Market Update

School is back in session. The S&P 500 has added another +6% after an eventful summer and is now up +17% year to date. Federal Reserve Chair Jerome Powell’s comments at the annual Jackson Hole symposium ought to send us into an autumn defined by lower interest rates.

Over the last year, markets have consistently reflected a brighter outlook ahead. Optimism around a “soft landing” for the U.S. economy is intact, inflation is no longer threatening, corporate earnings have been solid, and consumers still have gas in the tank.

Nonetheless, the volatility we saw earlier this month reminds us that both risks and uncertainty remain. How low will interest rates have to go to support the labor market? Who will win the U.S. presidential election? Is it already “make or break” for artificial intelligence (AI) investment?

After a summer of big swings and even bigger questions, it’s important for investors to remain focused on what matters.

In the spirit of back to school, we want to step back and share three of our favorite investing principles to prepare portfolios for the start of the school year and beyond – so sharpen those pencils and crack open a fresh notebook.

3 principles to consider for your portfolio

1. Know your toolkit: Each asset has a role to play. If you’re looking to get top marks this year, having the right school supplies is likely the first step. From the trusty pencil to the elegant protractor, to the almighty graphing calculator, each item has a purpose. Your portfolio is no different. Whether it’s cash, stocks, bonds, or alternative investments each asset has a distinct role to play – and they work together to achieve your long-term goals.

• Cash: Everyone needs cash. From filling up your car at the pump to your down payment on a house, cash is king. Many also think of cash as a safe haven or even a source of income when interest rates are high. But cash isn’t designed to beat inflation. That means it is equally important to think about how much you really need to hold and how much, if any, can be redirected to other types of investments in order to achieve your goals.
• Bonds: Fixed income can provide stability. Because bonds offer you coupon payments over time, in addition to returning your initial loan amount, they help reduce uncertainty and volatility in your portfolio. The central risk when it comes to bonds is that the issuer does not pay you back. That said, defaults have been exceedingly rare for investment grade debt (for corporate bonds, default rates have been around 2.5% since the Great Financial Crisis, and less than 0.1% for municipal bonds). Fixed income should outperform both cash and inflation. It also tends to be less volatile than equities.
• Stocks: When you own a stock, that means owning a stake in a company and its future performance - the good and the bad. Stockholders tend to benefit from earnings growth, and the dividends companies pay to reward shareholders. Since 1991, earnings and dividends have contributed to most of the roughly 3205% total return for the S&P 500. Changes in valuation drove less than 5% of the total return. Over time, equities are typically the engine of capital appreciation for portfolios and can provide the highest expected return. It just comes with higher volatility.
• Alternatives and real assets: Hedge funds, private equity, private credit, and other real assets like real estate and commodities can provide unique exposures to portfolios and allow investors to tap into more targeted exposures. Doing so can potentially increase returns while reducing volatility – but it also might come with the cost of locking your money up for longer.¹

Remember, while each has a distinct role to play the ultimate key to notching consistent returns over the long haul is diversification across asset classes and of course, staying invested.

2. Maintain a long run mindset. Beyond having the right supplies, the next step to teacher’s pet is having the right mindset. For investors, a long-run mindset, in particular, can help pave the way for success.

Recent volatility is a prime example that over the short term, different assets can have a wide range of possible outcomes. That said, history tells us that over the long-term, the possibilities can be much more certain.

Take for example: While rolling 12-month stock returns have varied widely since 1950 (as high as +60% to as low as -41%), a blend of stocks and bonds has not suffered an annualized negative return over any five-year rolling period over the past 70 years. Remember, past performance doesn’t promise future results, but that’s a compelling track record.

So even though markets can always have a bad day, week, month, or even year, history suggests investors are less likely to experience losses over longer periods – especially in a diversified portfolio. Above all, keep the time horizon of your goals in mind. A bucketing approach can be helpful to determine how and where to invest your money over various time periods.

3. It’s about time in the market, not timing the market. The next step on the road to valedictorian is staying out of trouble. Discipline can help us avoid falling victim to bad habits. For investors, one of the worst habits to have is trying to time the market. Since the start of the year, we have seen the S&P 500 make almost 40 all-time highs. When market levels are elevated it may lead some investors to feel like it is “too late” to get invested, often keeping them on the sideline in hopes of a pullback. While we did see an -8.5% drawdown from July highs, getting the timing just right is a dangerous game to play.

For other investors, market pullbacks do not feel like opportunity. Instead, the fear associated with them and the ensuing volatility may push them out of the market, causing them to miss the rebound on the other side.

Let’s look at some numbers: If you were to put $10,000 into the S&P 500 in 2004 and stay fully invested through today, you would have over $70,000. If you missed just the 10 best trading sessions though, you would be left with under $35,000. The reason? Market timing is incredibly difficult. Over the last 20 years, seven of the 10 best days occurred within 15 days of the 10 worst days.

Above all, keep your goals and the intent for your wealth top of mind.

Predicting where the market might be headed can be complex and overwhelming, but the real key to investing can be as simple as having perspective and sticking to your plan. Your J.P. Morgan advisor is here to help you do the “homework” that may be required to achieve your goals.

All market and economic data as of 08/23/2024 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

DISCLOSURES

The information presented is not intended to be making value judgments on the preferred outcome of any government decision or political election.

The price of equity securities may rise or fall due to the changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Equity securities are subject to "stock market risk" meaning that stock prices in general may decline over short or extended periods of time.

In general, the bond market is volatile and bond prices rise when interest rates fall and vice versa. Longer term securities are more prone to price fluctuation than shorter term securities. Any fixed income security sold or redeemed prior to maturity may be subject to substantial gain or loss. Dependable income is subject to the credit risk of the issuer of the bond. If an issuer defaults no future income payments will be made.

Investors should understand the potential tax liabilities surrounding a municipal bond purchase. Certain municipal bonds are federally taxed if the holder is subject to alternative minimum tax. Capital gains, if any, are federally taxable. The investor should note that the income from tax-free municipal bond funds may be subject to state and local taxation and the Alternative Minimum Tax (AMT).

Diversification and asset allocation does not ensure a profit or protect against loss.

Index definitions:

The Russell 3000 Index is a capitalization-weighted stock market index that seeks to be a benchmark of the entire U.S. stock market. It measures the performance of the largest 3,000 U.S. companies representing approximately 96% of the investable U.S. equity market.

The S&P 500 Equal Weight Index is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight of the index total at each quarterly rebalance.

The Bloomberg U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).

The S&P 500 Equal Weighted Index is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight – or 0.2% of the index total at each quarterly rebalance.

The Magnificent Seven stocks are a group of influential companies in the U.S. stock market: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla.

The Magnificent 7 Index is an equal-dollar weighted equity benchmark consisting of a fixed basket of 7 widely-traded companies (Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta, Tesla) classified in the United States and representing the Communications, Consumer Discretionary and Technology sectors as defined by Bloomberg Industry Classification System (BICS).

The S&P Midcap 400 Index is a capitalization-weighted index which measures the performance of the mid-range sector of the U.S. stock market.

The S&P 500 index is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

Bonds are subject to interest rate risk, credit, call, liquidity and default risk of the issuer. Bond prices generally fall when interest rates rise.

The price of equity securities may rise or fall due to the changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Equity securities are subject to "stock market risk" meaning that stock prices in general may decline over short or extended periods of time.

Standard and Poor’s 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The index was developed with a base level of 10 for the 1941–43 base period.

The Bloomberg Eco Surprise Index shows the degree to which economic analysts under- or over-estimate the trends in the business cycle. The surprise element is defined as the percentage difference between analyst forecasts and the published value of economic data releases.

The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance.

The NASDAQ 100 Index is a basket of the 100 largest, most actively traded U.S companies listed on the NASDAQ stock exchange. The index includes companies from various industries except for the financial industry, like commercial and investment banks. These non-financial sectors include retail, biotechnology, industrial, technology, health care, and others.

The Russell 2000 Index measures small company stock market performance. The index does not include fees or expenses.

We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.

The views, opinions, estimates and strategies expressed herein constitutes the author's judgment based on current market conditions and are subject to change without notice, and may differ from those expressed by other areas of J.P. Morgan. This information in no way constitutes J.P. Morgan Research and should not be treated as such. You should carefully consider your needs and objectives before making any decisions. For additional guidance on how this information should be applied to your situation, you should consult your advisor.

All companies referenced are shown for illustrative purposes only, and are not intended as a recommendation or endorsement by J.P. Morgan in this context.

JPMorgan Chase & Co., its affiliates, and employees do not provide tax, legal or accounting advice. Information presented on these webpages is not intended to provide, and should not be relied on for tax, legal and accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.

RISK CONSIDERATIONS

• Past performance is not indicative of future results. You may not invest directly in an index.
• The price of equity securities may rise or fall due to the changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Equity securities are subject to 'stock market risk' meaning that stock prices in general may decline over short or extended periods of time.
• Investing in fixed income products is subject to certain risks, including interest rate, credit, inflation, call, prepayment and reinvestment risk. Any fixed income security sold or redeemed prior to maturity may be subject to substantial gain or loss.
• In general, the bond market is volatile and bond prices rise when interest rates fall and vice versa. Longer term securities are more prone to price fluctuation than shorter term securities. Any fixed income security sold or redeemed prior to maturity may be subject to substantial gain or loss. Dependable income is subject to the credit risk of the issuer of the bond. If an issuer defaults no future income payments will be made.
• When investing in mutual funds or exchange-traded and index funds, please consider the investment objectives, risks, charges, and expenses associated with the funds before investing. You may obtain a fund’s prospectus by contacting your investment professional. The prospectus contains information, which should be carefully read before investing.
• Investors should understand the potential tax liabilities surrounding a municipal bond purchase. Certain municipal bonds are federally taxed if the holder is subject to alternative minimum tax. Capital gains, if any, are federally taxable. The investor should note that the income from tax-free municipal bond funds may be subject to state and local taxation and the alternative minimum tax (amt).
• International investments may not be suitable for all investors. International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the u.s. can raise or lower returns. Some overseas markets may not be as politically and economically stable as the united states and other nations. Investments in international markets can be more volatile.
• Investments in emerging markets may not be suitable for all investors. Emerging markets involve a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the u.s. can raise or lower returns. Some overseas markets may not be as politically and economically stable as the united states and other nations. Investments in emerging markets can be more volatile.
• Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.
• Real estate investments trusts may be subject to a high degree of market risk because of concentration in a specific industry, sector or geographical sector. Real estate investments may be subject to risks including, but not limited to, declines in the value of real estate, risks related to general and economic conditions, changes in the value of the underlying property owned by the trust and defaults by borrower.
• Investment in alternative investment strategies is speculative, often involves a greater degree of risk than traditional investments including limited liquidity and limited transparency, among other factors and should only be considered by sophisticated investors with the financial capability to accept the loss of all or part of the assets devoted to such strategies.
• Structured products involve derivatives and risks that may not be suitable for all investors. The most common risks include, but are not limited to, risk of adverse or unanticipated market developments, issuer credit quality risk, risk of lack of uniform standard pricing, risk of adverse events involving any underlying reference obligations, risk of high volatility, risk of illiquidity/little to no secondary market, and conflicts of interest. Before investing in a structured product, investors should review the accompanying offering document, prospectus or prospectus supplement to understand the actual terms and key risks associated with the each individual structured product. Any payments on a structured product are subject to the credit risk of the issuer and/or guarantor. Investors may lose their entire investment, i.e., incur an unlimited loss. The risks listed above are not complete. For a more comprehensive list of the risks involved with this particular product, please speak to your J.P. Morgan team.
• As a reminder, hedge funds (or funds of hedge funds) often engage in leveraging and other speculative investment practices that may increase the risk of investment loss. These investments can be highly illiquid, and are not required to provide periodic pricing or valuation information to investors, and may involve complex tax structures and delays in distributing important tax information. These investments are not subject to the same regulatory requirements as mutual funds; and often charge high fees. Further, any number of conflicts of interest may exist in the context of the management and/or operation of any such fund. For complete information, please refer to the applicable offering memorandum.
• For informational purposes only -- J.P. Morgan Securities LLC does not endorse, advise on, transmit, sell or transact in any type of virtual currency. Please note: J.P. Morgan Securities LLC does not intermediate, mine, transmit, custody, store, sell, exchange, control, administer, or issue any type of virtual currency, which includes any type of digital unit used as a medium of exchange or a form of digitally stored value.
• The prices and rates of return are indicative, as they may vary over time based on market conditions.
• Additional risk considerations exist for all strategies.
• The information provided herein is not intended as a recommendation of or an offer or solicitation to purchase or sell any investment product or service.
• Opinions expressed herein may differ from the opinions expressed by other areas of J.P. Morgan. This material should not be regarded as investment research or a J.P. Morgan investment research report.