We reviewed the JPM Guide to the Markets which is a quarterly publication put out by JP Morgan that is filled with all kinds of really good charts. Here are some takeaways and charts of interest.

1. Chart 5 – Large blend, large growth and medium growth (style boxes) are all less than 100% when measuring current p/e as a percent of 20-year average p/e.

2. Chart 6 – returns and valuations by sector.

3. Chart 7 – SP500 earnings yield remains above the Baa yield.

4. Chart 8 – Profit margins are at all time records while total leverage is low.

5. Chart 9 – Year over year SP500 EPS growth as of Q3 was made up of better margins (8%), revenue (3.3%) and share count (0.6%).

6. Chart 10 – Year over year total return was made up of multiple expansion (18.4%), earnings (11.2%) and dividends (2.8%).

7. Chart 11- forward PE of 15.4 is just above the 14.9 average. There is a positive relationship between consumer sentiment and the forward p/e and the estimate impact of a 10 point rise in sentiment is +2 p/e multiple.

8. Chart 12 – When 10-year treasury yields are below 5%, rising rates are generally associated with rising stock prices. A scatter plot shows negative returns when rates start moving above 5%. But sectors that offer a higher yield will be more sensitive to interest rates moving higher.

9. Chart 13 – Corporate cash is close to highs.

10. Chart 14 – P/E ratios and return over a 1-year period are not that correlated. In other words, returns can be good or bad. But over a 5-year period, there is tighter correlation.

11. Chart 15 – real earnings yield is about 4% now, average is 2.6%, but there is often more room for the markets to advance even after hitting average.

12. Chart 16 – 26 of 33 years since 1980 have been positive. Chart 16 shows the intra-year declines for each year.

13. Chart 17 – Equity correlations increase with increases in volatility. As volatility begins to decline from peaks, stocks should outperform.

14. Chart 19 – Pullbacks in spending in light vehicle sales, manufacturing and trade inventories, housing starts and real capital goods orders often lead to recessions. All have been increasing except for manufacturing and trade inventories, which has been flat.

15. Chart 20 – Still an affordable time to buy a home.

16. Chart 21 – there has been significant deleveraging of the consumer balance sheet.

17. Chart 22 – Core CPI has been much less than the 50-yr average of 4.1% in recent years (in November it was 1.7%).

18. Chart 27 –  reduced US reliance on foreign oil in future years.

19. Chart 28 – if you invest at the turning points of low confidence levels your return would be very good.

20. Chart 30 – nominal and real 10-year treasury yields since 1958.

21. Chart 31 – High-yield and floating rate bonds have a negative correlation to the 10-year treasury. So do convertibles and ABS.

22. Chart 33 – Money is being held in excess reserves which means it is not multiplying through the economy, and that is why there has not big a big inflation impact from all of the QE programs, at least so far.

23. Chart 35 – there has been a huge increase in flows into high yield bonds.

24. Chart 37 – Developed market and emerging market high  yield bonds have attractive yield, negative correlation to 10-year US Treasuries and produced positive returns in 2013.

25. Chart 39 – looking at sources of global equity returns, multiple expansion was the big driver across the board except in emerging markets, where multiples declined  as did earnings.

26. Chart 40 – countries way short of their 2007 peak are Italy, Russia, Spain and China.

27. Chart 41 – EAFE index is still well off its previous 2007 peak. P/E is 13.3 and yield is 2.9%.

28. Chart 42 – Emerging markets have much higher projected growth compared to developed markets.

29. Chart 43 – Manufacturing momentum

30. Chart 44 – how important are exports to specific countries. Exports are a % of GDP for the US was 9.5% which is less than other countries.

31. Chart 45 – Urbanization ratios, India and China lag by large amounts. Another chart shows that emerging markets consumption is on the increase and now has a bigger share than the US of global consumption.

32. Chart 46 – charts include value of public companies as a % of GDP. Only the UK and the US is greater than 100%.

33. Chart 47 – emerging market sensitivity to capital flows and currency performance.

34. Chart 48 – Sovereign debt stresses – emerging markets have lower debt, better growth than developed markets but higher borrowing costs.

35. Chart 49 – global monetary policy. Emerging markets still offering real rate returns.

36. Chart 54 – Global equity markets. The US makes about half of the MSCI All Country World Index but only about 19% of global GDP.

37. Chart 56 – Global equity valuations in developed markets. Shows forward p/e’s compared to 10-year averages.

38. Chart 57 – Global equity valuations for emerging markets. Russia has a forward p/e of 4.8 versus a 7.9 10-year average.

39 Chart 58 – asset class returns.

40. Chart 59 – Correlations and volatility between different asset classes.

41. Chart 60 – alternative asset class returns.

42. Chart 61 – mutual fund flows

43. Chart 62 – equity dividend yield from major world markets and REIT yields.

44. Chart 63 – global commodities –

45. Chart 64 – historical returns by holding period for stocks, bonds and a 50/50 portfolio.

46. Chart 65 – returns and standard deviations for a traditional and a portfolio with much greater diversification.

47. Chart 66 – cash accounts.

48. Chart 67 – corporate defined benefit plans and endowments.

links – https://www.jpmorganfunds.com/cm/Satellite?UserFriendlyURL=diguidetomarkets&pagename=jpmfVanityWrapper&vanity=diguidetomarkets