
8%
10%
12%
Source: Chinese Center for Disease Control and Prevention. February 2020.
Coronavirus mortality rate based on pre-existing conditionsCoronavirus mortality rate based on pre-existing conditions
Current mortality rate
0%
2%
4%
6%
8%
10%
12%
14%
16%
0-9 10-19 20-29 30-39 40-49 50-59 60-69 70-79 80+
Source: Chinese CDC, WHO. February 2020.
Coronavirus mortality rate by age
Current mortality rate (3/18/2020)
Study mortality rate (2/17/2020)
19
Infection and mortality rates
0%
5%
10%
15%
20%
25%
30%
35%
0-9 10-19 20-29 30-39 40-49 50-59 60-69 70-79 80+
Source: Chinese Center for Disease Control and Prevention. February 2020.
Distribution of COVID-19 mortality and infections by age% of total infected or deceased population
Infections
Mortality
0
1
2
3
4
5
6
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75
Influenza fatality rate during the Spanish flu (1918-19)
Influenza fatality rate after the Spanish flu (1928-29)
Source: Taubenberger and Morens. 2006.
Case fatality rate during and after the Spanish fluFatalities per 100 infected persons
Age
In Italy, mortality distribution even more skewed to the elderly: 88% of deaths
occurred in population 70+, compared to 50% in China
20
Lessons learned 100 years ago, ignored in China
• 100 years of history: get ahead of a pandemic
• Jan 1: Chinese officials required hospitals not to
transfer fever patients to another medical facility,
prevented doctors from publishing diagnosis and
treatment information for COVID-19
• Jan 1: Chinese government punished doctors for
discussing outbreak, required them to sign
documents saying they were spreading lies
• Jan 14: Wuhan Health Commission reported that
there were no new coronavirus cases, and that risk
of human-to-human transmission is low
• During first three weeks of Jan, Wuhan hospitals
didn’t treat infected or asymptomatic outpatients as
potentially infectious
• 40 infectious patients visiting clinics on Dec 31
ended up exposing 18,000 people before city shut
down on Jan 23
Faster public health response times =
lower mortality rates
200
300
400
500
600
700
800
-15 -10 -5 0 5 10 15 20 25 30 35
Source: Markel et al, University of Michigan. 2007.
Excess pneumonia & influenza mortality in 43 US cities, 1918-1919, Excess deaths per 100,000 population
Public health response time (days)
21
Beds and testing
IRN
KOR
ITA
JPN
SGP
FRA
DEU
GBR
ESP
SWI
USA
SWE
BEL
NOR
NLD
MAL
AUT
CAN
0
2
4
6
8
10
12
14
0 5,000 10,000 15,000 20,000 25,000
Source: WHO, World Bank. March 16, 2020.Number of infections
Hospital beds vs number of 2019-nCoV infectionsHospital beds per 1,000 people
So
uth
Ko
rea M
ar-
17
Norw
ay M
ar-
16
Chin
a –
Guangdong F
eb-2
4
Italy
Mar-
17
Denm
ark
Mar-
17
Austr
alia
Mar-
17
Austr
ia M
ar-
17
Canada M
ar-
17
Russia
Mar-
16
Ta
iwan M
ar-
17
United K
ingdom
Mar-
17
Czech R
epublic
Mar-
17
Sw
itzerla
nd M
ar-
07
Isra
el M
ar-
09
Irela
nd M
ar-
09
Neth
erla
nds M
ar-
07
Cro
atia
Mar-
17
Po
land M
ar-
16
United S
tate
s M
ar-
13
Fra
nce M
ar-
08
Fin
land M
ar-
11
Japan M
ar-
17
New
Ze
ala
nd M
ar-
17
Th
aila
nd M
ar-
17
Vie
tnam
Mar-
17
South
Afr
ica M
ar-
11
India
Mar-
13
0
1,000
2,000
3,000
4,000
5,000
6,000
Source: Countries statistical reports by Esteban Ortiz-Ospina, IMF. Mar 17, '20
COVID-19 tests per million people
22
Equity markets
-6.0x
-5.5x
-5.0x
-4.5x
-4.0x
-3.5x
-3.0x
-2.5x
-2.0x
-1.5x
-1.0x
-0.5x
0.0x
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
Source: JPMAM. IBES, Datastream, Bloomberg. March 18, 2020.
S&P 500 multiple deratingForward 12 month P/E, difference versus previous month
10x
12x
14x
16x
18x
20x
22x
24x
26x
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
S&P 500 price/earningsPrice / forward 12 month earnings per share
Source: JPMAM. IBES, Datastream, Bloomberg. March 18, 2020.
23
Equity markets
0
10
20
30
40
50
60
70
80
90
100
1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019
Source: Bloomberg. March 18, 2020.
S&P 100 implied volatility indexIndex level
3/18/2020 level
24
Equity markets
0%
1%
2%
3%
4%
5%
6%
7%
Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20
Source: JPM Global Markets Strategy Flows & Liquidity. March 16, 2020.
Quantity-On-Loan of the SPY US ETFOn loan quantity as a % share of share outstanding
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: JPM Global Markets Strategy Flows & Liquidity. March 17, 2020.
Positions in US equity futures by leveraged funds and asset managers, Spec positions as a percentage of open interest
Extrapolated to March 17th using open interest changes
25
Credit markets
-200
0
200
400
600
800
1,000
1,200
1,400
1,600
2000 2004 2008 2012 2016 2020
Source: Bloomberg. March 18, 2020
Fixed rate preferred securities option adjusted spreadPOP1 index, basis points
50
100
150
200
250
300
350
400
450
500
550
600
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Source: Bloomberg, J.P. Morgan. March 18, 2020.
US investment grade corporate bond spreadsJULIS index, basis points
100
200
300
400
500
600
700
800
900
1,000
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Source:Bloomberg, J.P. Morgan. March 18, 2020.
Emerging market sovereign bond spreadsJPSYAGSW index, basis points
100
150
200
250
300
350
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Source: Bloomberg. March 18, 2020.
30Y fixed mortgage - 10Y US Treasurybasis points
-500
50100150200250300350400450500550600650
'98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
Source: J.P. Morgan. March 18, 2020.
AAA asset backed securities spreadsbasis points
Prime auto
Credit card Commercial real estate
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2014 2015 2016 2017 2018 2019 2020
Source: Bloomberg, JPM HY Strategy team. March 18, 2020.
US high yield corporate bond spreadsJPDFHYI index energy and ex-energy, basis points
Ex Energy
Energy
26
Credit markets
0
10
20
30
40
50
60
70
80
90
100
2015 2016 2017 2018 2019 2020
Source: Bloomberg. March 18, 2020.
Libor - federal funds rate basis points
27
Emergency facilities, 2008-2009
Peak Outstanding
Balance ($ bn)
Term Auction Facility $493
Commercial Paper Funding Facility $348
Term Securities Lending Facility $236
Asset-Backed Commercial Paper Money Market
Mutual Fund Liquidity Facility$152
Primary Dealer Credit Facility $147
Term Repurchase Transactions $80
AIG Revolving Credit Facility $72
Term Asset-Backed Securities Loan Facility $48
Source: Levy Economics Institute, Bard College. 2011.
Emergency facilities created by the Federal Reserve during
the Financial Crisis
28
How far do earnings fall in a recession?
-100%
-90%
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
1870 1890 1910 1930 1950 1970 1990 2010
S&P 500 earnings drawdownsMaximum drawdown of earnings per share
Reported earnings
Operating earnings
Source: Robert J. Shiller, S&P Dow Jones Indicies. Q4 2019.
29
Earnings drawdowns, US vs Europe
-100%
-80%
-60%
-40%
-20%
0%
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
16
18
20
France Germany
Italy USA
European profits more sensitive to recessionsMaximum drawdown of earnings per share for respective MSCI country index
Source: J.P. Morgan Securities Inc., MSCI, Bloomberg. February 2020.
30
What are equity markets now pricing in regarding S&P 500 earnings?
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Source: Bridgewater. March 17, 2020.
US EPS level implied by dividend futures% of pre-virus level
Pricing today
Pricing on Jan 20
31
What kind of crises play out over many years instead of over shorter periods?
32
Time capsule: disaster, ruin and recovery
“What has so often excited wonder, is the great rapidity with which countries recover from a
state of devastation, the disappearance in a short time, of all traces of mischief done by
earthquakes, floods, hurricanes, and the ravages of war. An enemy lays waste a country by
fire and sword, and destroys or carries away nearly all the moveable wealth existing in it: all
the inhabitants are ruined, and yet in a few years after, everything is much as it was before.”
John Stuart Mill, Principles of Political Economy, 1848
33
A lot has changed in medical science in 100 years
0
10
20
30
40
50
60
70
80
90
100
Military samples Civilian samples Total
Source: "Predominant Role of Bacterial Pneumonia as a Cause of Death in Pandemic Influenza," National Institute of Allergy and Infectious Diseases, Morens et al, 2008
Spanish Flu (1918): % of cultures containing bacteria causing secondary respiratory infections/pneumonia
Bacteria causing secondary respiratory infections (Streptococcus pneumoniae/hemolyticus, Staphylococcus
aureus, other/mixed pneumopathogens)
All other bacteria
No bacteria found
35
40
45
50
55
60
65
70
75
80
85
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Female
Source: US CDC; Andrew Noymer, Public Health Dep't, UC Irvine. 2020.
US life expectancy at birthyears
Male
34
A lot has changed in medical science in 100 years
10
20
30
40
50
60
70
80
1740 1770 1800 1830 1860 1890 1920 1950 1980 2010
Source: French Institute for Demographic Studies (INED). 2018.
Male life expectancy in Franceyears
Absence of data during French Revolution
Napoleonic wars
War of 1870World War I(1914-1918)
World War II(1939-1945)
This chart is a proxy for two things:
[1] astounding medical achievements of the
20th century, including tools scientists are now
using to develop vaccines and anti-viral
medications to combat COVID-19
[2] greater threats to life expectancy and
prosperity have in modern times resulted less
from pandemics and natural disasters, and more
from what people do to each other in times of
war
35
Time capsule: disaster, ruin and recovery
84
88
92
96
100
104
108
1859 1862 1865 1868 1871 1874 1877 1880
Post Civil War recovery in Confederate farm incomeIndex, 100 = 1859
Source: "Economic Behaviour in Adversity", Jack Hirshleifer, The University of Chicago Press, 1987.
US Civil War: deadliest conflict in US history,
with 6x mortality rate as World War II...it left
the southern US in complete shambles… fought
mostly on southern soil, leaving many cities in
ruins with thousands of people lacking food,
clothing, or shelter… Federal government did
very little to assist them…and yet, look how
quickly Confederate farm income rebounded
after the war
36
What kind of crises require years for economies to recover?Colossal wartime destruction…
100
150
200
250
300
350
400
450
500
550
600
1930 1935 1940 1945 1950 1955 1960
Germany
Japan
It took a full decade for Germany and Japan to recover from WWII, Real per capital GDP, 1990$, thousands
Source: Angus Maddison (Historical Statistics of the World Economy), JPMAM. 2020.
By 1945, 20% of Germany’s housing stock was
destroyed, food production was half of 1938 levels,
industrial production was down by a third and caloric
intake was around 1,250 calories per day (average
American consumers 3,600 per day)
As for Japan, around 40% of its capital stock, a quarter
of all housing and 180 miles of 67 cities were
destroyed by the war
37
What kind of crises require years for economies to recover?Or colossal economic mismanagement…
5%
10%
15%
20%
25%
30%
1,500
1,700
1,900
2,100
2,300
1955 1956 1957 1958 1959 1960 1961 1962 1963 1964
Source: "Visualizing the Effects of the Great Leap Forward", Basil Ashton, '84.
China's disastrous Great Leap ForwardPercent Calories/day
Mortality rate (LHS)
Calories/Day (RHS)
Dutch historian Frank Dikotter,
US historian R. Joseph Rummel:
Great Leap Forward was the largest
democide in human history
38
Concluding with a time capsule of markets bottoming while fundamentals were still getting worse
39
Time capsule: high yield markets tend to bottom well before defaults peak
0
50
100
150
200
250
300
0
200
400
600
800
1,000
1,200
1987 1988 1989 1990 1991 1992 1993
Source: J.P. Morgan Securities LLC. February 2014.
Savings and Loan CrisisSpread-to-worst # of Issuers
High Yield credit spreads
Cumulative defaults
55%
0
50
100
150
200
250
300
350
400
450
500
0
200
400
600
800
1,000
1,200
1999 2000 2001 2002 2003 2004
Source: J.P. Morgan Securities LLC. February 2014.
Tech collapseSpread-to-worst # of Issuers
High Yield credit spreads
Cumulative defaults
76%
0
50
100
150
200
250
0
500
1,000
1,500
2,000
2,500
2006 2007 2008 2009 2010 2011 2012 2013
Source: J.P. Morgan Securities LLC. February 2014.
Financial crisisSpread-to-worst # of Issuers
30%
High Yield credit spreads
Cumulative defaults
40
Time capsule: bank stocks tend to bottom well before the peak in bank failures
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
40
50
60
70
80
90
100
110
120
Mar-88 May-89 Jun-90 Jul-91 Aug-92 Sep-93 Oct-94
S&P 500 Bank Index
Cumulative Bank Failures
Savings and Loan Crisis: Bank stocks vs. bank failuresIndex level
Source: FDIC, Bloomberg. March 2014.
Total institutions
63%
0
100
200
300
400
500
0
50
100
150
200
250
300
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
SCAP
Financial crisis: Bank stocks vs. bank failuresIndex level
Source: FDIC, Bloomberg. March 2014.
Total institutions
S&P 500 Bank Index
8%
Cumulative Bank Failures
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
0
50
100
150
200
250
300
350
400
Jan-29 Oct-29 Aug-30 Jun-31 Apr-32 Feb-33 Dec-33
Dow Jones Industrial Average
Cumulative Bank Failures
The Great Depression: Equity market vs. bank failuresIndex level Total institutions
Source: FDIC, Bloomberg. March 2014.
48%
41
Time capsule: credit markets tend to bottom way before default rates peak
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
0
200
400
600
800
1,000
1,200
1,400
1,600
2006 2007 2008 2009 2010 2011 2012 2013 2014
AAA CMBS Spread
60+ delinquency rate
CMBS spreads vs. delinquency rates: 2006 to 2014AAA CMBS Spread (basis points) 60+ day delinquency rate
Source: Trepp, J.P. Morgan Securities LLC. February 2014.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
60
65
70
75
80
85
90
95
100
105
2006 2007 2008 2009 2010 2011
Leveraged Loan prices vs. defaults: 2006 to 2011Price index Default rate
Defaults over trailing 12 months
Leveraged LoanPrice Index
Source: J.P. Morgan Securities LLC, Standard and Poor's, S&P/LSTA Leveraged Loan Index. February 2014.
42
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