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DOCUMENT | JAN 17, 2014
On the economy, the two central questions are (1) how fast is real output growing? and (2) is the pace of output growth strong enough to produce meaningful job gains?
On the first question, the government will release their advanced estimates of fourth quarter GDP at the end of January. In the year ended in the third quarter, real GDP grew by 2.0%. However, it has gradually been accelerating and we believe that it could average 3.0% or more over the course of 2014, representing the strongest gain in output seen since 2005.
The reason for this advance is straight forward. This year, unlike the last few years, all major sectors of demand should contribute to economic growth.
Such a scenario should be relatively positive for equity markets and negative for fixed income markets, suggesting a mild over-weight towards stocks over bonds. However, it is also important to recognize the legacy of 2013 when the S&P500 rose by 29.6% and ten-year Treasury rates increased from 1.78% to 3.04%, far above equity gains elsewhere in the world or interest rate rises in other developed countries.
These market movements mean that stocks are not nearly as cheap, nor bonds nearly as expensive, as they were a year ago. For investors, this suggests that 2014 may be a year of less gain in U.S. equities with less pain in U.S. bonds, but also a year in which it makes sense to increase allocations towards other parts of the world which saw less spectacular equity gains in 2013.
Diversification does not guarantee investment returns and does not eliminate risk of loss.
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.
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.
J.P. Morgan Funds are distributed by JPMorgan Distribution Services, Inc., member of FINRA/SIPC.
© JPMorgan Chase & Co., January 2014
Topics: U.S. Recovery
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