There’s a lot to worry about in the markets right now.
You have tumbling oil prices, weak global growth and geo-political issues like Britain’s referendum in June about whether the UK will leave the European Union or not.
However, JP Morgan Asset Management released its quarterly “
Guide to the Markets” report and outlined four key things that investors should be concerned about over the next three months.
According to JP Morgan Asset Management’s Chief Market Strategist for Europe, Stephanie Flanders, the world has changed a lot since January and investors need to refocus on the four key concerns above.
“With growth worries lingering on both sides of the Atlantic and the corporate earnings picture still subdued, the tradeoff between risk and reward is much less attractive now than in earlier stages of the cycle, at least for equities,” said Flanders in a statement sent to Business Insider.
“The case for riskier parts of the fixed income market looks stronger, given that many of these bonds are now priced for a recession that we do not think is imminent. But overall, it probably makes sense for investors to have a more balanced portfolio than in earlier stages of the bull market and to lower their expectations for overall returns.”
Here are the four key concerns JP Morgan Asset Management highlights:
A reprieve from central banks — and different focus for investor concern: Investors started the year worried about falling markets in China, further falls in the oil price and a potentially premature rate rise by the Fed. Now the concerns are slowing consumption growth in the US and Europe and rising core inflation in the US.
Uphill battle for returns bolsters the case for adding alternatives: Continued record low bond yields and a maturing equity bull market are keeping the prospective returns on traditional assets low, making it a good time for investors to explore less correlated sources of return.
Brexit and beyond — political risk is creating a ‘wait and see mode’: Uncertainty around the upcoming EU referendum has already had an impact on UK corporate investment, the value of the currency and short term market interest rates. A vote to leave the EU could halve the growth rate over the next year and have a noticeable effect on activity in Europe.
Markets are from Mars, economies are from Venus: Equity markets have become disconnected from the performance of the economy recently, with main indices in the US and Europe disproportionately damaged by bad news from manufacturing and energy and slow to benefit from consumer-led growth. This may be about to change but it’s a cautionary tale for index-based investors.
If you want to see the full slidedeck, check it out here.