EYE ON THE M ARKET • M I CHAEL CEMB AL EST • J .P . MORG A N L ast u p dat e d 10/ 5/2 020

INVESTMENT AND INSURANCE PRODUCTS:

• NOT A DEPOSIT • NOT FDIC INSURED • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY • NO BANK GUARANTEE • MAY LOSE VALUE

1

[3] Central Bank and Federal Gov’t monetary/fiscal stimulus; equity and fixed income valuations; COVID and the unfunded obligations of US states; a history of market bottoms The first table itemizes monetary and fiscal stimulus unleashed by the Federal Reserve and other Central Banks this year, measured as Central Bank liquidity provisions, new fiscal stimulus programs and rates cuts. For context, new fiscal stimulus and total fiscal deficits in the US are roughly double the levels seen in 2008-2009, and the US fiscal deficit we project for 2020 of 15%-18% is only matched by deficits seen at the height of WWII in 1942-1943.

The amount of stimulus and support from the Fed for markets cannot be fully captured by the table above. To do that, one would have to add up all of the Fed’s Asset Purchase commitments, Direct Lending programs and Guarantee/Backstop programs as well: that amounts to around $8 trillion. See page 7 for details on the ECB.

Monetary and fiscal stimulusCentral Bank potential

liquidity injectionCentral Bank potential

liquidity injectionNew Govt fiscal

stimulusNew Govt fiscal

stimulus Rate cutsCountry US$ trillions GDP % US$ trillions GDP % basis points

United States $6.21 29.0% $3.30 15.4% -150Eurozone $1.10 8.3% $2.83 21.2%Japan $0.75 14.6% $0.99 19.2%United Kingdom $0.25 9.0% $0.14 5.1% -65China $1.44 10.0% $0.68 4.7% -100Others $0.68 $2.09Total $10.43 12.0% $10.03 11.6%Source: Cornerstone, JPM Economic Research. May 06, 2020. Others include: RoW, Asian Development Bank, IMF, World Bank.

Targeted Sector & Policy Asset Purchases Direct Lending Guarantee/BackstopGovernmentQE Treasury Purchases $2,200Commercial Paper Funding Facility (Muni CP) $30HouseholdsQE MBS Purchases $1,000TALF (Consumer ABS Purchases) $100BusinessesCommercial Paper Funding Facility (Non-Fin Corp CP) $240Primary Market Corporate Credit Facility $500 NewSecondary Market Corporate Credit Facility $250 NewPaycheck Protection Program Lending Facility $350 NewMunicipal Liquidity Facility $500 NewMain St Loan Facility $600 NewFinancials/LiquidityRepo Operations $200Commercial Paper Funding Facility (Fin + ABCP) $640Money Market Mutual Fund Liquidity Facility $1,400Total by type of program $3,900 $1,800 $2,310Cumulative Total $8,010

Source: Bridgew ater, J.P. Morgan Asset Management. April 2020.

Federal Reserve Programs to Support Credit (US$, Billions)

Other Fed facilities include the revival of the Primary Dealer Credit Facility for broker-dealers, and FX swap lines for developed and developing economy central banks.

EYE ON THE M ARKET • M I CHAEL CEMB AL EST • J .P . MORG A N Coronavirus

2

Measuring the Fed’s ability to alleviate a credit crunch. Spread increases were in many cases much smaller than in 2008, which reflects improvements in the plumbing and capitalization of the banking sector. Furthermore, the explosion of Fed liquidity this time around contributed to substantial rallies in spread markets. The table shows the % of spread widening that has been recovered so far.

Below, we show four spread markets with the weakest recoveries relative to pre-COVID conditions.

100

105

110

115

120

125

Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10

Source: St Louis Fed, J.P. Morgan Asset Management. September 21, 2020.

Faster growth in the money supply this time aroundM2 money supply + institutional money market fund balances, index

Global Coronavirus crisis

Global Financial Crisis

Recovery from peak spread since JanuarySpread % recoveredAAA asset backed credit card - Treasury 99%US asset backed commercial paper - 3 month Treasury 99%AAA asset backed prime auto - Treasury 98%3 month LIBOR - 3 month forward Fed Funds rate 97%AAA asset backed CMBS - Treasury 96%3 month LIBOR - 3 month Treasury (TED spread) 94%Financial investment grade corporates - Treasury 84%US investment grade corporates - Treasury 82%Non Financial investment grade corporates - Treasury 81%Leveraged loan price index 81%US High Yield corporates - Treasury 74%Emerging markets dollar denominated bonds - Treasury 69%Fixed rate preferred securities option adjusted spread 68%30 year fixed rate mortgage - 10 year Treasury 64%US BB - BBB corporates 62%

Source: Bloomberg. October 02, 2020.

HY energy

200400600800

1,0001,2001,4001,6001,8002,0002,200

'95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19

Source: Bloomberg, J.P. Morgan HY Team. October 02, 2020.

US high yield corporate bond spreadsJPDFHYI index spread versus Treasury, basis points

100

150

200

250

300

350

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20Source: Bloomberg, J.P. Morgan. October 02, 2020.

30 year fixed rate mortgage - 10 year Treasurybasis points

0

200

400

600

800

1,000

1,200

1,400

1,600

2000 2004 2008 2012 2016 2020Source: Bloomberg, J.P. Morgan. October 02, 2020.

Fixed rate preferred securities option adjusted spreadP0P1 index, basis points

60

65

70

75

80

85

90

95

100

105

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020Source: S&P/LSTA, Bloomberg. October 04, 2020.

Leveraged loan price indexSPBDALB index

EYE ON THE M ARKET • M I CHAEL CEMB AL EST • J .P . MORG A N Coronavirus

3

Equities

Valuations1. The first two charts below show P/E ratios relative to 2021 consensus earnings, which we believe is a more useful way to think about valuation.

The P/E ratios shown above are based on consensus earnings forecasts for 2021, which so far have declined by ~20% since February 1, and which are still around or slightly below 2019 actual levels. As a result, the P/E ratios above are understated if 2021 earnings undershoot the levels shown below.

1 Our Europe P/E chart starts in 2006. Before 2006, IFRS required European companies to amortize goodwill, and the amounts involved were at times substantial. As a result, pre-2006 P/E multiples for Europe are not exactly comparable to post-2006 multiples.

8x10x12x14x16x18x20x22x24x26x

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

S&P 500 price/earningsPrice / forward 2 year earnings per share

Source: Bloomberg, J.P. Morgan. October 02, 2020.

6x

8x

10x

12x

14x

16x

18x

'06 '08 '10 '12 '14 '16 '18 '20

Stoxx Europe 600 price/earningsPrice / forward 2 year earnings per share

Source: Bloomberg, J.P. Morgan. October 05, 2020.

% change since Feb 1: -16% 2021 EPS vs 2019 EPS: 2%

$158

$163

$168

$173

$178

$183

$188

$193

Jan '20 Mar '20 May '20 Jul '20 Sep '20

S&P 500 2021 EPS forecasts

Source: Datastream, J.P. Morgan. September 30, 2020.

% change since Feb 1: -24% 2021 EPS vs 2019 EPS: -7%

€23

€24

€25

€26

€27

€28

€29

€30

Jan '20 Mar '20 May '20 Jul '20 Sep '20

Stoxx Europe 600 2021 EPS forecasts

Source: Datastream, J.P. Morgan. September 30, 2020.

EYE ON THE M ARKET • M I CHAEL CEMB AL EST • J .P . MORG A N Coronavirus

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You can also see the impact of ample liquidity on rising P/E multiples of COVID “victim” sectors (gold line and bars in the charts below). The performance of the resilient blue sectors makes sense to me, and they represent around 2/3 of S&P 500 market cap. But the recovery of the victim sectors is pricing in an even more rapid recovery than the one occurring now, and suggests that many investors are searching for any possible return now that cash and bond yields have been eviscerated (again) by the Fed.

Valuation dispersion and the opportunity for stock pickers

In March there was a large spike in pairwise stock correlations, and in the dispersion of valuations across the entire market and within sectors. A spike can either mean a huge greed-based valuation gap between the most expensive stocks and the rest (i.e., tech bubble in 1999), or a huge fear-based valuation gap between the cheapest stocks and the market (i.e., recent selloff in airlines, cruise ships, energy and other distressed cyclicals). These valuations are based on pre-virus expectations, a lot of which will change due to changes in consumption, possible changes in buyback policy subject to bailout provisions and other lingering effects of the virus. Even so, market pricing is creating opportunities for investors to underwrite business models at some of the lowest valuations on record.

+12.3%

-14.8%

50

60

70

80

90

100

110

120

130

01/01 01/31 03/01 03/31 04/30 05/30 06/29 07/29 08/28

Tech, CommServices, Utilities,Health Care, Staples,and Amazon

Discretionary ex-Amazon, Energy,Financials, Industrials,Materials, REITs

Source: Factset, J.P. Morgan Asset Management. September 21, 2020.

YTD S&P 500 sector returnsIndex, Jan 1 = 100

P/E on January 1 P/E on

January 1P/E today P/E today

0x

5x

10x

15x

20x

25x

Tech, Comm Services, Utilities,Health Care, Staples, and AMZN

Discretionary ex-AMZN, Energy,Finan, Industrials, Materials, REITs

Source: Factset, J.P. Morgan Asset Management. September 22, 2020.

Change in P/E since January 1P/E based on consensus 2021 forward EPS, median company

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19Source: JPMAM Equity Research. September 25, 2020.

S&P 500 pairwise correlation of stock returns

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1995 2000 2005 2010 2015 2020Source: J.P. Morgan Asset Management. September 28, 2020.

Spread of cheapest versus most expensive stocks within each industry, (forward P/E of most expensive stocks -forward P/E of cheapest stocks) / forward P/E of market

North America

Global

EYE ON THE M ARKET • M I CHAEL CEMB AL EST • J .P . MORG A N Coronavirus

5

Special topics: COVID‘s impact on state finances and the Chapter 9 debate

In our May 4th Eye on the Market, we analyzed the potential impact of COVID on state unfunded obligations due to falling discount rates, falling revenue collections and falling portfolio valuations. Estimated COVID impacts were small for less indebted states, and larger for more highly indebted states, as you would expect. The first few bars on the left appear unsustainable from a long term public policy perspective, but this was the case before COVID as well. As a reminder, this analysis focuses on state resource adequacy for meeting unfunded long-term obligations, and is separate from the question of whether rainy day funds plus the Fed’s new Municipal Liquidity Facility are adequate to fund 2020 state operating deficits.

Since we began this project in 2014, we have argued that states should have access in emergency to Chapter 9 bankruptcy provisions, for the following reasons: fair treatment of all creditors, particularly across generations of workers; the ability to make choices regarding allocations to bondholders, retirees and discretionary spending on infrastructure/education in a way that balances the needs of all state constituents in case of dire fiscal distress; and to avoid what Federalists argue is an unconstitutional irrevocable obligation due by the state, whose existence is proscribed by the Federal bankruptcy code.

There’s a “State’s Rights” argument as well (see contrasting views in the Eye on the Market), but I’m a Federalist on this issue and agree with former FDIC Chairman William Isaac who said this in 2016 when discussing Illinois:

"The city of Chicago and the state of Illinois should act now to restructure their liabilities and put the fiscal mess behind them. This can be accomplished by utilizing Chapter 9 and other tools Congress just gave Puerto Rico. The process would entail about two years of unpleasant headlines, but the city and the state will rebound far sooner and less painfully than if they stay on their current paths".

Isaac’s comments were not the first on the need for Chapter 9 for states. Legal scholars at the University of Chicago began writing about it in the early 1990’s, and U Penn Law Professor and bankruptcy expert David Skeel2 has been writing about the need for Chapter 9 for states for over a decade.

2 David has also published a must-read article on the need to flatten the bankruptcy curve given the massive wave of corporate bankruptcies expected to occur. Critical needs include allowing simultaneous prepackaged bankruptcies, government provision of DIP financing to failing firms and a lot more temporary bankruptcy judges. “Bankruptcy and the Coronavirus”, David Skeel (U Penn), Brookings Economic Studies, April 2020.

0%

10%

20%

30%

40%

50%

60%

IL NJ HI

CT

KY MA

MD

WV

DE AK PA CA TX GA

SC ME

MT RI

MO VT NY AL CO LA WA

NM NH

MS

NV

NC VA OR AR KS WI

UT MI

OK IN FL MN TN AZ IA SD WY

OH ID NE

ND

COVID -19 impact

REVISED: What states would have to pay assuming a 6% plan return and 30year level dollar amortizationCURRENT: What states are currently paying

Source: J.P. Morgan Asset Management, State Annual Financial Reports, Moody's. FY 2017. April 29, 2020.

The cost of unfunded pensions and retiree healthcare as a % of state revenues% of state revenues required to pay the sum of interest on net direct debt, the state's share of unfunded pension and retiree healthcare liabilities, and defined contribution plan payments

EYE ON THE M ARKET • M I CHAEL CEMB AL EST • J .P . MORG A N Coronavirus

6

Special focus: what is the ECB doing?

In June the ECB expanded its Pandemic Emergency Purchase Program (PEPP) from €750 billion to €1,350 billion. The ECB announced the Pandemic Emergency Purchase Program (PEPP) back in March, when it agreed to buy up to €750 billion in public and private-sector securities until the end of the year. This program complements the Asset Purchase Program (APP), which has also been further expanded by €120 billion.

In addition, the ECB agreed to further ease the conditions of its TLTRO III program (targeted longer term refinancing operations), which provides banks long-term financing at attractive rates. For the period between June 2020 and June 2021, banks meeting their lending targets can borrow from the ECB at -1%, which corresponds to a -0.5% net interest margin for the ECB. Moreover, to further enhance lending, the ECB has announced a new series of seven refinancing operations (LTRO) with maturities of around one year at -0.25%. Unlike in the past, when ECB liquidity was mainly used by peripheral countries to offset credit crunches faced by the weakest banks, today banks in both EU core and peripheral countries are taking advantage of the ECB’s attractive lending terms. Banks are likely to use the ECB’s funds to provide government-guaranteed loans, making it possible for banks to lend with less risk while governments can avoid issuing bonds in the short term. Unlike in the US, where firms can receive grants and households receive direct cash transfers, the European model of providing stimulus through banks allows only entities that choose to borrow to receive access to credit, which must eventually be repaid.

As the chart below shows, ECB policy support led to a record level increase in loans to non-financial corporations in March/April.

2020 current and projected ECB Balance Sheet size - EUR billions2018 2019 6-Jul Sep Dec Mar Description

Liquidity measures for banks 1,592 1,650 1,750 1,850 Targeted longer-term refinancing operations and bridging refinancing operations

Asset purchases 3,179 3,663 4,153 4,513

Pandemic Emergency Purchase Program 366 750 1,150 1,450 New Pandemic Emergency Asset Purchase Programme of private & public sector securities, not subject to the 33% issuer limit*

ABS and Covered Bonds Purchase Program 316 323 329 332 Public Sector Purchase Program 2,242 2,318 2,387 2,435 Corporate Bonds Purchase Program 255 272 287 296 Cash & other securities 1,465 1,465 1,465 1,465 Balance Sheet size 4,669 4,644 6,236 6,778 7,368 7,828 Source: J.P. Morgan Securities. July 06, 2020. *Maximum share of an issuer's outstanding securities that the ECB can buy.

Existing Asset Purchase Programs, expanded by EUR 120 billion for COVID-19

-60-40-20

020406080

100120140

2003 2005 2007 2009 2011 2013 2015 2017 2019

Euro area bank lending to non-financial corporationsEUR billions, monthly flows

Source: European Central Bank. July 2020.

EYE ON THE M ARKET • M I CHAEL CEMB AL EST • J .P . MORG A N Coronavirus

7

Special focus: what are European Governments doing?

Following a long negotiation, on July 21st the EU has reached an agreement on both the recovery fund and the budget settlement for 2021-2027. The European Commission will borrow €750 billion on behalf of the European Union, of which €390 billion will be provided in the form of grants to member states most affected by the pandemic and €360 billion will be made available as loans. Back in May, France and Germany proposed to split the recovery fund between €500 billion in grants and €250 billion in loans. The shift in the composition of the recovery fund, with a higher allocation to loans, has been an important element that lead more conservative member states (like the Netherlands, Austria, Denmark, and Sweden) and higher debt countries (Southern Europe) to agree on the deal. Moreover, member states agreed to insert “an emergency brake” to temporarily stop transfers of money from the recovery fund if an EU state was seen as not meeting reform conditions tied to the money.

These funds will add to the European Commission €1.1 trillion long term budget and to the €540 billion package endorsed in April to provide, mainly in the form of loans, a safety net for workers, businesses and member states. To finance the necessary investments, the Commission will issue bonds on the financial markets on behalf of the European Union; the funds will be channeled through EU programs and will be repaid through EU revenues between 2029 and 2058. The Commission proposed to finance part of the repayment of the funds raised through a series of new taxes, including a carbon tax, a digital tax and a tax on non-recycled plastics and to prioritize investments in climate change and digital transformation.

The proposal marks an important advance on the future of the European Union and greater burden-sharing, reducing the pressure on the ECB to keep the monetary union afloat. However, its slow speed of implementation (as funds will be disbursed only in the fall) has raised concerns over the already limited European response to the crisis. The first chart below shows how the hit to growth in the EU is similar to the US, but EU fiscal responses have been smaller so far. The recovery fund aims to help peripheral economies which have been damaged the most by the COVID-19 crisis. As the second chart shows, equities in Italy and Spain in May were trading at record-low valuations compared to the rest of Europe and the Eurozone.

-35%-30%-25%-20%-15%-10%-5%0%5%

10%15%

US Europe Germany France Italy Spain

Fiscal stimulus impactGrowth direct hit from COVIDGrowth additional hit absent stimulus

Source: Bridgewater . May 20, 2020. Excludes recovery fund.

Economic hit of COVID-19 vs fiscal policies impactGDP level, next 12m vs 2019

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

2005 2007 2008 2010 2012 2014 2016 2018 2020

Source: Bloomberg, J.P. Morgan Asset Management. October 2020.

Italy and Spain PE discount vs the Eurozone and EuropeMSCI Italy&Spain vs MSCI EMU and Europe P/E, 12m fwd earnings

Europe

Eurozone

EYE ON THE M ARKET • M I CHAEL CEMB AL EST • J .P . MORG A N Coronavirus

8

Special topics: A history of market bottoms

A history of asset prices bottoming before associated defaults, bank failures and delinquencies started to improve. In the first and third rows, spreads peaked well before defaults and delinquencies did; in the middle row, banks stocks bottomed long before bank failures stopped rising.

Note: SCA in the financial crisis stock price chart refers to the implementation of the 2009 Supervisory Capital Assessment Program on US banks.

0

50

100

150

200

250

300

0

200

400

600

800

1,000

1,200

1987 1988 1989 1990 1991 1992 1993

Source: J.P. Morgan Securities LLC. 2020.

Savings and Loan CrisisSpread-to-worst # of Issuers

High Yield credit spreads

Cumulative HY corporate defaults

55%

0

50

100

150

200

250

300

350

400

450

500

0

200

400

600

800

1,000

1,200

1999 2000 2001 2002 2003 2004

Source: J.P. Morgan Securities LLC. 2020.

Tech collapseSpread-to-worst # of Issuers

High Yield credit spreads

76%

Cumulative HY corporate defaults

0

50

100

150

200

250

0

500

1,000

1,500

2,000

2,500

2006 2007 2008 2009 2010 2011 2012 2013

Source: J.P. Morgan Securities LLC. 2020.

Financial crisisSpread-to-worst # of Issuers

30%

High Yield credit spreads

Cumulative HY corporate defaults

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

0

50

100

150

200

250

300

350

400

Jan-29 Oct-29 Aug-30 Jun-31 Apr-32 Feb-33 Dec-33

Dow Jones Industrial Average

Cumulative Bank Failures

The Great Depression: Equity market vs. bank failuresIndex level Total institutions

Source: FDIC, Bloomberg. 2020.

48%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

40

50

60

70

80

90

100

110

120

Mar-88 May-89 Jun-90 Jul-91 Aug-92 Sep-93 Oct-94

S&P 500 Bank Index

Cumulative Bank Failures

Savings and Loan Crisis: Bank stocks vs. bank failuresIndex level

Source: FDIC, Bloomberg. 2020.

Total institutions

63%

0

100

200

300

400

500

0

50

100

150

200

250

300

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

SCA

Financial crisis: Bank stocks vs. bank failuresIndex level

Source: FDIC, Bloomberg. 2020.

Total institutions

S&P 500 Bank Index

8%

Cumulative Bank Failures

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0

200

400

600

800

1,000

1,200

1,400

1,600

2006 2007 2008 2009 2010 2011 2012 2013 2014

AAA CMBS Spread

60+ delinquency rate

CMBS spreads vs. delinquency rates: 2006 to 2014AAA CMBS Spread (basis points) 60+ day delinquency rate

Source: Trepp, J.P. Morgan Securities LLC. 2020.

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

60

65

70

75

80

85

90

95

100

105

2006 2007 2008 2009 2010 2011

Leveraged Loan prices vs. defaults: 2006 to 2011Price index Default rate

Defaults over trailing 12 months

Leveraged LoanPrice Index

Source: J.P. Morgan Securities LLC, Standard and Poor's, S&P/LSTA Leveraged Loan Index. 2020.

EYE ON THE M ARKET • M I CHAEL CEMB AL EST • J .P . MORG A N Coronavirus

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Some history of unemployment as a lagging indicator for investors, both in the US and in Europe. When the bottom does occur, I expect it to be consistent with prior cycles in the US and Europe in which markets bottomed well before unemployment levels started to decline. Look at the stagflation era of the 1970’s; equities bottomed when unemployment was just starting to rise. The tech collapse, in which peak unemployment closely coincided with the market bottom, was the exception.

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

65

70

75

80

85

90

95

100

105

110

1973 1974 1975 1976 1977 1978

Hd

d

S&P 500 Level

Unemployment rate

1970's stagflation crisisIndex level (30-day moving average) Unemployment rate

Source: Bloomberg, BLS. 2020.

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

100

110

120

130

140

150

160

170

1981 1982 1983 1984

S&P 500 Level

Unemployment rate

1980's inflation / housing crisisIndex level (30-day moving average) Unemployment rate

Source: Bloomberg, BLS. 2020.

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1999 2000 2001 2002 2003 2004 2005 2006

S&P 500 Level

Unemployment rate

Tech collapseIndex level (30-day moving average) Unemployment rate

Source: Bloomberg, BLS. 2020.

4%

5%

6%

7%

8%

9%

10%

11%

700

900

1,100

1,300

1,500

1,700

1,900

2007 2009 2010 2011 2013

S&P 500 Level

Unemployment rate

Financial crisisIndex level (30-day moving average) Unemployment rate

Source: Bloomberg, BLS. 2020.

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

50

70

90

110

130

150

170

190

210

230

1972 1973 1974 1975 1976 1977 1978Source: Bloomberg, Federal Reserve Bank of St. Louis. 2020.

UK equity market and unemployment rate in the 1970'sIndex level Unemployment rate

UK equity market

Unemployment rate

9.5%

10.0%

10.5%

11.0%

11.5%

12.0%

12.5%

225

250

275

300

325

350

2010 2011 2012 2013 2014

Source: STOXX, Eurostat. 2020.

European equities and unemployment rate during global financial crisis, Index level Unemployment rate

STOXX European Broad equity index

Eurozone unemployment rate

EYE ON THE M ARKET • M I CHAEL CEMB AL EST • J .P . MORG A N Coronavirus

10

Equities vs the recovery in GDP: on average, equities lead the GDP rebound by 4-8 months

This final table summarizes the results of all of our market bottom analyses

17.8

18.0

18.2

18.4

18.6

18.8

19.0

40

42

44

46

48

50

52

May-57 Jul-57 Sep-57 Dec-57 Feb-58 May-58 Jul-58 Oct-58 Dec-58

Source: BEA, Shiller. April 2020.

Eisenhower recessionIndex level US GDP, Index 2012 = 100

S&P 500

GDP

34.0

34.5

35.0

35.5

36.0

36.5

37.0

37.5

38.0

60

70

80

90

100

110

120

Jun-73 Dec-73 Jun-74 Dec-74 Jun-75 Dec-75 Jun-76 Dec-76

Source: BEA, Shiller. April 2020.

Stagflation eraIndex level US GDP, Index 2012 = 100

S&P 500

GDP

41.8

42.1

42.4

42.7

43.0

43.3

43.6

100

110

120

130

140

150

160

170

Oct-80 Apr-81 Oct-81 Apr-82 Oct-82 Apr-83 Oct-83

Source: BEA, Shiller. April 2020.

S&P 500

GDP

1980's double-dip recessionIndex level US GDP, Index 2012=100

93

94

95

96

97

98

99

100

101

102

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

May-07 May-08 May-09 May-10 May-11 May-12 May-13

Source: BEA, Shiller. April 2020.

S&P 500

GDP

Global financial crisisIndex level US GDP, Index 2012=100

Market appreciation during times of ample economy-wide distressDate Market Rallied By From Before Action1932 Dow Jones 67% Lowest Level Bank Failures Reached 75% of eventual total1957 US Equities 4% Lowest Level GDP Bottomed1974 US Equities 25% Lowest Level GDP Bottomed1974 US Equities 35% Lowest Level Unemployment Peaked1982 US Equities 26% Lowest Level GDP Bottomed1983 US Equities 27% Lowest Level Unemployment Peaked1990 US High Yield 350 bps Widest Spread HY Defaults Reached 75% of eventual total1990 S&P Bank Index 90% Lowest Level Bank Failures Reached 75% of eventual total2002 US High Yield 0 bps Widest Spread HY Defaults Reached 75% of eventual total2003 US Equities 17% Lowest Level Unemployment Peaked2008 US High Yield 1177 bps Widest Spread HY Defaults Reached 75% of eventual total2009 US Equities 24% Lowest Level GDP Bottomed2009 S&P Bank Index 180% Lowest Level Bank Failures Reached 75% of eventual total2009 AAA CMBS 975 bps Widest Spread Deliquency rates Reached 75% of max deliquency rate2009 Leveraged Loans 6% Lowest Level Defaults Reached 75% of max default rate2009 US Equities 33% Lowest Level Unemployment Peaked2012 European Equities 33% Lowest Level Unemployment Peaked

Sources: Spreads measured in basis points. STOXX, Eurostat, FDIC, Bloomberg, J.P. Morgan Securities, BLS, Trepp, Standard & Poor's, S&P/LSTA Leveraged Loan Index , BEA, Shiller , JPMAM. 2020.

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