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1、Executive SummaryOver the past four years,the U.S.and global economy and markets have weathered a myriad of challenges,including:the pandemic-induced distortions in manufacturing and services activity,acute supply chain and labor force disruptions due to the pandemic and the war in Ukraine,the resul

2、ting global inflation surge,rapid and coordinated central bank policy tightening and the impacts on real economic growth,labor markets,consumer and producer prices and earnings growth.Yet,through these cyclical storms,the U.S.economy has maintained an above-average pace of real economic growth and r

3、isk assets have delivered strong returns above and beyond those found in cash.As 2024 was ending,these cyclical forces were making their way out of the economy and profits,with a normalization in real economic growth,job creation,inflation pressure and earnings growth as well as the level of interes

4、t rates.However,the U.S.economys momentum is downshifting into a more normal pace.While this alone is unlikely to trigger a recession,it does leave the economy more vulnerable to shocks,including those from significant policy changes that might be coming from Washington this coming year.Additionally

5、,the strong market performance of the past two years has left valuations elevated in certain markets and,importantly,portfolios unbalanced by asset class,sector and style and region.As the cyclical storm passes but the policy fog settles in,the number one action call for investors is to ensure portf

6、olios are rebalanced after a few very abnormal years.2025 Year-Ahead Investment OutlookOut of the Cyclical Storm and into the Policy Fog2Out of the Cyclical Storm and into the Policy FogEconomy:A post-cycle economy faces greater policy uncertaintyClearer skies on the cyclical climateThis year,the ec

7、onomy saw surprisingly robust growth with real GDP on track to expand at a 1.8%annualized rate in the fourth quarter,closing 2024 with 2.3%annual growth,by our estimates.The biggest driver of this strength has been consumer spending,which contributed an average 78%of real GDP growth in the first thr

8、ee quarters.Despite pushing back on high retail prices,a thriftier consumer managed to stretch their budget and still expand their shopping cart.Inflation-adjusted consumer spending grew 3.0%year in 3Q,accelerating from 2.7%in 2Q,fueled by strong gains in real after-tax income.Consumption has been d

9、ominated by high-income households,which have enjoyed enormous gains in household wealth,along with strong interest,dividend and property income.Elsewhere,consumers have been more cautious but continue to spend.In the year ahead,continued progress in real wage growth should broadly support consumers

10、,but consumption is likely to contribute less to growth going forward as the tailwind of pent-up savings and debt has largely faded.Interest rate-sensitive sectors continued to face challenges but began to stabilize as interest rates peaked.The scope of its acceleration will depend on how much long-

11、end yields move lower next year.Residential investment contracted in 2Q and 3Q as homebuilder sentiment struggled under elevated long-term interest rates,which may persist even as the Fed lowers the federal funds rate.The manufacturing sector,grappling with slow global demand,has also experienced we

12、ak job growth and new order activity.However,potential rate cuts could stimulate activity in these sectors,thereby broadening support for GDP growth.Despite high borrowing costs,business investment has been buoyed by strong corporate balance sheets and fiscal support from legislation such as the CHI

13、PS Act and the Inflation Reduction Act.Tech companies,in particular,have accelerated investment amidst an AI-arms race,and lower rates could facilitate similar investments across other sectors.Consumption remains the biggest driver of the economy,accounting for roughly 80%of growth in the first thre

14、e quarters of 2024Exhibit 1:Contributors to real GDP growth,q/q change,annualized rate-2%0%-4%8%4%6%2%10%12%3Q242Q241Q244Q233Q232Q231Q234Q223Q222Q221Q224Q213Q212Q211Q215.6%6.4%3.5%7.4%-1.0%0.3%2.7%3.4%2.8%2.4%4.4%3.2%1.6%3.0%2.8%Government spending Net exports Change in private inventories Business

15、fixed investment Residential ConsumptionSource:BEA,FactSet,J.P.Morgan Asset Management.Guide to the Markets U.S.Data are as of November 15,2024.3J.P.Morgan Asset Management The labor market,while facing challenges such as recent hurricanes and strikes,is expected to remain healthy,with continued job

16、 gains and a stable unemployment rate at close to 4%.Employment growth has moderated and may stabilize at a monthly pace of 100,000 to 150,000,consistent with moderate employment growth and a down-shift in immigration.As the labor market normalizes,so too should the inflation rate.We anticipate head

17、line PCE inflation to close the year at 2.3%,and then average 2.0%next year.Altogether,we expect real GDP to expand 2.1%year-over-year in 2025,marking its fifth consecutive year of expansion.Policy shifts cast a fog of uncertainty on the outlookThe re-election of Donald Trump and the Republican swee

18、p of Congress could lead to significant policy changes,casting a fog on the economic outlook.While the specifics and timing of potential policy shifts remain unclear,we anticipate tax cuts,higher tariffs,reduced immigration and deregulation of various sectors.On the tax front,a full extension of the

19、 Tax Cuts and Jobs Act and the potential for a lower corporate tax rate for U.S.-based production seem most likely.Slim majoritiesin the Senate and House may limit a full implementationof proposed tax measures,but there could still be someitems folded in on business tax provisions,tip incomeand the

20、cap on SALT deductions.Regardless of any tariffbudgetary offsets the administration may propose,these policies are likely to increase the deficit withoutsignificantly stimulating economic activity,adding to thenations long-term fiscal challenges.An area of potential economic concern is the incoming

21、Trump administrations stance on tariffs.President-elect Trump has proposed a 10%tariff on all imports and a 60%tariff on all Chinese goods,which could be interpreted as a bargaining tool in trade negotiations.If these tariffs were enacted as stated,they could lead to higher inflation and reduce over

22、all demand,as well as higher interest rates and a stronger U.S.dollar.According to a recent estimate by the Budget Lab at Yale,these tariffs would raise consumer prices by 1.4%to 5.1%before substitution,equivalent to the cost of$1,900 to$7,600 in disposable income for the average household.1 Additio

23、nally,severely curtailed immigration could decrease real economic growth by limiting the growth of the labor force and may cause higher inflation through higher wages.Lastly,it remains to be seen what the countervailing effect of lower regulations across various sectors is,especially the perspective

24、 for higher capital investment and hiring.If we incorporate a rough expectation of these policy changes into our economic forecasts,the outlook shifts accordingly2:Real GDP would be largely unaffected next year,buttax cut stimulus kicking in at the start of 2026 couldboost real GDP growth to 2.8%by

25、the end of 2026.Job growth would be relatively unaffected in 2025 butlabor markets would tighten.Lower labor force growthfrom less immigration would cut the unemploymentrate to 3.9%by the end of 2025.Inflation,in terms of headline PCE,could rise to 2.7%by the end of 2025 in a one-time boost from tar

26、iffsthen drift down to 2.1%by the end of 2026.The Fed could put a premature end to its easing cyclewith just three more cuts,bringing the funds rate to3.75%-4.00%by next summer and holding it there.Policy forecasts at this stage are still highly speculative,but they dont seem to spell disaster for t

27、he economy or markets in the short run.In the coming months,investors will look for greater clarity on the new administrations agenda,which will help refine the economic outlook.Until then,the economy remains on stable footing as we enter the new year,with a gradual return to normal across many fron

28、ts.However,investors should remain vigilant,considering the fragility of the economic expansion that underpins a bullish fervor in markets.1 Yale Budget Lab,“Fiscal,Macroeconomic,and Price Estimates of Tariffs Under Both Non-Retaliation and Retaliation Scenarios,October 16,2024.2 See“Policy Changes

29、and the Macro Outlook”by Dr.David Kelly for further details on these policy scenarios.4Out of the Cyclical Storm and into the Policy FogBut how low does the Fed go?In an environment of heightened uncertainty,forecasting Fed action this cycle has been difficult to say the least.The most hawkish Fed g

30、overnor expects just two more 25bps rate cuts might be sufficient,while the most dovish members expect to cut rates by a further 175bps by the end of 2025.Markets expect a more hawkish outlook with roughly 75bps of additional cuts through next year before pausing(Exhibit 2).While the Fed would like

31、to reduce rates to roughly 3.00%,a fully controlled Republican government and the potential for tariffs next year and fiscal thrust in 2026,could lead to a premature end to the cycle.Fixed income:Embracing the new,old normalThe Federal Reserve kicked off this easing cycle with a jumbo 50 basis point

32、(bp)rate cut and appears committed to continue lowering interest rates at a reduced quarter percent pace to return to neutral.At time of writing,the committee has already delivered 75bps worth of cuts,lowering policy rates from 5.25%-5.50%to 4.50%-4.75%;however,a data-dependent Fed suggests the outl

33、ook for further easing remains uncertain.What does appear certain is the committees desire to lower rates by enough to ease restriction on the economy,but not by too much to encourage inflation.This goal is,of course,very difficult to achieve,but slowing,yet stable growth and easing price pressures

34、provide runway for continued cuts through 2025.Exhibit 2:FOMC and market expectations for the federal funds rate6%5%4%3%2%1%0%Long run262422202.90%2.90%2.90%3.40%4.41%4.40%3.85%3.79%3.74%Federal funds rate FOMC year-end estimates Market expectations FOMC long-run projection*Range of FOMC estimates a

35、s of Sep.24 SEPSource:Bloomberg,FactSet,Federal Reserve,J.P.Morgan Asset Management.Market expectations are based off of USD Overnight Index Swaps.*Long-run projections are the rates of growth,unemployment and inflation to which a policymaker expects the economy to converge over the next five tosix

36、years in absence of further shocks and under appropriate monetary policy.Forecasts are not a reliable indicator of future performance.Forecasts,projections and other forward-looking statements are based upon current beliefs and expectations.They are for illustrative purposes only and serve as an ind

37、ication of what may occur.Given the inherent uncertainties and risks associated with forecasts,projections or other forward-looking statements,actual events,results or performance may differ materially from those reflected or contemplated.Guide to the Markets U.S.Data are as of November 15,2024.Mark

38、ets reflect more hawkish FOMC forecasts,signaling an early end to the cutting cycle5J.P.Morgan Asset Management While investors are likely to be myopically focused on the pace and magnitude of rate cuts next year,investors should take a step back and recognize that the Fed is still in cutting mode i

39、n 2025,with the bar to pause cuts or to raise rates set extremely high.However,if the Fed felt that the incoming administration would push through policies that lead to higher federal deficits and supply-side constraints that could boost inflation,they might consider a pause in their easing plans.Th

40、at said,getting rates to neutral appears to be top priority,suggesting its unlikely policy rates fall below 3%outside of recession.Importantly,rates have returned to the pre-Global Financial Crisis“normal”of positive real rates.Given this,reinvestment risk in short-term bonds is high and investors w

41、ill need to consider other areas of fixed income to achieve their income and return goals.Fed rate cuts tend to lead to higher rate volatility as evidenced in previous rate-cutting cycles.Moreover,we see the long end of the curve being influenced by next years fiscal policy discussions,as well as po

42、tential inflationary impacts.With that said,yields have recently backed up and we believe long-term interest rates as measured by the nominal U.S.10-year Treasury yield should be biased modestly lower from current levels(albeit with intra-year volatility).We see the 10-year yield stabilizing between

43、 3.75%-4.25%in a soft landing scenario,which remains our base case,and below 3.5%in a hard landing scenario.All things considered,the 2025 fixed income playbook is:Extend duration out of cash:After falling to 3.6%in 3Q24,long-term interest rates are comfortablyabove 4%again,giving investors another

44、bite at the“duration”apple.Even if long-term rates arepressured slightly higher by rising debt levels,thereis enough income to offset bond price losses.As theyield curve shape continues to normalize toward itssteeper slope,reinvestment risk is real on ultrashort-duration bonds.Embrace credit for the

45、 yield,not the spread:We like high-quality duration in securitized markets likeagency MBS and asset-backed securities.We alsofavor the full spectrum of corporate credit(IG,highyield,bank loans and convertible bonds).Thesesectors would benefit in a soft landing scenario andcontinue to provide attract

46、ive yields even thoughspreads remain tight.Search for value:Municipals are trading close to theircheapest levels this year and long duration municipalbonds offer meaningful tax-equivalent yield pickuprelative to Treasuries.Overall,the current backdrop suggests the new normal interest rate environmen

47、t looks a lot like the“old”normal before 2008:attractive yields,tight spreads,positively sloped yield curves and higher income.To that end,an active approach to bond investing will be key to finding attractive relative value opportunities while balancing risks with higher rates.U.S.equities:Sturdier

48、 leadership extends the bull marketThe U.S.has enjoyed a strong bull market for the past two years,with U.S.equities rallying around 60%.Economic resiliency,the start of a Fed easing cycle and the emergence of AI have been key contributors to this performance.Strong gains were mostly concentrated in

49、 the“Magnificent 7”in 2023 and the first half of 2024,but broader leadership is now emerging and should continue.Looking ahead,we expect extraordinary earnings growth will settle at still-elevated levels for mega-cap tech while reaccelerating in other areas of the market.This broadening,coupled with

50、 resilient economic fundamentals,policy tailwinds and secular trends,should support a more inclusive rally in the year ahead.Earnings outlook remains supported In 2024,earnings growth was primarily driven by profit margin expansion from the mega-cap tech names.As the inflation,wage growth and supply

51、 chain issues that plagued profitability in 2022 continue to abate,margin recovery should broaden with health care and consumer discretionary seeing notable improvement.However,the contribution to earnings from margins should normalize,and disinflation could also add some pressure by constraining pr

52、icing power.Buybacks should also remain tame as companies increasingly use excess capital to invest in their businesses rather than return it to shareholders.As such,revenue growth will be an increasingly important driver of future returns.6Out of the Cyclical Storm and into the Policy FogAltogether

53、,markets are currently expecting S&P 500 earnings growth to accelerate from 0%in 2023 to 9%this year,followed by an impressive 15%in 2025 and 13%in 2026.We expect earnings growth will be robust and more broad-based,but if GDP growth normalizes towards trend,as we expect,then consensus estimates coul

54、d be overly optimistic unless a broad-based corporate tax cut is delivered.However,any benefit from a corporate tax cut could be at least partially offset by weakness of multinational performance and a stronger dollar from proposed tariffs.If mid single-digit to low double-digit earnings growth were

55、 achieved,it would hinge upon continued economic resiliency,revenue growth and the other 493 companies pulling their weight.3Earnings breadth should drive market breadth Underneath the surface,the composition of earnings is projected to shift as well.Earnings growth for the Mag 7 is expected to dece

56、lerate to a(still solid)20%annual pace,while accelerating for the rest of the market(Exhibit 3).AI will continue to be a focal point,but the conversation is becoming more balanced with return-on-investment concerns weighed against impressive profits and cash flow generation.This is already reverbera

57、ting in a more inclusive rally.The Mag 7 accounted for 63%of S&P 500 returns in 2023,and that share has stepped down to 47%so far this year.As Mag 7 earnings growth decelerates in 2025,the rest of the market catches upExhibit 3:Pro-forma EPS,y/y-40%-60%40%0%20%-20%60%80%17%3Q25*4Q25*2Q25*1Q25*4Q24*3

58、Q24*2Q241Q244Q233Q232Q231Q234Q223Q222Q221Q2219%24%13%9%20%10%19%8%23%1%19%6%35%50%60%53%37%6%3%14%21%23%-34%-41%-37%-29%-3%-9%-6%-1%-2%Mag 7 S&P 500 ex-Mag 7Source:FactSet,J.P.Morgan Asset Management.*Numbers are forecasts based on consensus analyst expectations.Data are as of November 15,2024.Magni

59、ficent 7 includes AAPL,AMZN,GOOG,GOOGL,META,MSFT,NVDA and TSLA.Earnings estimates for 2024 are forecasts based on consensus analyst expectations.3 The other 493 companies are expected to contribute 29%of earnings growth in 2024,compared to 73%next year.7J.P.Morgan Asset Management Beneath the surfac

60、e,certain sectors are just emerging from cyclical headwinds.Industrials,energy and materials earnings have been in the doldrums with weak U.S.manufacturing activity for the past two years.But as the cost of capital declines with interest rates,consumers and companies should resume capital intensive

61、expenditures.Durable goods subsectors,particularly those tied to housing,should also see a boost.Financials should benefit from increased loan and insurance demand,a more favorable yield curve,normalizing M&A and IPO activity and prospects for deregulation,while falling rates also increase the relat

62、ive value of bond proxy sectors like utilities and real estate.Lastly,consumer sectors can likely inch along with improving household purchasing power,but heightened price sensitivity will keep non-discretionary or value-oriented companies most supported.The prospect of deregulation and corporate ta

63、x cuts may finally give investors conviction to add to previously unloved areas of the market,like value and mid/small cap stocks,which are also benefiting from earnings recovery and attractive valuations.However,volatility may be ahead should more growth-negative policies emerge,such as tariffs.Sec

64、ular spending on AI,the energy transition and diversifying supply chains are also providing sizable tailwind for the market.The“hyperscalers”are accelerating capex to upwards of$200B this year and 2025 is set to be another year of significant investment.4 This spending will benefit areas of the mark

65、et like data center real estate,engineering and construction,nuclear and renewable power,energy transmission,gas-powered electricity,cooling technologies and the electrical components that connect it all(Exhibit 4).The AI infrastructure buildout has revealed a broad set of beneficiariesExhibit 4Deve

66、lopers of AI toolsCompute providers(i.e.MSFT,AMZN,GOOG)Semiconductor chips PowerData centersDesign of advanced GPUs (i.e.NVDA)Design of less advanced chipsMemoryOther chipsChip productionChip mfg.equipmentRegulated utilitiesUtility contractorsIndependent power producersReliabilityMaintenanceComm.inf

67、rastructureConstruction and real estateElectrical equipmentData center coolingServers and networking equip.TransmissionGenerationEnd UsersInvestorsSource:Bridgewater Associates,J.P.Morgan Asset Management.Data are as of November 15,2024.4 Hyperscalers are the large cloud computing companies that own

68、 and operate data centers with horizontally linked servers that,along with cooling and data storage capabilities,enable them to house and operate AI workloads.Alphabet,Amazon(AWS),Meta,Microsoft and Oracle comprise the five major hyperscalers expected to spend$194B and$225B on capex in 2024 and 2025

69、,based on Bloomberg consensus estimates.8Out of the Cyclical Storm and into the Policy FogInternational equities:Focusing on structural rather than cyclical storiesWe began the year expecting international equities to catch up to the U.S.,given the extreme valuation discount to the U.S.,expectation

70、of a weaker dollar and the better earnings backdrop.While international equities are up a robust 7%so far in 2024,the gap with the U.S.remains significant.Additionally,with the pro-U.S.policies of the next administration,especially those that promote a stronger dollar(through higher rate differentia

71、ls and tariff uncertainty),some headwinds are increasing for international stocks.Despite coordinated stimulus leading to a 30%tactical rebound in Chinese equities in 3Q,China remains stuck in its cyclical storm.Policy will likely remain accommodative until economic momentum stabilizes,but policymak

72、ers do not seem intent on generating strong growth.Therefore,in 2025,investors may be disappointed by the scale of fiscal policy stimulus and hence overall economic growth.In the case of full implementation of President-elect Trumps tariff campaign promises,Chinese policymakers may stimulate the eco

73、nomy more forcefully;however,this remains uncertain.As a result,investors may be unwilling to pay a higher multiple for Chinese stocks after the recent rally.Pockets of opportunities do exist,particularly among private companies prioritizing shareholder returns and belonging to innovative sectors li

74、nked to business technology(automation,software)or the renewable energy and electric vehicle supply chain.Europe is also facing its own cyclical challenges.A shift in sentiment and earnings for European equities will depend largely on a rebound in China,a manufacturing upturn or stronger consumer sp

75、ending-all challenging to overcome in 2025.Additional European Central Bank(ECB)easing should eventually provide some support,especially for businesses that rely more on bank lending,but confidence and consumer spending have been slow to improve.Additionally,the eurozone may be hit by tariffs next y

76、ear,as the region struggles to provide a proactive unified response.However,sector-level discounts,combined with healthy buybacks and dividend yields,present compelling opportunities in select European companies.Meanwhile,compelling structural stories are driving impressive returns in certain market

77、s(Exhibit 5):Japan,India and Taiwan,up 7%,13%and 33%respectively.Japan,for instance,is moving out of a long period of deflation,stagnant nominal growth and negative rates.In the year ahead,reflation should support consumer spending and domestic earnings more broadly.Japans corporate governance refor

78、ms,leading to record-high buyback announcements and more M&A activity,should continue supporting flows and returns as its valuation discount fades.However,yen volatility has increased due to“yen carry trade”unwinds and higher U.S.rate expectations,hurting sentiment and equity returns.Looking ahead,y

79、en stability,which is crucial for internationally exposed companies and foreign investors,is expected to improve as Japanese interest rates normalize gradually and yen short positions close.There is risk of a more disruptive rise in U.S.10-year yields driven by deficit and inflation concerns.While C

80、hinas path ahead may be bumpy and involve trade conflicts with the U.S.,opportunities in EM ex-China remain promising.India is expected to maintain strong earnings momentum due to falling rates and robust services export growth.Recently,foreign inflows have stalled due to high equity valuations,whic

81、h have been bolstered by strong investments from domestic investors.This could eventually result in a market correction.However,there is likely a floor as the long-term investment case remains highly compelling.Furthermore,India stands out as one of the leading destinations for“friendshoring”in EM A

82、sia,potentially boosting foreign direct investment and driving growth in the manufacturing sector.Elsewhere in Asia,the tech cycle boom can continue to support Taiwanese companies,as key beneficiaries of the AI infrastructure build-out.Korean equities continue to face challenges but could eventually

83、 participate,as the cyclical tech cycle picks up and the impact of its“Value-Up”program becomes more apparent.9J.P.Morgan Asset Management India and Taiwan offer quality growth,while Japan and Korea offer value linked to corporate reformsExhibit 5:Return-on-equity and price-to-book ratio for differe

84、nt markets,last 12 months0.5x0.0 x4.0 x1.5x3.5x3.0 x2.5x2.0 x1.0 x4.5x5.0 x25%20%15%10%5%0%Trailing P/B ratioTrailing ROEHong KongKoreaJapan,2014MalaysiaJapan,CurrentThailandVietnamChina,CurrentSingaporeChina,2014South AfricaBrazilTaiwanU.S.,2014EuropeMexicoIndonesiaIndia,CurrentIndia,2014Philippine

85、sU.S.,CurrentSource:FactSet,MSCI,J.P.Morgan Asset Management.Numbers are based on MSCI indices except for the U.S.,which is based on the S&P 500 Index.ROE=return-on-equity and P/B=price-to-book.Historical data are shown for select markets to showcase progress.Data are as of November 15,2024.Lastly,M

86、exico is likely to experience continued volatility next year as the 2026 USMCA renegotiations draw near.The U.S.may intensify efforts to limit the passage of Chinese products through Mexico,particularly in the automotive sector,as well as use trade negotiations as a bargaining chip for Mexicos help

87、in managing immigration.It will be key to monitor whether the Mexican government adopts a pragmatic approach in handling these negotiations.In any case,in the longer run,its role in the“nearshoring”trend will remain critical due to its proximity with the U.S.Additionally,friendshoring can benefit So

88、utheast Asian markets as well.Looking ahead,international equities should benefit from multiple expansion and better earnings growth expectations(Exhibit 6).However,there are plenty of risks,including disappointing economic growth in China,higher U.S.10-year yields,a strong dollar,tariffs and local

89、currency volatility.In particular,the impact of tariffs on the already fragile global economy will hinge on the timing,scope and execution by the incoming U.S.administration.Increasing tariffs on China could speed up nearshoring activities,while a universal tariff could have significant repercussion

90、s for major U.S.trade partners with which it has trade deficits,including Mexico,Europe,Canada and Vietnam.Despite the risks,international equities offer investors the chance to diversify beyond expensive U.S.markets.Adopting an active approach is crucial for capturing attractive opportunities fuele

91、d by powerful long-term trends,while also skillfully maneuvering through the policy fog ahead.10Out of the Cyclical Storm and into the Policy FogEarnings growth expected to remain strong next yearExhibit 6:Next 12 months earnings per share,y/y growth-10%-5%-15%15%5%10%0%20%25%EurozoneJapanU.S.Asia e

92、x-Japan-10%-1%-7%19%13%9%15%5%14%9%8%8%2023 2024F 2025F-30%-40%10%-10%0%-20%under pressure,benefiting new fund vintages but creating challenges for legacy assets.With rates unlikely to return to 0%,we would favor small-to middle-market companies given their lower dependence on leverage for returns,w

93、hile secondaries remain an attractive way to gain instant exposure to mature assets.Dynamics in commercial real estate are improving but unevenly.Valuations across most sectors are stabilizing(Exhibit 7)and may continue to as monetary policy loosens.Fundamentally,office remains challenged while indu

94、strials and multifamily look attractive,although there are regional divergences.Nevertheless,managers with liquidity can seek quality assets at attractive prices as valuations turn the corner.Those well-positioned for shifting demand in a post-pandemic world,like data centers or logistics properties

95、,are especially compelling.Moreover,opportunistic investors may look to deploy capital as assets are brought to market by existing owners reluctant to refinance at higher rates.All that said,the outlook for real estate is murkier after the election,and it remains unclear whether a more favorable reg

96、ulatory backdrop can offset the impact of persistently higher mortgage rates.Commercial real estate valuations appear to be stabilizingExhibit 7:Property prices by sector,y/y%change30%20%010305070911131517192123 All property Office Apartment Industrial RetailSource:Apollo Global Management,Bloomberg

97、,MSCI Real Capital Analytics,J.P.Morgan Asset Management.The RCA Commercial Property Price Indices are transaction based indices that measure property prices at a national level.Data are as of November 15,2024.Source:FactSet,MSCI,J.P.Morgan Asset Management.Forecasts are from FactSet.Each country/re

98、gion is represented by its respective MSCI index except for the U.S.,which is represented by the S&P 500.Based on consensus expectations and earnings per share figures in local currency.Data are as of November 15,2024.Alternatives:Stabilizing in a shifting worldLike the broader economy,2025 should b

99、e a year of normalization in alternatives.New norms are taking hold;the democratization of alts means they should play a key role in portfolio construction for both institutions and individuals,while emerging global themes and structurally higher interest rates could reshape asset demand.Moreover,ea

100、sier monetary policy should allow activity in the most distorted markets to gradually normalize.As the Federal Reserve cuts rates,exit activity in private equity could improve.Green shoots are apparent with exit values up 51%year-over-year through 3Q245,although this is due to sellers bringing their

101、 highest quality assets to market.On a count basis,exits have only modestly recovered.Still,lower rates and better access to debt financing should help buyers and sellers find better balance.Moreover,a more business-friendly regulatory backdrop under the incoming administration should fuel a continu

102、ed recovery in exits via M&A.As lower quality deals come to market,however,valuations may come5 Calculation includes PitchBook estimates of late-reporting deals.11J.P.Morgan Asset Management provide diversification and the potential for enhanced returns.Meanwhile,investments in infrastructure and tr

103、ansportation can provide stability via steady income.Even as we usher in a new administration and policies,these assets should continue to benefit from long-term secular tailwinds such as supply chain shifts,AI infrastructure build-out and the energy transition(particularly increased electricity con

104、sumption).Given rich public market valuations,lower bond yields and positive stock/bond correlation,investors should leverage alternatives to enhance portfolio return,income and diversification.Importantly,“alternatives”is one word used to describe asset classes with a variety of different character

105、istics.They can diversify not only public market exposure,but among themselves as well.0300150450Unlike real estate,private credit has yet to see a cyclical correction.Defaults have trended higher in recent quarters but remain low,although elevated amend-and-extend activity points to a building cred

106、it cycle(Exhibit 8).Moreover,increased bank lending,which could be further boosted by deregulation in the banking industry,could force direct lenders to focus on lower quality borrowers,pressuring default rates higher.That said,while returns may retreat alongside policy rates,investors searching for

107、 enhanced yields should continue to find them in private credit.As short-term interest rates settle at more normal elevated levels and as policy uncertainty increases,volatility across financial markets could remain elevated.Both dynamics should benefit hedge funds,which can Amend-and-extend activit

108、y remains elevated Exhibit 8:U.S.leveraged loans amendments and extensions by year,count60052721310022717429322226517214720434819625444631409101112131415161718192021222324YTD Nov.2024Source:LCD,PitchBook,J.P.Morgan Asset Management.Data are as of November 15,2024.12Out of the Cyclical Storm and into

109、 the Policy FogAsset allocation:Reports of my death are greatly exaggerated The notion of“correct”portfolio construction has been challenged and diversification has become unpopular.This is because certain assets have outperformed their counterparts:stocks over bonds,growth over value and U.S.over“i

110、nternational.”As a result,many investors may find themselves“offsides,”over-allocated to past winners and underweight laggards.When thinking about portfolio construction in 2025,investors must determine what problems they are solving for:are they looking for income,capital preservation or growth?Are

111、 they tolerant of volatility or risk-averse?And is liquidity important?The answers to those questions will inform asset allocation,and both traditional and alternative assets can play a role.How these assets will perform is tied to the macro backdrop.Here,the picture is muddled:growth remains robust

112、 on the back of strong consumption and a tight labor market;core inflation is still somewhat firm;and the outcome of the U.S.election suggests significant policy changes might be in the pipeline.All of this means that the interest rate outlook may oscillate,translating into volatility across the eco

113、nomy and markets.Underneath this volatility,the opportunity set is shifting.Fixed income is arguably more attractive than in recent decades,though while allocations to intermediate bonds have increased,many investors remain underweight duration relative to the Bloomberg U.S.Aggregate.That said,those

114、 changing rate expectations suggest duration should not be overextended,and ultimately investor sentiment should inform the appropriate exposure:those concerned about the economy should extend more current rates make bonds an effective ballast against recession and those interested in income extend

115、less.The credit conversation follows a similar path:while a benign macro backdrop supports an overweight to credit,especially for total return seekers,recession fears would encourage a tightening-up on credit quality.In equities,strong earnings growth from the“Magnificent 7”over the past two years h

116、as exacerbated an already powerful period of growth outperformance,leaving investors underweight other markets.While U.S.equity portfolios seem to have equal exposure to value and growth when approached at the index level,an analysis of underlying holdings shows a 10%pt overweight to growth.Interest

117、 in foreign markets seems to have stalled,with the average allocation to ex-U.S.equities at a 12-month low.This translates into a 20%average allocation within equity portfolios to international assets,roughly half of what is considered“diversified.”These underweights are too severe:geopolitical unce

118、rtainty,currency headwinds and widening growth differentials could make strong and sustained foreign market performance illusive,though multiple expansion and improvements to earnings growth,coupled with a focus on long-term trends,should allow ex-U.S.markets to compete.Moreover,with inflation easin

119、g and borrowing costs falling,U.S.earnings growth should broaden out and will likely include value names,which as an added benefit are also attractive to income-seeking investors,especially as bond yields continue to normalize.That said,the pendulum should not swing too far:large cap U.S.growth name

120、s,including the“Magnificent 7,”still have strong secular tailwinds behind them.In other words,portfolios should be balanced.For alternatives,the outcome-oriented approach toward portfolio construction is particularly relevant,with each major component commodities,hedge funds,real assets and private

121、capital solving for one or more “problems.”This will be particularly true looking forward,with stretched valuations challenging future returns,income opportunities fading as rates fall and stock/bond correlations remaining positive in the absence of a recession,and will complement cyclical,structura

122、l tailwinds for the asset class like a normalizing rate environment.These assets will also become increasingly approachable,as technology“democratizes”access through lower minimum investments and greater liquidity.For this reason,the traditional stock/bond framework of“60/40”may be reformed into one

123、 that also includes alternative assets:a“50/30/20”portfolio,for example,with the 20%allocation to alternatives financed to varying degrees by both stocks and bonds.13J.P.Morgan Asset Management All told,while the“60/40”portfolio may not be as relevant as it once was,this is because it has evolved,no

124、t because diversification is unnecessary.In fact,as macro forces continue to shift and a bevy of potential policy changes loom on the horizon,a well-diversified long-term portfolio will be that much more important,helping to keep investors steady through turbulence and prevent them from“jumping ship

125、.”For those worried that in todays world,the“60/40”is dead,take comfort:reports of its death are greatly exaggerated,and the“new”diversified portfolio is alive and kicking.Investors are offsides in certain key sub-asset classesExhibit 9:Average allocations in moderate models,last 12 monthsLargeValue

126、LargeGrowthLargeBlendMid-CapBlendSmallBlendForeignLarge BlendEmergingMktsInt CoreBondInt Core-Plus BondShort-TermBondMultisectorBondHigh YieldBondCash30%20%15%10%5%0%25%13.47%13.11%21.34%5.56%4.31%9.36%4.42%16.14%15.44%9.09%10.10%6.23%3.31%MaximumCurrentMinimumSource:J.P.Morgan Asset Management.Note

127、 average allocations will not sum to 100 as not all categories are represented in each portfolio analyzed.“Moderate models”refers to an investment portfolio benchmarked to the 60/40 portfolio.Data as of November 15,2024.14Out of the Cyclical Storm and into the Policy FogAuthorsJordan JacksonExecutiv

128、e Director Global Market StrategistStephanie AliagaAssociate Global Market StrategistJack ManleyExecutive Director Global Market StrategistMeera Pandit,CFAExecutive Director Global Market StrategistMarina ValentiniVice President Global Market StrategistBrandon HallAssociate Research AnalystMary Park

129、 DurhamAssociate Research AnalystKatie KorngiebelAssociate Research AnalystDr.David Kelly,CFAManaging Director Chief Global StrategistGabriela Santos Managing Director Chief Market Strategist-Americas15J.P.Morgan Asset Management Index DefinitionsThe Composite PMI future output index is a gauge of e

130、conomic growth and can provide valuable insights into GDP,service sector growth and industrial production trends well ahead of official data.The Bloomberg Euro Aggregate Corporate Index is a benchmark that measures the corporate component of the Euro Aggregate Index.It includes investment grade,euro

131、-denominated,fixed-rate securities.The Bloomberg Pan-European High Yield Index measures the market of non-investment grade,fixed-rate corporate bonds denominated in the following currencies:euro,pounds sterling,Danish krone,Norwegian krone,Swedish krona,and Swiss franc.Inclusion is based on the curr

132、ency of issue,and not the domicile of the issuer.The index excludes emerging market debt.The Bloomberg U.S.Aggregate Treasury Bond Index is a broad-based benchmark that measures the investment grade,U.S.dollar denominated,fixed-rate taxable bond market.This includes Treasuries,government-related and

133、 corporate securities,mortgage-backed securities,asset-backed securities and collateralized mortgage-backed securities.The ICE BofA MOVE Index tracks fixed income market volatility.The J.P.Morgan Corporate Emerging Markets Bond Index Broad Diversified(CEMBI Broad Diversified)is an expansion of the J

134、.P.Morgan Corporate Emerging Markets Bond Index(CEMBI).The CEMBI is a market capitalization weighted index consisting of U.S.dollar denominated emerging market corporate bonds.The J.P.Morgan Emerging Markets Bond Index Global Diversified(EMBI Global Diversified)tracks total returns for U.S.dollar-de

135、nominated debt instruments issued by emerging market sovereign and quasi-sovereign entities:Brady bonds,loans,Eurobonds.The index limits the exposure of some of the larger countries.The J.P.Morgan GBI EM Global Diversified tracks the performance of local currency debt issued by emerging market gover

136、nments,whose debt is accessible by most of the international investor base.The J.P.Morgan Leveraged Loan Index is designed to mirror the investable universe of U.S.leveraged loans.The MSCI ACWI(All Country World Index)is a free float-adjusted market capitalization weighted index that is designed to

137、measure the equity market performance of developed and emerging markets.The MSCI EAFE Index(Europe,Australasia,Far East)is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets,excluding the US&Canada.The MSCI Emerging Market

138、s Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.The MSCI Europe Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe.The M

139、SCI Pacific Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the Pacific region.The MSCI World with USA Gross Index measures the performance of the large and mid-cap segments across 23 Developed Markets(DM)countries.With 1,540 consti

140、tuents,the index covers approximately 85%of the global investable equity opportunity set.The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000.The Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book r

141、atios and lower forecasted growth values.The S&P 500 Index is widely regarded as the best single gauge of the U.S.equities market.The index includes a representative sample of 500 leading companies in leading industries of the U.S.economy.The S&P 500 Index focuses on the large-cap segment of the mar

142、ket;however,since it includes a significant portion of the total value of the market,it also represents the market.The U.S.Treasury Index is a component of the U.S.Government index.All indexes are unmanaged and an individual cannot invest directly in an index.Index returns do not include fees or exp

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