Quarterly Perspectives: Guide To The Markets

Quarterly Perspectives
U.S. | 4Q 2015
J.P. Morgan Asset Management is pleased to present the

latest edition of Quarterly Perspectives. This piece explores
key themes from our Guide to the Markets, providing timely
economic and investment insight.
STRATEGY TEAM
THIS QUARTERS THEMES
Anastasia V. Amoroso, CFA
1 The upside to a down China

2 Fed-winds and tailwinds in U.S. equities
3 Adjusting to higher volatility
4 Fixed income positioning while waiting on the Fed to change
Dr. David P. Kelly, CFA

Managing Director
Chief Global Strategist
Andrew D. Goldberg
Managing Director
Global Market Strategist
Executive Director
James C. Liu, CFA

Executive Director
Samantha M. Azzarello
Vice President
David M. Lebovitz
Vice President
MARKET INSIGHTS
Guide to the Markets

U.S. | 4Q 2015 | As of September 30, 2015
Gabriela D. Santos
Vice President
Hannah J. Anderson
Market Analyst
Abigail B. Dwyer, CFA

Market Analyst
Ainsley E. Woolridge
Market Analyst
1 The upside to a down China
OVERVIEW
CHINAS ECONOMY HAS BEEN SLOWING DOWN FOR A FEW YEARS

For many years, the motor of the Chinese economy was investment spending powering
the build-up of infrastructure, real estate, and industry throughout the country.
Of course, trees dont grow to the sky, and Chinas build-up is naturally slowing down.
Instead, China is rightfully shifting its focus to domestic consumption as a driver of growth
but these transitions take time and shouldnt be expected to be smooth.
Since 2010, when Chinese GDP growth hit 10.4%, each years growth has been a bit slower
than the year before and more evenly split between investment and consumption.
Concerns about Chinese growth came to the forefront this year, as indicators point to
slower growth than the governments 7% target for 2015.
At its September meeting, the Federal Reserve explicitly noted weaker growth in China
and emerging markets as a concern, given potential spillovers to DM growth and inflation.
The positive news is that the Chinese government has not yet run out of ammunition to try
to stimulate growth and prevent an out-of-control slowdown.
Chinas economy has been growing

below 9% since 2011, as China
restructures its economy away from
an investment spending model and
toward a more consumption-driven
one.
So far this year, data indicate that
this economic deceleration is
occurring a bit more quickly than
expected. On the positive side, the
Chinese government still has ways to
manage this slowdown, with ample
reserves and monetary policy tools.
Slower Chinese growth is a headwind
for emerging markets, via slower
trade and lower commodity prices.
However, for developed markets,
which are predominantly commodityimporting countries, the benefits
could end up outweighing the
negatives (or at least offset some
of them).
While Chinese FX reserves have been falling over the past couple of years, they still stand
at a formidable $3.6 trillion. In addition, the Chinese government still has monetary policy
tools, such as lowering interest rates and bank reserve requirements, to stimulate lending.
China: Economic and policy snapshot

China foreign exchange reserves
China real GDP contribution
Trillions USD
Year-over-year % change
$4.0
Investment
Consumption
Net exports
9.2%
$3.5
$3.0
$2.5
12%
$2.0
10.4%
8%
$1.5
9.3%
8.1%
5.5%
4.5%
$1.0
7.8%
International
7.7%
4.4%
3.6%
4.2%
$0.5
7.4%
4.2%
7.0%
1.2%
3.6%
4%
0%
4.6%
0.9%
4.5%
5.3%
4.2%
3.8%
3.8%
1.3%
0.4%
-0.4%
-0.1%
-0.3%
2008
2009
2010
2011
2012
2013
0.0%
2014
$0.0
'01
Source: Guide to the Markets U.S. 4Q 2015, page 49
4 Q 2 0 1 5 | Q U A R T ER L Y P ERS PECTIVES
'05
'07
'09
'11
'13
1Q2015
2015
'15
Monetary policy tools

5%
Interest rates
25%
Reserve requirement
4%
20%
3%
15%
2%
10%
1%
'05
Source: FactSet, J.P. Morgan Asset Management, (Left) CEIC, (Top and bottom right) Peoples Bank of China.
Guide to the Markets U.S. Data are as of September 30, 2015.
49
'03
Policy rate on 1-year renminbi deposits
4.5%
-3.5%
-4%
Aug. 2015: $3.6tn
$4.5
16%
9.6%
| 49
GTM U.S.
'07
'09
'11
'13
'15
5%
Investment spending used to be

the motor of the Chinese economy.
For the past four years, the
Chinese economy has been growing
at a slower pace each year, as the
focus shifts towards consumption.
The Chinese government still has
tools to manage the economic
slowdown and any financial market
repercussions, such as FX reserves
and monetary policy.
CHINAS SLOWDOWN: HEADWIND FOR EM, BUT SOME UPSIDE FOR DM
INVESTMENT IMPLICATIONS
Chinas slowdown has some important implications for other emerging market (EM)
countries and to some extent, developed ones too.
The countrys previous focus on investment spending drove huge demand for commodities
and turned it into a major consumer of industrial metals, supporting a surge in commodity
prices during the 2000s. With Chinas shift away from construction and heavy industry, its
demand for commodities has decreased, bringing commodity prices down with it.
In addition, slower growth in China also hurts non-commodity exporting EM countries,
especially its neighbors in EM Asia, which rely heavily on China to import their
manufactured goods.
For Developed market (DM) countries, Chinas slowdown can hurt in three key ways:
financial markets contagion, a hit on confidence and weaker global trade. While the first
two channels are hard to quantify, export exposures seem manageable. For example, U.S.
exports to China account for only 0.7% of GDP. For the eurozone, this number is a bit higher
(1.1% of GDP), as compared with 4.4% for EM Asia countries.
Chinas economy has been slowing

down, but the government still has
some tools to manage the slowdown
and prevent a true hard landing.
Investors should carefully consider
the downsides and upsides of lower
growth in China. The downsides
include a further headwind to EM
growth, pushing the cyclical upturn
in EM even further out.
For DM, the impacts may be a bit
more mixed and there could even be
some upside via the continuation of
lower commodity prices. This
continues to support investing in
U.S. and European equities, despite
short-term uncertainty around
global growth.
But investors should also have an eye to the potential upside to a slower Chinese economy:
Given Chinas transition, it is hard to imagine a return of commodity prices to the highs
seen during the peak of the commodity supercycle.
This is a net positive for most of DM, as the majority of countries are net commodity
importers. This helps growth via the trade balance and helps keep inflation low,
supporting consumption.
EM and DM: Economic and financial links

Currencies vs. trading partners
REERs vs. 10-year average
1.80
Current
10 year range
1.60
GTM U.S.
Private credit*
% of GDP
95%
1.00
0.80
80%
0.60
65%
50%
International
Chinas consumption of commodities
1Q15: 86%
'00
'02
'04
70%
60%
60%
45%
50%
47%
48%
S. America,
2%
N. America
(ex-US), 4%
50%
40%
'08
'10
Foreign,
Unspecified,
22%
'12
'14
Chinas slowdown can impact the

rest of the world via the financial
channel, confidence, trade and
commodity markets.
A lot of DM countries are
commodity importers, so there
could be some upside to a slower
China via the continuation of low
commodity prices.
U.S., 52%
Europe, 7%
12%
Asia, 8%
10%
Crude Oil
'06
% of total revenues**, 2014
80%
30%
51
EM ex-China
S&P 500 international revenues
% of world total, 2014 average
0%
EM
110%
1.20
20%
1Q15: 137%
140%
125%
1.40
| 51
Nickel
Zinc
Aluminum
Copper
Iron Ore
Africa, 4%
Source: J.P. Morgan Asset Management, (Top left) J.P. Morgan Global Economic Research, (Top right) BIS, various National Statistics Offices,
(Bottom left) Bloomberg, IEA, (Bottom right) S&P 500 individual company 10K filings, S&P Index Alert, Standard & Poors.
*Private credit includes non-financial corporates and households, and bank lending, corporate bonds, and shadow banking. Aggregated from BIS
underlying data. **International revenue numbers are subject to individual company management interpretation and reporting. S&P analysis was
done on a company by company basis through 10K filings and is subject to variability based on accounting principles. Data is from a Standard &
Poors report S&P 500 Foreign Sales 2014 by Howard Silverblatt.
Guide to the Markets U.S. Data are as of September 30, 2015

QUART E RLY PE RSPE CTIV E S | 4 Q 2 0 1 5
2 Fed-winds and tailwinds in U.S. equities
OVERVIEW
IF THE ECONOMY HAD NOT IMPROVED, THE FED WOULD NOT HIKE
Although the wounds left by the financial crisis were deep, it has been over six years since
the recession officially ended, and the U.S. economy is now in far better shape. While the
slow and steady nature of the healing process has disappointed some investors, it is clear
that extremely accommodative monetary policy is no longer needed. If the economy was
still in the doldrums, the Federal Reserve (Fed) would likely err on the side of caution and
maintain current policy. However:
Vehicle sales have surged in recent months, reflecting not only the decline in gas prices,
but more importantly, a U.S. consumer who is back in action.
The Federal Reserve is preparing to

raise interest rates because the U.S.
economy is much healthier
Equities have historically exhibited
volatility around Fed liftoff before
moving higher over subsequent
months as better economic data is
priced in
With U.S. equities currently trading
around their long-term average,
investors should expect average
returns over the coming years
It is not surprising that housing has been slower to recover than vehicle sales. However,
continued tightening in the labor market should provide a tailwind for housing going
forward.
Inventories have risen on the back of an increase in the domestic supply of oil and
a moderation in consumption, but this does not appear to be indicative of broader
weakness. Capital spending should increase as corporate confidence improves and
excess cash is deployed.
Cyclical sectors
GTM U.S.
Light vehicle sales
Days of sales, SA
47
24.0
46
22.0
Sep. 2015:
18.1
20.0
18.0
Economy
45
44
Jul. 2015:
41.4
43
16.0
42
Average: 15.4
14.0
41
40
12.0
39
10.0
38
'95
'97
'99
'01
'03
'05
'07
'09
'11
'13
'15
37
'96
'98
'00
'04
Real capital goods orders
2,400
$70
Thousands, seasonally adjusted annual rate
'06
'08
'10
'12
'14
Non-defense capital goods orders ex-aircraft, USD billions, SA
2,000
$65
1,600
$60
1,200
$55
Average: 1,334
$50
800
Aug. 2015:
1,126
400
'96
'98
'00
'02
'04
'06
'08
'10
'12
'14
19
4 Q 2 0 1 5 | QU A R T ER L Y P ERS PECTIVES
Aug. 2015:
58.1
Average: 56.6
$45
$40
'95
'97
'99
Source: J.P. Morgan Asset Management, (Top left) BEA, (Top and bottom right, bottom left) Census Bureau, FactSet.
Capital goods orders deflated using the producer price index for capital goods with a base year of 2004.
SA seasonally adjusted.
'02
Housing starts
The consumer is back in action, as

vehicle sales and housing continue
to push higher.
Manufacturing and trade inventories
Millions, seasonally adjusted annual rate
8.0
| 19
'01
'03
'05
'07
'09
'11
'13
'15
Things are gradually improving

on the corporate side, but weak
confidence may be holding back
investment.
ALTHOUGH THE EQUITY MARKET CAN GET CHOPPY IN THE INITIAL

AFTERMATH OF A RATE HIKE, HISTORICALLY IT HAS RISEN OVER THE
FOLLOWING MONTHS
Looking back at prior Fed rate hikes suggests that at first, investors have a tough time
stomaching the idea of higher yields. However, as it becomes increasingly apparent that the
Fed is hiking rates for all of the right reasons, markets re-price in line with their underlying
fundamentals. For that reason, it is important for investors to prepare for a likely uptick in
volatility around Fed liftoff.
Equity prices have fallen when the Fed has initiated the last three rate hike cycles.
However, over the subsequent months, markets have digested the better economic data
and moved higher.
The story in fixed income is not quite as positive. Historically, when the Fed has hiked
rates, 10-year Treasury yields have pushed higher as well, leading bond prices to fall.
However, easing by global central banks, including the the European Central Bank (ECB),
the Bank of Japan (BoJ) and the Peoples Bank of China (PBoC), will likely cause different
parts of the yield curve to behave differently, with longer-term rates showing a more
muted reaction to liftoff than short rates.
Historical impacts of rate increases
GTM U.S.
| 60
Returns and yield changes during rate hiking cycles
S&P 500 price index and 10-year U.S. Treasury yield over the last three rate hiking cycles
February 1994 March 1995
7.0%
June 1999 June 2000

550
Rate hike cycle
Federal funds rate

(LHS)
500
4.0%
475
3.0%
450
S&P 500
(RHS)
2.0%
Nov 93 Feb 94
Jun 94
Sep 94 Dec 94
Apr 95
425
February 1994 March 1995

7.0%
Asset class
6.0%
1550
1450
6.0%
1350
4.0%
1250
2.0%
1150
1400
1350
5.0%
1300
1250
4.0%
Mar 99 Jun 99
Oct 99
Jan 00
Apr 00 Aug 00
1200
1050
0.0%
Mar 04 Aug 04 Jan 05 Jun 05 Nov 05 Apr 06 Sep 06
7.0%
6.0%
June 1999 June 2000

8.5%
Rate hike cycle
6.0%
1500
525
6.0%
5.0%
June 2004 July 2006
7.0%
June 2004 July 2006
7.0%
6.5%
10y UST yield

(RHS)
5.0%
7.5%
6.0%
6.5%
5.0%
6.0%
5.5%
It is important that investors stay

the course when the Fed hikes
rates, as otherwise they may miss
out on further equity market gains.
Interest rates will gradually rise as
the Fed normalizes policy they
should not spike higher overnight.
5.0%
4.0%
4.5%
4.0%
Federal funds
rate (LHS)
5.5%
3.0%
2.0%
Nov 93 Feb 94
5.0%
Jun 94
Sep 94 Dec 94
Apr 95
5.5%
4.0%
Mar 99 Jun 99
Oct 99
Jan 00
Apr 00 Aug 00
4.5%
2.0%
4.0%
0.0%
3.5%
Mar 04 Aug 04 Jan 05 Jun 05 Nov 05 Apr 06 Sep 06
Source: FactSet, Standard & Poors, J.P. Morgan Asset Management.

60
QUARTE RLY PE RSPE CTIV E S | 4 Q 2 0 1 5
LOOKING AHEAD, AVERAGE VALUATIONS SUGGEST AVERAGE RETURNS

The Fed is hiking rates for all the right reasons, and equities have typically done well in the
months following a Fed rate hike. However, with recent market volatility leading investors to
question whether the current bull market still has room to run, it is important to recognize
that the re-pricing of equity markets observed over the past few months has created an
opportunity for investors.
Before the recent sell-off, equity market valuations had become more expensive, as equity
prices had remained range-bound while earnings had gradually deteriorated. However,
the weakness in earnings appears to be a one-time reflection of a higher dollar and low
energy prices, and earnings growth looks set to resume in 2016.
Over one year, valuation is a fairly unreliable predictor of future returns. In fact, since
September 1990, valuation has only explained 9% of the S&P 500s return over the
following 12-months one might be better off reading tea leaves.
The U.S. economy is no longer in the
hospital, and the 2015 earnings slump
looks temporary.
The historical record suggests that
volatility will pick up as the Fed
begins to normalize policy, but also
that equity markets tend to trend
higher in the following months.
Current valuations are around
average, and as a result, investors
should expect U.S. equities to
generate average returns going
forward.
Looking at the relationship between valuation and 5-year annual returns since 1990, the
current level of forward P/E ratios suggest we are entering an environment of lower but
more stable returns.
P/E ratios and equity returns
GTM U.S.
Forward P/E and subsequent 5-yr annualized returns
Forward P/E and subsequent 1-yr returns
S&P 500 Total Return Index
Equities
S&P 500 Total Return Index

60%
60%
40%
40%
20%
20%
0%
0%
Current: 15.1x
-20%
-20%
R = 9%
-40%
-60%
8.0x
11.0x
14.0x
17.0x
20.0x
23.0x
Current: 15.1x
R = 43%
-40%
-60%
8.0x
4 Q 2 0 1 5 | Q U A R T ER L Y P ERS PECTIVES
Valuation is not terribly helpful

when it comes to forecasting
returns over the coming year.
However, when using a 5-year
investment horizon, the predictive
ability of valuation drastically
improves.
11.0x
14.0x
17.0x
Source: FactSet, Reuters, Standard & Poors, J.P. Morgan Asset Management.
Returns are 12-month and 60-month annualized total returns, measured monthly, beginning September 30, 1990. R represents the percent of total
variation in total returns that can be explained by forward P/E ratios.
| 6
20.0x
23.0x
3 Adjusting to higher volatility
OVERVIEW
KEEPING MARKET VOLATILITY IN PERSPECTIVE

After years of depressed volatility in many markets, investors have become accustomed
to lower volatility. Lower volatility could have been attributed to near zero rates in the U.S.
and most of the developed world, along with easy money from the Fed in the form of
quantitative easing (QE). As the Fed normalizes and the expansion continues, volatility may
move higher. It is surprisingly easy to forget how jarring volatility can feel until it returns
which is why putting historical market volatility in perspective is useful, as weve done on
page 12 of the Guide.
The S&P 500 average intra-year decline, as defined by the largest market drop from peak
to trough during the year, was 14.2%. In this same time period, the S&P 500 had positive
calendar year returns 27 of the last 35 years.
Typically, the market experiences 5% drawdowns 4 times per year, and a 10% drawdown
once per year. Market pullbacks and volatility are not just normal but surprisingly so.
Annual returns and intra-year declines
GTM U.S.
Equities
Despite average intra-year drops of 14.2%, annual returns positive in 27 of 35 years*
30%
34
27
26
26
20%
15
27
20
17
15
-20%
-8
-13
-8
-9
-17 -18 -17
-8
-7
-6
-6
-5
-8
-11
-12
-19
-20
-10
-8
-13
-7
-8
-6
-10
-10
-14
-17
-16
-23
-34
-7
-6.7
-12
-19
-28
-30
-34
-38
-50%
-60%
11
-3
-9
In times of increased volatility,

the importance of investing with
discipline and composure is amplified.
This includes staying well diversified,
deploying cash intelligently and
rebalancing where needed.
Markets have experienced

pullbacks of at least 5% in all but
two of the last 35 years, and 10%
or greater pullbacks in more than
half of all calendar years.
-30%
-40%
YTD
13
13
-2
-7
20
-10
23
14
30
26
12
10%
-10%
31
26
Elevated volatility does not

necessarily have to snowball into
something more serious. Bear
markets have distinct causes and
heightened volatility is generally not
one of them.
| 12
S&P 500 intra-year declines vs. calendar year returns

40%
Volatility has been depressed since

the financial crisis. With the economic
cycle maturing and monetary policy
set to normalize in the U.S., we expect
volatility to increase to more normal
levels going forward.
Despite the frequency of pullbacks,

markets have managed to generate
a positive full-year return for
investors in nearly 80% of the last
35 calendar years, suggesting a
long-term approach can pay off.
-49
'80
'85
'90
'95
'00
'05
'10
'15
Source: FactSet, Standard & Poors, 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 2014 excluding 2015, which is year-to-date.
12
QUART E RLY PE RSPE CTIV E S | 4 Q 2 0 1 5
WHAT CAUSES BEAR MARKETS?

When volatility is elevated, it is natural to worry that markets are signaling a bigger
problem, like a looming bear market. The important thing to understand about bear
markets is that they dont just happen for no reason. They have to be caused by something.
History suggests that bear markets tend to be caused by a few identifiable factors, including
recessions, commodity spikes, aggressive Fed tightening and extreme valuations. Despite
concerns around elevated volatility, the historical conditions that have contributed to past
bear markets dont appear to be in place today.
There have been 10 bear market corrections since the crash of 1929, defined as a 20%
market decline from the prior peak.
Most often bear markets are the result of an economic recession. With the current
moderate but steadfast expansion, low inflation and an ever improving labor market, we
do not see a recession the main cause of a bear market on the horizon.
Bear markets and subsequent bull runs
GTM U.S.
| 15
History suggests that bear markets

are usually the result of recessions.
S&P 500 composite declines from all-time highs
Equities
0%
-20%
5
20% Market
decline*
-60%
-80%
-100%
1926
-40%
Recession
2
1
1931
1936
1941
1946
1951
1956
Characteristics of bull and bear markets

Market Corrections
1 Crash of 1929 - excessive leverage, irrational exuberance
2 1937 Fed Tightening - premature policy tightening
3 Post WWII Crash - post-war demobilization, recession fears
4 Flash Crash of 1962 - flash crash, Cuban Missile Crisis
5 Tech Crash of 1970 - Economic overheating, civil unrest
6 Stagflation - OPEC oil embargo
7 Volcker Tightening - Whip Inflation Now
8 1987 Crash - Program trading, overheating markets
9 Tech Bubble - Extreme valuations, .com boom/bust
10 Global Financial Crisis - Leverage/housing, Lehman collapse
Market
Peak
Sep 1929
Mar 1937
May 1946
Dec 1961
Nov 1968
Jan 1973
Nov 1980
Aug 1987
Mar 2000
Oct 2007
1961
1966
1971
1981
1986
1991
1996
Bear Markets
Macro environment
Bear
Duration
Commodity Aggressive Extreme
Return* (months)* Recession
Spike
Fed
Valuations
-86%
33
-60%
63
-30%
37
-28%
7
-36%
18
-48%
21
-27%
21
-34%
3
-49%
31
-57%
17
Current Cycle
Averages
1976
-45%
25
2001
15
4 Q 2 0 15 | Q U A R T ER L Y P ERS PECTIVES
2006
2011
Bull Markets
Bull
Duration
Bull
Begin Date Return
(months)
Jul 1926
152%
38
Mar 1935
129%
24
Apr 1942
158%
50
Oct 1960
39%
14
Oct 1962
103%
74
May 1970
74%
32
Mar1978
62%
33
Aug 1982
229%
61
Oct 1990
417%
115
Oct 2002
101%
61
Mar 2009
184%
80
150%
53
Source: FactSet, NBER, Robert Shiller, Standard & Poors, J.P. Morgan Asset Management.
*A bear market is defined as a 20% or more decline from the previous market high. The bear 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 significant rapid upward moves in oil prices.
Periods of Extreme Valuations are those where S&P 500 last twelve months P/E levels were approximately two standard deviations above long-run
averages. Aggressive Fed Tightening is defined as Federal Reserve monetary tightening that was unexpected and/or significant in magnitude.
10
Other causes of bear markets

include commodity spikes,
aggressive Fed tightening and
extreme valuations. None of
these factors characterize todays
economic and market landscape.
THE IMPORTANCE OF INVESTING WITH COMPOSURE

Diversification is always important however, its necessity is highlighted best during
periods of volatility. While the prior few years have been characterized by relative market
calm, we expect market volatility to increase and stabilize at a higher level. As the Fed
begins to raise rates and monetary policy normalizes, more volatility could be introduced to
the market. Also, with the economy in later stages of the expansion and equity valuations at
fair levels, the effects of any earnings misses or bearish news can be amplified.
In sports it is often said that the best offense is a good defense. In investing, the defense
comes in the form of a well-diversified portfolio that can help weather a storm.
As shown in the top chart, a portfolio of stocks and bonds helped buffer against the 2008
downturn better than stocks alone, allowing the portfolio value to recover in less time.
Diversification and a disciplined asset allocation approach also works to temper investor
urges to move to cash in volatile and uncertain times.
Diversification and the average investor
$160,000
Nov. 2009:
40/60 portfolio
recovers
Oct. 2007:
S&P 500 peak
Oct. 2010:
60/40 portfolio
recovers
$100,000
$80,000
$60,000
Jun '08
40/60 stocks & bonds
Mar. 2012:
S&P 500
recovers
Mar. 2009:
S&P 500 portfolio
loses over $50,000
$40,000
Oct '07
Feb '09
Oct '09
Jun '10
Feb '11
Oct '11
Jun '12
60/40 stocks & bonds

S&P 500
Feb '13
Oct '13
Jun '14
Feb '15
20-year annualized returns by asset class (1995 2014)
14%
12%
11.5%
8.7%
8%
Asset class
The diversified portfolio was able

to recover its pre-crisis value more
than a year before the stock-only
investor.
9.9%
10%
6.2%
6%
5.9%
5.7%
5.4%
3.2%
4%
2.5%
2.4%
Average Investor
Inflation
2%
0%
65
Diversified portfolios are often most

suited to be resilient during periods of
market turmoil. A smoother path of
returns after a bear market or period
of uncertainty can often be achieved
through diversification. An allocation
to bonds can help to buffer a portfolio
against unexpected or outsized
downturns in the stock market.
A diversified portfolio lost roughly

half as much as a stock-only
investor during the bear market of
2008-2009.
$180,000
$120,000
Investors should brace for a higher,

yet more normal, level of volatility.
Keeping volatility in perspective is
always important. As volatility
normalizes, investing over longer time
horizons and maintaining portfolio
discipline will be key.
| 65
GTM U.S.
Portfolio returns: Equities vs. equity and fixed income blend
$140,000
REITs
S&P 500
60/40
Bonds
Gold
Oil
EAFE
Homes
Source: J.P. Morgan Asset Management, (Top) Barclays, FactSet, Standard & Poors, (Bottom) Dalbar Inc.
Indexes used are as follows: REITS: NAREIT Equity REIT Index, EAFE: MSCI EAFE, Oil: WTI Index, Bonds: Barclays Capital 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 high quality U.S. fixed income, represented by the 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 12/31/14 to match Dalbars most recent analysis.
4 Fixed income positioning while waiting on the
OVERVIEW
Fed to change
SHAPE OF THE YIELD CURVE
Even with the Fed on hold at the September meeting, fixed income markets can not rule out
a rate hike this quarter, provided that both international markets and data turnaround and
U.S. economic numbers continue to look healthy. Thus, a discussion of what happens to
rates across the curve when the Fed tightens is still warranted.
When the Fed eventually hikes rates, the yield curve is likely to flatten. The yield curve has
already materially flattened since the end of 2013, after the Fed surprised the markets
with the eventual end of QE announcement. Short-term rates rose while long-term rates
declined considerably. This development is consistent with both precedent and the current
global monetary policy.
In the last three tightening cycles, short-term rates rose more than long-term rates,
resulting in a flatter yield curve.
Short-term rates tend to respond to domestic economic and central bank developments,
while long-term rates tend to have a higher correlation with yields and monetary policy
globally. Given the exceptionally low level of yields in Germany and elsewhere, these low
yields are being exported to the U.S. via private investor demand for higher
yielding assets.
Shape of the yield curve
GTM U.S.
| 33
Yield curve
U.S. Treasury yield curve

3.2%
3.5%
3.0%
1.8%
2.0%
1.5%
Fixed income
0.5%
2.9%
2.2%
2.5%
1.0%
Sep. 30, 2014
2.5%
1.1%
0.6%
0.3%
0.9%
0.6%
0.1%
0.0%
3m 1y
2y
1.8%
1.4%
10y
7y
5y
3y
Sep. 30, 2015
2.1%
30y
Yield curve at the start and end of a rate hiking cycle
Correlation of government bonds
3-mo to 10-yr Treasury at the first and last rate increases of a cycle
Feb. 94 Mar. 95
Jun. 99 Jun. 00
8.0%
8.0%
2/1/1995
10-yr. bonds
0.80
6/30/2006
4.0%
6/30/1999
2/4/1994
1.00
0.60
6.0%
6.0%
4.0%
6.0%
5/16/2000
Correlation* between U.S. Treasury and German Bund yields
Jun. 04 Jul. 06
6/30/2004
4.0%
2.0%
2.0%
0.0%
0.40
2-yr. bonds
0.20
Source: Bloomberg, FactSet, J.P. Morgan Asset Management.

*Rolling six-month correlation of weekly change in yield.
33
10
4 Q 2 01 5 | Q U A R T ER L Y P ERS PECTIVES
7y
10y
5y
3m
1y
2y
3y
7y
10y
5y
3m
1y
2y
3y
7y
10y
5y
3m
1y
2y
3y
0.00
2.0%
-0.20
'10
'11
'12
'13
'14
'15
Even with the Fed on hold at the

September meeting, fixed income
markets cannot rule out a rate hike
sometime this quarter.
When the Fed eventually hikes rates,
the yield curve is likely to flatten as
domestic data and central bank policy
move short-term rates, while global
monetary dynamics influence the long
end, where easy policy is helping keep
rates anchored.
The Fed will be joining only a few
central banks in hiking rates, which
means investors can look to
international fixed income markets
where monetary policy is still easy
and economies are improving. Finally,
the expected very shallow and
gradual pace of Fed tightening bodes
well for higher yielding U.S. sectors
such as credit.
Short-term rates respond to

domestic developments, while
long-term rates are influenced by
global monetary policy.
CENTRAL BANK DIVERGENCES

Global monetary policy, which is still very accommodative, is helping keep U.S. long-term
rates anchored for now, even as the Fed considers raising short-term rates. When the
Federal Reserve raises short-term rates, it will be joining very few other central banks in
hiking them.
Tracking the relative tightness or ease of monetary policy over the years, you can see
that today very few central banks are in tightening mode (unlike 2004 2006) as most
prefer to stay easy to combat the deflationary forces of global deleveraging and Chinese
rebalancing.
In addition to conventional policy of keeping short-term rates low, major central banks
have resorted to unconventional measures such as forward guidance and outright bond
purchases, i.e. QE. This forward guidance shows up in market expectations. While the Fed
and the Bank of England are expected to start raising rates soon, the ECB and BoJ are still
at least a couple of years away from hiking rates. And in addition, these central banks are
also keeping yields across the curves suppressed as they conduct QE, with scope still left
for doing more of it, not less.
Central bank divergences

Global central banks interest rate decisions*
Tighter policy
Central banks lowering rates (-1), raising rates (+1), and maintaining rates (0)
Market expectations for target policy rate**

2.0%
15
1.5%
10
1.34%
0.5%
Fixed income
0.0%
0.21%
0.10%
-0.5%
-5
Japan
0.11%
0.07%
Eurozone
-0.05%
Dec. 17
JPMAM
Forecast***
60%
Bank of Japan
(BOJ)
-15
Looser policy
40%
-20
-25
0.08%
Dec .16
Dec. 15
80%
More central banks

easing than tightening
European Central Bank (ECB)
20%
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
Bank of England (BOE)

'07
'08
'09
'10
Of course, investors will have to mind

the currency gap and manage it
appropriately. Currency can be a
significant contributor or detractor
from fixed income returns, and many
fixed income solutions employ an
active management approach to
currencies as well as rates.
The benign rate outlook bodes well
for credit markets as well. In the U.S.
credit spreads have widened out to
levels last seen in 2012, without a
fundamental deterioration (outside
of the energy and metals sectors
that have seen a worsening of their
fundamentals). These wider spreads
provide an attractive entry point in
U.S. credit.
0.66%
Central bank assets Percent of nominal GDP
-10
This combination of slow rise in U.S.

rates in the absence of inflation and
easy global monetary policy should
keep the long rates well anchored.
This is supportive of fixed income in
general but also suggests that
investors should look for
opportunities in international fixed
income where policy is easy and
economies are improving.
1.13%
U.S.
-0.05%
0.93%
U.K.
1.0%
0.60%
34
| 34
GTM U.S.
'11
U.S. Federal Reserve

(Fed)
'12
Source: Bloomberg, FactSet, various national statistics agencies, J.P. Morgan Global Economics Research, J.P. Morgan Asset Management.
*The 30 banks included in the central bank analysis determine policy for: United States, Canada, Brazil, Chile, Colombia, Peru, Eurozone, United
Kingdom, Norway, Sweden, Israel, Czech Republic, Hungary, Poland, Romania, South Africa, Australia, New Zealand, Hong Kong, China, South
Korea, Indonesia, India, Malaysia, Philippines, Thailand, Taiwan, Japan, Mexico as of Feb. 08 and Turkey as of Jun. 06. **Target policy rates for
Japan are estimated using EuroYen 3m futures contracts less a risk premium of 6bps. ***Central bank assets as percent of nominal GDP is
forecasted from 3Q15 to 1Q16 using J.P. Morgan Global Economics Research nominal GDP forecasts and assumptions for central bank balance
sheet size based on statements released by each respective central bank and its governors.
'13
'14
'15
'16
When the Federal Reserve raises

short-term rates it will be joining
very few other central banks in
hiking them, and the path of rate
increases should be very gradual
and shallow.
Most central banks prefer to
maintain accommodation to
combat the deflationary forces of
global deleveraging and Chinese
rebalancing.
11
Quarterly Perspectives
U.S. | 4Q 2015
Contact JPMorgan Distribution Services, Inc. at 1.800.480.4111 for a fund prospectus. You can also visit us at www.jpmorganfunds.com.
Investors should carefully consider the investment objectives and risks as well as charges and expenses of the mutual fund before investing.
The prospectus contains this and other information about the mutual fund. Read the prospectus carefully before investing.
Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market
conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase
or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only and is not
intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio
may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. Past performance is no
guarantee of future results.
Forward P/E ratio (P/E) is a measure the of price-to-earnings ratio using forecasted estimates. The price to earnings ratio is a valuation ratio of a companys current share price compared
to its per-share earnings.
J.P. Morgan Funds are distributed by JPMorgan Distribution Services, Inc., which is an affiliate of JPMorgan Chase & Co. Affiliates of JPMorgan Chase & Co. receive fees for providing various
services to the funds. JPMorgan Distribution Services, Inc. is a member of FINRA/SIPC.
J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. Those businesses include, but are not limited to, J.P. Morgan
Investment Management Inc., Security Capital Research & Management Incorporated and J.P. Morgan Alternative Asset Management, Inc.
JPMorgan Chase & Co., October 2015

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Quarterly Perspectives

J.P. Morgan Asset Management is pleased to present the

THIS QUARTERS THEMES

Anastasia V. Amoroso, CFA

1 The upside to a down China

Dr. David P. Kelly, CFA

James C. Liu, CFA

Guide to the Markets

Abigail B. Dwyer, CFA

1 The upside to a down China

CHINAS ECONOMY HAS BEEN SLOWING DOWN FOR A FEW YEARS

Chinas economy has been growing

China: Economic and policy snapshot

China real GDP contribution

Source: Guide to the Markets U.S. 4Q 2015, page 49

Monetary policy tools

Policy rate on 1-year renminbi deposits

Aug. 2015: $3.6tn

Investment spending used to be

CHINAS SLOWDOWN: HEADWIND FOR EM, BUT SOME UPSIDE FOR DM

Chinas economy has been slowing

EM and DM: Economic and financial links

Chinas consumption of commodities

Chinas slowdown can impact the

% of total revenues**, 2014

S&P 500 international revenues

% of world total, 2014 average

Source: Guide to the Markets U.S. 4Q 2015, page 51

2 Fed-winds and tailwinds in U.S. equities

The Federal Reserve is preparing to

Light vehicle sales

Real capital goods orders

Thousands, seasonally adjusted annual rate

Non-defense capital goods orders ex-aircraft, USD billions, SA

Source: Guide to the Markets U.S. 4Q 2015, page 19

The consumer is back in action, as

Manufacturing and trade inventories

Millions, seasonally adjusted annual rate

Things are gradually improving

ALTHOUGH THE EQUITY MARKET CAN GET CHOPPY IN THE INITIAL

Historical impacts of rate increases

Returns and yield changes during rate hiking cycles

June 1999 June 2000

Rate hike cycle

Federal funds rate

February 1994 March 1995

June 1999 June 2000

Rate hike cycle

June 2004 July 2006

June 2004 July 2006

10y UST yield

It is important that investors stay

Source: FactSet, Standard & Poors, J.P. Morgan Asset Management.

Source: Guide to the Markets U.S. 4Q 2015, page 60

QUARTE RLY PE RSPE CTIV E S | 4 Q 2 0 1 5

LOOKING AHEAD, AVERAGE VALUATIONS SUGGEST AVERAGE RETURNS

P/E ratios and equity returns

Forward P/E and subsequent 5-yr annualized returns