US Equity Strategy FLASH - · PDF fileUS Equity Strategy FLASH Still an impasse ... ultimately becomes a question of binary risk—a default or not. ... LMT, TRV, BSX, PEP, DO, EW,

www.jpmorganmarkets.com

North America Equity Research11 October 2013

US Equity Strategy FLASHStill an impasse (and slightly worse). But also reasons not to sell. 15 ideas.

Portfolio Strategy

Thomas J Lee, CFA AC

(1-212) 622-6505

[email protected]

Bloomberg JPMA TLEE <GO>

Joseph Abboud

(1-212) 622-5598

[email protected]

Katherine C Khor

(1-212) 622-0934

[email protected]

J.P. Morgan Securities LLC

See page 22 for analyst certification and important disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Equity markets are up modestly from the start of the government shut-down (with a bit of drama in between, given a 2.3% peak-to-trough decline). While multiple scenariosexist, the only one with severe consequences (and hence, an impact to our thesis) remains that of a default on U.S. debt of a substantial duration. In other words, thisultimately becomes a question of binary risk—a default or not. In our view, the probability of this is not sufficient to warrant a change to our thesis. Thus, despite the likelihood of volatility in the next few weeks, we maintain our expectation for an eventual Fall/Winter S&P 500 rally to 1775 by year-end. Several reasons keep us holders (albeit cautious), rather than sellers of equities:

#1: Economic momentum remains solid, both in Europe and the U.S. (housing and autos). We can see this in the improvement in earnings over the past cycle. As shown on Figure 4, S&P 500 EPS (next 12 months) is expected to exceed 2007’s peak EPS by 25%. By comparison, equity prices are only 8% above their 2007high. In other words, 17% of the incremental EPS gains are not yet reflected in valuations.

#2: Investor positioning, as measured by hedge-fund beta and mutual-fund beta (the tracking difference between portfolio value vs. S&P 500 moves), is similar to August 2011 levels (see Figure 5 and Figure 6). In other words, both hedge-funds and mutual-funds have shifted their risk-weightings to levels that match the last "debt-ceiling" event. To be fair, in 2011, August did not mark the end of uncertainty, as the threat of a ratings downgrade and the anxiety over the outcome of the Supercommittee (scheduled to conclude in Nov 2011) meant that markets still fell for another 2 months. In 2013, Washington could also add uncertainty by establishing a new deadline, but we would argue that even if this is the case, the downside risk is mitigated this time as we do not have the specter of losing our AAA credit rating.

#3: 3Q earnings should be solid. We also expect 3Q earnings to be a positive catalyst in coming weeks with EPS set to expand in high-single digits—the best growth seen since 1Q12. Already top-line growth has been showing steady improvement since 3Q12 (trough), particularly if investors see through the drag created by the Energy sector (down double-digits). Given the industrial productionand manufacturing lifts seen in both the US and Europe, we would also expect cyclical visibility to improve. We plan to have a more detailed preview of 3Q results in the coming weeks.

#4: A curious list of industries has led the S&P 500 since the start of the shutdown, suggesting markets see mitigated risks to the economy. As shown on Figure 9, among the 10 best groups have been Diversified Consumer services(420bp, really just HRB), Airlines (400bp), Healthcare Technology (270bp), PCs(250bp), Thrifts (190bp) and Energy Equipment (140bp). There have been traditional Defensive groups as well, such as Household Products (180bp) and Food Retailing (160bp). The point is that cyclically-sensitive groups leading during a shut-down, in our view, is evidence that equity markets are sensing a lower probability of the “tail event” of a full-blown US default.

Source: J.P. Morgan and FactSet, Bloomberg

Performance:

S&P 50010/10/13

1,693

Def10/10/13

114

Cycl10/10/13

118

100

105

110

115

120

125

1,400

1,450

1,500

1,550

1,600

1,650

1,700

1,750

12/12 2/13 4/13 6/13 8/13 10/13 12/13

100=

star

t of y

ear

S&P 500 (LHS) Defensives (RHS)

Cyclicals (RHS)

4Q12 1Q13 2Q13 3Q13 QTD YTD

S&P 500 -1% 10% 2% 5% 1% 19%

Cycl (Mat,IT,Disc,Ind) 0% 8% 2% 8% 0% 18%

Near Cycl (Ener,Fin) 1% 10% 3% 3% 1% 19%

Def (Stpl,HC,Tel,Util) -3% 12% -0% 0% 1% 14%

Valuation:

2013E 2014E

S&P500 Level 1693 —

EPS Estimate $110 $120

P/E (current) 15.4x 14.1x

Div Yield 2.1% 2.3%

S&P500 Year-End Targets:

Current 1775 —

P/E (Y+1) — 14.8x

Sector Ratings:

Overweight Neutral

Materials Telecom

IndustrialsDiscretionary Underweight

Technology Staples

Financials UtilitiesEnergy

HealthCare

2


Thomas J Lee, CFA(1-212) [email protected]

MARKET STRATEGY: 15 stocks with outperforming style factors: consensus support; "pure growth”; low short interest. As noted above, we are incrementally cautious, but still do not see sufficient reason to sell equities here (but vigilance is key). We have identified 15 stocks that have recently benefited from outperforming style factors. These factors, Pure Growth, Low Short Interest and Most Liked (Consensus support), have outperformed the broader market by 100bp/70bp/60bp, respectively. We also selected stocks that are rated OW by JPM analysts and have at least 10% upside to JPM price targets. The tickers are: VRTX, ALXN, AMT, ZTS, A, GOOG, MA, DLPH, BA, TWX, HD, CMCSA, NBL, EBAY and AAPL.

3



Figure 1: Relevant Sector ETFsSingle Beta ETFs based on S&P 500, Double Beta & Telecom on DJ

Indices

Source: J.P. Morgan and FactSet.

Figure 2: Summary Statistics – S&P 500 ETFs

Source: J.P. Morgan, FactSet, and Bloomberg. Note: Sector data is for S&P 500 sectors.

Figure 3: Potential Catalysts


Negative Beta Positive Beta

Double Single Double

DUG Energy XLE DIG

SMN Materials XLB UYM

SIJ Industrials XLI UXI

SCC Discretionary XLY UCC

SZK Staples XLP UGE

RXD HealthCare XLV RXL

SKF Financials XLF UYG

REW Technology XLK ROM

— Telecom IYZ —

SDP Utilities XLU UPW

SDS S&P500 SPY SSO

Sectors

Related ETF

Current ETF Current P/E Buzz-o- Delta vs. % change -- Mkt Cap Weight Equal

Index Index Ticker Price (NTM) Meter Wk Ago 1 week 1 month YTD YTD

— S&P 500 Index 1,693 SPY $168.32 15.2x 216 (3) (0.6) 0.7 18.1 23.1

— Russell 2000 1,070 IWM $105.95 16.1x 206 (1) (1.5) 2.0 25.6 33.2

Cyclicals

15 Materials 267 XLB $42.19 16.0x 194 (9) (0.3) 1.4 11.9 11.3

25 Discretionary 476 XLY $60.06 15.7x 226 (6) (1.7) 1.7 26.6 29.9

20 Industrials 400 XLI $46.29 15.3x 221 (4) (0.5) 2.3 21.7 22.8

45 Technology 518 XLK $32.06 14.8x 230 3 (1.2) (0.2) 11.8 24.7

Near-Cyclicals

10 Energy 603 XLE $82.84 12.9x 230 (19) (1.1) (1.0) 13.2 18.5

40 Financials 271 XLF $20.11 12.9x 221 3 0.3 0.6 22.4 25.2

Defensives

30 Staples 415 XLP $40.25 16.4x 194 29 0.7 0.8 14.9 21.6

35 Health Care 587 XLV $50.71 15.3x 226 (2) (0.9) 0.6 26.8 30.6

50 Telecom 150 IYZ $27.80 16.6x 145 (43) 0.1 1.1 2.6 (1.1)

55 Utilities 192 XLU $37.72 15.1x 187 (17) 0.5 2.4 7.9 9.1

GICS

#

10/14 (Monday) 10/15 (Tuesday) 10/16 (Wednesday) 10/17 (Thursday) 10/18 (Friday)

Economics/Policy Economics/Policy Economics/Policy Economics/Policy Economics/Policy

● Columbus Day, bond market closed ● Empire State survey (8:30am) ● CPI (8:30am) ● Initial claims (8:30am) ● Leading indicators (10:00am)

● TIC data (9:00am) ● Housing starts (8:30am)

● NAHB survey (10:00am) ● Industrial production (9:15am)

● Beige book (2:00pm) ● Philadelphia Fed survey (10:00am)

Corporate Corporate Corporate Corporate Corporate

Earnings: ETFC, MTB, OMC, PPG, XLNX,

SCHW, ABT, AXP, NE, NTRS, SLM, STJ,

BAX, BLK, DOV, GOOG, ISRG, MSFT, NUE,

SNA, UNH, IR, STT, GCI, RHI, APD, FRX,

LMT, TRV, BSX, PEP, DO, EW, SWK, HST,

PH

Earnings: C, KO, CSX, JNJ, INTC Earnings: CMA, BAC, EBAY, GWW, IBM, KMI,

MAT, PNC, USB, KEY

Earnings: GS, AMD, APH, BBT, COF, CMG,

DHR, FITB, HBAN, PBCT, PM, DGX, SYK,

UNP, VZ

Earnings: TXT, GPC, BHI, GE, HON, KSU,

LH, SLB, STI, LLTC

4



#1: Earnings growth has outpaced equity returns since their tops

Investors have expressed concern that valuations are getting stretched and that fundamentals might no longer support the 150% price appreciation seen in the S&P since its March 2009 low, especially given lingering concerns over a possible US technical default.

Since their respective tops, the S&P 500 index is up 8% while EPS is up16%, outpacing stock returns and establishing relatively strong fundamental support.

However, investors are turning attention to the debt ceiling, and the specter of 2011adds to the anxiety of holding equities.

In contrast to 2011, economic circumstances are notably better. In 2011, confidence in global growth was tenuous at best —US housing and autos had yet to turn positive, the Euro-area was still gripped in an economic crisis and Japan remained mired in malaise. Thus, the debt ceiling and resulting fiscal cliff raised multiple concerns about tipping the global economy back into recession. In contrast, many economists in 2013 argue that global growth is being held back by US fiscal uncertainty.

Figure 4: S&P 500 LTM EPS and Price

Indexed: 100 = respective 2007 highs. For Unreported Quarters, we are using bottom-up consensus estimates

Source: J.P. Morgan, FactSet.

10/9/2007100

3/9/200943

10/10/2013108

6/15/07100

9/15/0955

2Q13116

2Q14125

35

45

55

65

75

85

95

105

115

125

4/07 11/07 6/08 1/09 8/09 3/10 10/10 5/11 12/11 7/12 2/13 9/13 4/14

S&P 500 LTM EPS

5



#2: Fund managers reduce beta during debt ceiling talks...

Hedge funds reduced beta during the 2011 debt ceiling negotiations and its resolution

After reaching 0.223 on 8/23/13, HF beta declined to 0.008 on 9/25/13 and has since risen to its current level of 0.131. Hedge fund beta has been relatively flat since 10/3 just after the government shutdown began.

As shown in Figure 5, hedge fund beta declined during the last debt ceiling negotiations in July 2011, reaching 0.11 (about the current level) at the end of July when an agreement was reached to raise the debt ceiling and establish a Joint Select Committee on Deficit Reduction (“the Supercommittee”) to develop a 10yr deficit reduction plan.

The Supercommittee was given until 11/23/11 to issue its recommendation and hedge fund beta declined until the beginning of October when it leveled off until 11/21, when the Supercommittee concluded its work, failing to reach a bipartisan agreement.

Hedge fund beta continued to decline shortly after the failure for another 2 months before reaching contrarian buy levels.

Figure 5: Hedge Fund Beta2009 to 10/2013

Source: J.P. Morgan Asset Allocation Group, Bloomberg and DataStream. Note: Based on correlation of HFRX to S&P 500, as calculated by Nikolaos Panigirtzoglou, J.P. Morgan Global Strategist. Rolling 21-day beta of macro and equity long/short hedge fund

returns to the S&P 500.

8/1/110.110

11/21/11-0.075

1/27/12(0.26)

(0.35)

(0.25)

(0.15)

(0.05)

0.05

0.15

0.25

0.35

0.45

5/11 6/11 7/11 8/11 9/11 10/11 11/11 12/11

S&P 500 Low

10/03/11, 1099

Vote to raise Debt Ceiling

SupercommitteeEnds

10/9/20130.131

9/9/10(0.268)

1/27/12(0.258)

7/12/12(0.260)

3/30/100.369

11/16/100.360

4/14/110.367

3/16/120.380

(0.50)

(0.40)

(0.30)

(0.20)

(0.10)

0.00

0.10

0.20

0.30

0.40

0.50

1/10 5/10 9/10 1/11 5/11 9/11 1/12 5/12 9/12 1/13 5/13 9/13

Vote to Raise Ceiling

Supercommittee Ends

Contrarian Buy Signal

Contrarian Sell Signal

S&P500 Peak,4/23/10, 1217

S&P500 Peak,4/29/11, 1364

S&P500 Peak,4/02/12, 1419

S&P500 Low,7/02/10, 1023

S&P500 Low,10/03/11, 1099

S&P500 Low,6/01/12, 1278

S&P500 Peak,9/14/12, 1466

9/30/130.065

10/9/130.131

(0.35)

(0.25)

(0.15)

(0.05)

0.05

0.15

0.25

0.35

0.45

6/13 7/13 8/13 9/13 10/13

Govt ShutdownBegins

https://markets.jpmorgan.com/CFP_Research/CFP?page=analyst_page&analystId=U943533

6



Mutual Funds also reduced beta during the 2011 debt ceiling/budget negotiations

In addition to HF beta, we also follow the beta of mutual fund managers benchmarked against the S&P 500 by tracking their NAV beta to the S&P 500 (for 1300 funds).

As shown in Figure 6 below, mutual fund beta declined from its recent high of 0.74 on 9/2/13 to its current level of 0.70.

During the 2011 debt ceiling showdown, mutual fund beta declined from 0.73 at the extension of the debt ceiling to 0.69 on 10/3 and then made a modest bounce to 0.71 when the Supercommittee ended, remaining around there through year end.

Figure 6: Mutual Fund 30-Day Beta (Funds Benchmarked to the S&P 500)2009 to 10/2013

Source: J.P. Morgan, FactSet and Bloomberg. Note: Based on 1301 funds tracked vs S&P 50. Beta is daily returns regressed

8/1/110.73

11/21/110.71

0.68

0.69

0.70

0.71

0.72

0.73

0.74

6/11 7/11 8/11 9/11 10/11 11/11 12/11

S&P500 Low,10/03/11, 1099

Supercommittee Ends

Vote to Raise the Debt Ceiling

7/31/110.73

11/21/110.71

4/2/120.77 10/8/12

0.74

10/10/130.70

0.62

0.64

0.66

0.68

0.70

0.72

0.74

0.76

0.78

0.80

0.82

1/10 5/10 9/10 1/11 5/11 9/11 1/12 5/12 9/12 1/13 5/13 9/13

S&P500 Peak,

9/14/12,

S&P500 Peak,

4/2/12, 1419

S&P500 Peak,

4/29/11, 1364

S&P500 Peak,

4/23/10, 1217

S&P500 Low,

7/2/10,1023

S&P500 Low,

4/2/12, 1419

Vote to Raise Ceiling

SupercommitteeEnds

S&P500 Low,

10/03/11, 1099

8/19/130.71

9/2/130.74

9/30/130.71

10/100.70

0.68

0.69

0.70

0.71

0.72

0.73

0.74

6/13 7/13 8/13 9/13

Govt Shutdown Begins

7



#3: Sector performance since the shutdown has been similar to previous shutdowns greater than 7 days

The government shutdown is now past its 8th day (excluding weekends) and the pattern of sector performance has been similar to past shutdowns of like duration.

As in past government shutdowns greater than 7 days, Defensives are outperforming both Cyclicals and Near-Cyclicals, currently up 50bps relative to the S&P 500. Telecom and Utilities are outperforming (20bps and 90bps, respectively) in accordance with past cycles.

Cyclicals are underperforming slightly more than usual, primarily driven by a 1.2% relative decline in Discretionary.

Figure 7: Sector performance since the Shutdown

Relative Performance (vs S&P 500) since 9/30

Source: J.P. Morgan, Bloomberg.

Figure 8: Composite performance of Sectors DURING the ‘76, ‘77, ‘78, ‘96 Shutdowns

Relative Performance (vs. S&P 500)

Source: J.P. Morgan estimates, Bloomberg.

Note: Shutdowns included are greater than 7 days (start to end). For 1977, there were 3 separate shutdown instances.

0.7%

(0.0%)

(1.2%)

(0.2%)(0.4%)

0.8%

(0.2%)

0.9%

0.1% 0.2%

0.9%

(0.4%)

0.3% 0.5%

(1.3%)

(1.0%)

(0.8%)

(0.5%)

(0.3%)

0.0%

0.3%

0.5%

0.8%

1.0%

1.3%

1.5%

S&

P 5

00 (

abs)

Mat

eria

ls

Dis

cret

iona

ry

Indu

stria

ls

Tec

h

Fin

anci

als

Ene

rgy

Sta

ples

Hea

lthca

re

Tel

ecom

Util

ities

Cyc

lical

s

Nea

r-C

yclic

als

Def

ensi

ves

Relative Performance vs. S&P (9/30 to present)

Cyclicals Near-Cyclicals Defensives

(1.9%)

(0.5%)

0.5%

0.0%

0.3% 0.5%

(0.4%) (0.4%) (0.5%)

1.2% 1.3%

0.1% 0.1%

0.4%

(2.5%)

(2.0%)

(1.5%)

(1.0%)

(0.5%)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

S&

P 5

00

Mat

eria

ls

Dis

cret

iona

ry

Indu

stria

ls

Tec

hnol

ogy

Ene

rgy

Fin

anci

als

Sta

ples

Hea

lthca

re

Tel

ecom

Util

ities

Cyc

lical

s

Nea

r-C

yclic

als

Def

ensi

ves

Relative peformancevs. S&P 500

Cyclicals Near-Cyclicals Defensives

8



Top 10 Best and Worst Industries since the Start of the Shutdown

A curious list of industries have led the S&P 500 since the start of the shutdown, suggesting markets see mitigated risks to the economy.

As shown on Figure 9, among the 10 best groups have been Diversified Consumer Services (420bp, really just HRB), Airlines (400bp), Healthcare Technology (270bp), PCs (250bp), Thrifts (190bp) and Energy Equipment (140bp). There have been more traditional Defensive groups as well such as Household products (180bp) and Food retailing (160bp). The point is that cyclically-sensitive groups leading during a shut-down, in our view, is evidence that equity markets are sensing a lower probability of the “tail event” of a full-blown US default.

The biggest underperforming groups have been Building Products (-640bp), Trading Companies & Distributors (-350bp), Biotechnology (-300bp) and Wireless (-290bp).

Figure 9: Top 10 Best Performing Industries Since Shutdown

Relative Performance (to S&P 500) since 9/30


Figure 10: Top 10 Worst Performing Industries Since Shutdown

Relative Performance (to S&P 500) since 9/30


Top 10 Industries

Industry Rel Perf

1 Diversified Consumer Svcs 4.2%

2 Airlines 4.0%

3 Health Care Technology 2.7%

4 Health Care Prvdrs & Svcs 2.6%

5 Computers & Peripherals 2.5%

6 Office Electronics 2.4%

7 Thrifts & Mortgage Finance 1.9%

8 Household Products 1.8%

9 Food & Staples Retailing 1.6%

10 Energy Equipment & Svcs 1.4%

Average (Top 10) 2.5%

Bottom 10 Industries

Industry Rel Perf

1 Building Products -6.4%

2 Trading Cos & Distributors -3.5%

3 Biotechnology -3.0%

4 Wireless -2.9%

5 Household Durables -2.4%

6 Paper & Forest Products -2.1%

7 Internet & Catalog Retail -2.0%

8 Real Estate Mngmnt & Dv lpmnt -1.8%

9 Internet Software & Svces -1.7%

10 Hotels Restaurants & Leisure -1.6%

Average (Bottom 10) -2.7%

9



MARKET STRATEGY: 15 stocks with outperforming style factors: Consensus Support; "Pure Growth”; Low Short Interest.

We are incrementally cautious but still do not see sufficient reason to sell equities here (but vigilance is key). We have identified 15 stocks that have recently benefited from outperforming style factors. These factors, Pure Growth, Low Short Interest and Most Liked (Consensus support) have outperformed the broader market by 100bp/70bp/60bp, respectively.

In addition to possessing all 3 style factors, the following criteria were used to identify the 15 names:

Part of all 3 outperforming style factors: i) More Liked by Street (Street Mean Rating <2.2); ii) Low Short Interest (Short Interest as a % of Float <2.0%); and iii) Pure Growth Stock;

Rated OW by J.P. Morgan analysts;

At least 10% upside to J.P. Morgan target prices.

These 15 names have an average 20% upside to J.P. Morgan target prices, a 16.1x P/E ('14E) and a 6.9x P/B. The tickers are: VRTX, ALXN, AMT, ZTS, A, GOOG, MA, DLPH, BA, TWX, HD, CMCSA, NBL, EBAY and AAPL.

Figure 11: 15 Ideas with Outperforming Style Factors

Source: J.P. Morgan, FactSet. Priced as of 10/10/13.

JPM Coverage Screen Metrics (in all 3) EPS and Valuation

Name Sub-Industry Ticker

Current

Price

Market

Cap

JPM

Rtg JPM Analyst

Target

Price

Implied

Upside

More Liked

(Street Mean

Rating <2.2)

Low Short Interest

(<2% Short Int as

% Float)

Pure

Growth

2013E

EPS

P/E

('14E) P/B

1 Vertex Pharmaceuticals IncorporatedBiotechnology VRTX $70.15 $16,332 OW Meacham, Geoffrey $100.00 43% 1.93 1.9% Growth -$1.75 12.32x

2 Alexion Pharmaceuticals, Inc.Biotechnology ALXN $105.48 $20,627 OW Meacham, Geoffrey $135.00 28% 1.87 1.5% Growth $3.35 31.5x 9.31x

3 American Tower CorporationSpecialized REITs AMT $71.62 $28,290 OW Cusick, Philip $90.00 26% 1.72 1.9% Growth $2.48 28.9x 8.04x

4 Zoetis, Inc. Class A Pharmaceuticals ZTS $31.43 $15,715 OW Schott, Christopher $39.00 24% 1.67 1.5% Growth $1.61 19.5x 19.64x

5 Agilent Technologies, Inc. Life Sciences Tools & ServicesA $49.95 $16,523 OW Peterson, Tycho W $60.00 20% 1.56 0.9% Growth $3.17 15.8x 3.45x

6 Google Inc. Class A Internet Software & Serv icesGOOG $855.86 $234,453 OW Anmuth, Doug $1,015.00 19% 2.00 2.0% Growth $51.16 16.7x 3.62x

7 MasterCard Incorporated Class AData Processing & Outsourced ServicesMA $657.23 $76,235 OW Huang, Tien-tsin $776.00 18% 2.00 1.5% Growth $30.71 21.4x 11.32x

8 Delphi Automotive PLC Auto Parts & Equipment DLPH $55.91 $17,343 OW Brinkman, Ryan $66.00 18% 1.93 1.7% Growth $5.03 11.1x 6.88x

9 The Boeing Company Aerospace & Defense BA $114.47 $86,361 OW Nadol, Joseph B $135.00 18% 1.67 1.3% Growth $7.31 15.7x 11.47x

10 Time Warner Inc. Mov ies & Entertainment TWX $64.61 $59,442 OW Quadrani, Alex ia S $75.00 16% 2.00 1.6% Growth $4.30 15.0x 2.00x

11 The Home Depot, Inc. Home Improvement Retail HD $74.14 $106,201 OW Horvers, Christopher$86.00 16% 2.08 1.0% Growth $4.37 17.0x 6.87x

12 Comcast Corporation Class ACable & Satellite CMCSA $44.33 $94,583 OW Cusick, Philip $51.00 15% 1.83 1.1% Growth $2.82 15.7x 2.37x

13 Noble Energy, Inc. Oil & Gas Exploration & ProductionNBL $64.80 $23,261 OW Allman, Joseph D $74.50 15% 2.10 1.7% Growth $4.35 14.9x 2.64x

14 eBay Inc. Internet Software & Serv icesEBAY $52.33 $67,743 OW Anmuth, Doug $60.00 15% 1.79 1.3% Growth $3.19 16.4x 3.13x

15 Apple Inc. Computer Hardware AAPL $486.59 $442,064 OW Moskowitz, Mark $545.00 12% 2.02 1.9% Growth $43.10 11.3x 3.58x

Average 20% 1.88 1.5% 16.1x 6.87x

10



US Equity Strategy Recent Publications

US Strategy

70% of October "crashes" are in recessions/bears. 12 "low-beta" and "beat-and-raise" stocks – 10/1/13

Thoughts on a shutdown. Not a thesis killer, and not a reason to sell. – 9/30/13

3 Reasons We See Equities Still Gaining into YE; 21 Ideas – 9/26/13

4 Reasons Fed Move Supports Equities Into YE – 9/19/13

Feedback from Asia: Less Enthusiasm For a Maturing Bull in a Mature Economy... –9/13/13

De-rating concerns overstated for September. Favor Technology and high-FCF Cyclicals. 17 ideas. – 9/6/13

Record cash return of $821 billion LTM, but scope for substantial increases; Stay with Cyclicals; 12 ideas – 8/9/13

2Q is showing broadening top-line growth...21 ideas – 8/1/13

Improved Conviction on 2H Growth; Raising '14E EPS to $120 ($117) and YE Target to 1775 (1715) – 7/25/13

S&P 500 2Q Earnings Preview: $27.50 in EPS, $110 annualized affirms 2013 FY $110. 4 Reasons visibility improves. 21 ideas – 7/12/13

Bonds lose big in 2Q. Reinforces de-couple, and reinforces "Buy dips" – 6/27/13

Regime shift argues equities will further de-couple from bonds. Buy weakness. 25 ideas.– 6/20/13

Energy Strategy and Themes: Energy Cheap on P/E; Oil to Rise; Restructuring, Activism for Producers; Solid Fundamentals Across Most Sub-Sectors – 6/17/13

68% of fund managers missing benchmarks through May. We would be buyers on weakness. 18 ideas. – 6/7/13

The Best Defense Against Rising Rates is Cyclicals. 19 Ideas – 5/30/13

Feedback from Boston; Clients are Cautiously Bullish, While Looking over Their Shoulder, 18 Ideas. – 5/23/13

Special Reports

MARKETING DECK:YE S&P 500 Target of 1775: Case for Higher “E” and higher “P/E” – 8/15/13

SMid-Cap Perspective: Adding TNAV and VSH to the SMid "Fresh" Money List – 7/3/13

MARKETING DECK: Better Bull than we expected; S&P 500 1580 by YE. Seems Low…– 4/10/13

SMid-Cap Perspective: Still small up-cycle. Adding NAV, CMTL and OPEN to the JPM SMid “Fresh” Money List – 3/21/13

SMid-Cap Perspective: Small-cap outperformance cycle underway. Raising Russell 2000 YE13 Target to 990 from 875. 3 new ideas. – 2/8/13

SLIDES: 2013 Equity Outlook – 12/12/12

2013 SMid-Cap Outlook: 2013 YE Target of 875; Value Outperforms Growth – 12/6/12

MARKETING DECK: We See a “Melt-Up” Into Election Day: S&P 500 to EXCEED 1495 Short-Term…Market’s Base Case is Obama Victory – 9/20/12

SLIDES: Housing Food Chain IV: 10 Reasons We Are Early in Housing Up-Cycle, 18 ideas – 8/29/12

3PointsTV – Video

Markets hostage to Washington – 10/4/13

Stay constructive given Fed support, relative value – 9/20/13

Still see a case for both higher "E" and PE – 8/16/13

Cash return reaches $821b ($ terms) but lots of upside on pa – 8/9/13

2Q13 results showing signs of rising topline – 8/2/13

Raising S&P 500 YE target to 1775 (1715) – 7/26/13

2Q results mollify visibility concerns – 7/12/13

Small-cap leadership is affirming cyclical turn... – 7/3/13

2H13 Outlook for Healthcare. Positive momentum – 6/28/13

https://markets.jpmorgan.com/CFP_Research/ArticleServlet?doc=CFP-V-20917-p1&referrerPortlet=search_analyst









https://mm.jpmorgan.com/PubServlet?action=open&doc=GPS-931106-0.pdf

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11



Ownership vs. Valuation Matrices

Figure 12: Comparative Risk Reward of Industries – Ownership vs. Valuation MatrixX-axis is relative valuation; Y-axis is institutional ownership


Figure 13: Comparative Risk Reward of Styles – Ownership vs. Valuation MatrixX-axis is relative valuation; Y-axis is institutional ownership


Energy Equip & Svcs

Oil Gas & Consumable Fuels

Chemicals

Metals & Mining

Paper & Forest Products

Aerospace & Defense

Building Products

Industrial Conglomerates

Machinery

Commercial Svcs/Supp

Airlines

Other Transports

Autos/Components

Consumer Durables & Apparel

Casinos & Gaming

Hotels, Resorts & Cruise Lines

Restaurants

Media

Internet & Catalog Retail

Multiline Retail

Specialty Retail

Food & Staples Retail

Food Beverage & Tobacco

HH & Personal Products

HealthCare Equip/Svcs

Biotech

Pharm

Life Scnces Tools & Svcs

Banks

Dvrsfd Financial Svcs

Consumer Finance

Capital MarketsInsurance

Real Estate

Software

Comm Equip

Computers & Peripherals

Semiconductors

Telecom Svcs

Utilities

0

5

10

15

20

25

30

35

40

0 5 10 15 20 25 30 35 40

Ran

k o

f In

sti.

Ow

ners

hip

Wei

ghti

ng v

s. T

otal

Mkt

Rank of Relative P/E delta vs. 10yr AvgExpensive Cheap

Un

der

ow

ned

Ove

row

ned

Unattractive Risk Reward

Better Risk Reward

Low Beta

High Beta

Low Price

High Price

Small Cap

Large Cap

Low P/E

High P/E

S&P High Quality

S&P Low Quality

Low EV/EBITDA

High EV/EBITDA

Low Momentum

High Momentum

Pure Growth

Pure Value

Low LeverageHigh Leverage

Least LikedMost Liked

Low Short Interest

High Short Interest

Low Div Yield

High Div Yield

Low FCF Yield

High FCF Yield

0

5

10

15

20

25

0 5 10 15 20 25 R

ank

of I

nst

i. O

wne

rsh

ip W

eigh

ting

vs.

Tot

al M

ktRank of Relative P/E delta vs. 10yr Avg

Expensive Cheap

Un

der

ow

ned

Ove

row

ned

Unattractive Risk Reward

Better Risk Reward

12



Macro at a Glance

Economic Highlights

Led by special factors, Initial Weekly Claims surges by 66,000 to 374,000…

Initial jobless claims for the week ending October 5 jumped to the highest level seen since the week ending March 30. According to the Department of Labor, half this increase is due to California catching up with a backlog in claims related to a computer system upgrade that had depressed claim figures reported in September. Also, they noted that roughly 15,000 claims were indirectly related to the government shutdown, and that affected workers will likely be rehired once the government reopens. J.P.Morgan Economists highlight that the level of claims would have been about 325,000 without the backlog in claims and the government shutdown.

August consumer credit

The August consumer credit report continues the trend that we have been seeing over the past few years; that non-revolving credit has been increasing rapidly while revolving credit has only inches higher at a much slower rate. In August, non-revolving credit jumped by $166.7bn vs revolving credit, which only increased by $2.1bn. Overall, consumer credit increased 5.9% in September,which matches the growth in nominal durable goods consumption over this time frame.

Figure 14: Initial Jobless ClaimsSince 1967

Source: J.P. Morgan and Department of Labor.

Figure 15: Growth in Consumer Credit and Durable Goods Consumption

Source: J.P. Morgan Economics and Federal Reserve Board, BEA

1/75575

2/77565

5/80642

10/82695

3/91509

9/01517

3/09670

10/13374

150

350

550

750

1/67 10/69 7/72 4/75 1/78 10/80 7/83 4/86 1/89 10/91 7/94 4/97 1/00 10/02 7/05 4/08 1/11

Recession Initial Jobless Claims 4wk avg

13



Sector Roadmap — Trailing 1-Mo and 3-Mo Rel PerformanceFigure 16: SECTOR ROADMAP – Trailing-One-Month Relative Performance


Figure 17: SECTOR ROADMAP – Trailing-Three-Month Relative Performance


11/10/12 12/10/12 1/10/13 2/10/13 3/10/13 4/10/13 5/10/13 6/10/13 7/10/13 8/10/13 9/10/13 10/10/13

Cyclicals

Materials 1.2% -1.2% 4.5% -2.3% -2.0% -3.3% 0.5% -1.3% -2.3% 2.3% 1.9% 0.7%

Industrials 3.0% 0.6% 0.6% 0.4% 0.5% -1.8% -0.2% 0.4% 0.6% 0.8% 1.2% 0.9%

Discretionary 1.5% 0.6% 0.4% 0.7% 1.4% -0.2% 2.9% -1.0% 3.1% 0.1% -0.3% 0.7%

Technology -2.4% -0.9% -0.7% -2.1% -1.4% -1.6% 0.5% 0.8% -1.8% -0.2% 2.1% -0.7%

Near Cyclicals

Financials 0.8% 0.1% 4.1% -0.6% 1.3% -0.8% 0.9% 3.2% -0.2% -0.4% -0.5% -0.5%

Energy -0.6% -0.4% -0.8% 2.4% -2.2% -2.0% -1.2% 0.0% -0.3% -1.0% 1.2% -1.1%

Defensives

Staples -0.1% 1.1% -3.9% 1.5% 0.6% 2.3% -1.1% -1.9% 0.0% -0.7% -3.4% 0.7%

HealthCare 0.7% 0.7% -0.5% 0.5% 0.3% 4.3% -1.3% 0.0% 0.4% 1.6% 0.0% 0.0%

Telecom -3.2% -1.4% -2.1% -1.3% 1.2% 1.8% -0.7% -5.0% -1.1% -4.6% -2.8% 0.0%

Utilities -2.1% -1.0% -3.1% 0.4% 0.7% 3.9% -3.8% -5.8% 0.1% 0.7% -4.6% 1.4%

S&P 500 -3.7% 2.8% 3.8% 3.1% 2.2% 2.4% 2.9% 0.6% 0.6% 2.3% -0.4% 0.0%

11/10/12 12/10/12 1/10/13 2/10/13 3/10/13 4/10/13 5/10/13 6/10/13 7/10/13 8/10/13 9/10/13 10/10/13

Cyclicals

Materials 0.5% -1.1% 4.5% 0.8% -0.1% -7.9% -5.0% -4.2% -3.1% -1.4% 1.9% 5.0%

Industrials 0.9% 3.1% 4.4% 1.6% 1.6% -1.0% -1.5% -1.6% 0.9% 1.9% 2.7% 3.0%

Discretionary 3.7% 1.7% 2.6% 1.8% 2.7% 2.0% 4.3% 1.7% 5.1% 2.3% 3.0% 0.6%

Technology -4.6% -6.0% -4.1% -3.9% -4.4% -5.3% -2.8% -0.4% -0.5% -1.1% 0.1% 1.2%

Near Cyclicals

Financials 5.6% 3.5% 5.1% 3.7% 5.1% -0.1% 1.6% 3.5% 4.1% 2.7% -1.1% -1.4%

Energy -2.1% -1.5% -1.8% 1.2% -0.7% -2.0% -5.6% -3.2% -1.4% -1.3% 0.0% -0.9%

Defensives

Staples -1.1% 1.7% -2.9% -1.4% -2.0% 4.7% 1.9% -0.7% -3.1% -2.7% -4.2% -3.4%

HealthCare 3.1% 3.9% 0.9% 0.8% 0.4% 5.5% 3.5% 3.1% -0.9% 2.0% 2.0% 1.7%

Telecom -5.0% -4.6% -6.8% -5.1% -2.4% 1.8% 2.4% -4.1% -6.9% -10.6% -8.4% -7.3%

Utilities -5.9% -2.3% -6.2% -3.9% -2.1% 5.3% 0.7% -6.1% -9.5% -5.2% -4.0% -2.7%

S&P 500 -1.9% -0.7% 2.8% 10.0% 9.3% 7.9% 7.6% 5.9% 4.1% 3.5% 2.5% 1.9%

14



Index Performance Analysis

Figure 18: Sector Contribution to Five-Day S&P 500 Point Change

Source: FactSet and J.P. Morgan.

Figure 19: Sector Contribution to One-Month S&P 500 Point Change


Figure 20: Stock Contribution to Five-Day S&P 500 Point Change

Ten Largest Positive Contributors and Ten Largest Negative Contributors


Figure 21: Stock Contribution to One-Month S&P 500 Point Change

Ten Largest Positive Contributors and Ten Largest Negative Contributors


1.2 0.9

0.1 0.0

(0.1)(1.1)

(2.0)(2.1)

(3.7)(3.8)

(10.5)

StaplesFinancials

UtilitiesTelecomMaterials

IndustrialsHealthCare

EnergyTechnology

Discretionary

S&P 500

3.9 2.9

1.7 1.6

1.3 1.0 0.9

0.4 (0.1)

(1.9)

11.7

IndustrialsDiscretionary

HealthCareFinancials

StaplesUtilities

MaterialsTelecom

TechnologyEnergy

S&P 500

0.4 0.2 0.2 0.2 0.2 0.2 0.2 0.1 0.1 0.1

(0.3)(0.4)(0.4)(0.4)(0.4)

(0.5)(0.5)

(0.6)(0.8)

(1.2)

The Procter & Gamble CompanyWal-Mart Stores, Inc.

The Dow Chemical CompanyCVS Caremark Corporation

McKesson CorporationHewlett-Packard Company

Bank of America CorporationCitigroup Inc.

Altria Group, Inc.Baxter International Inc.

General Electric CompanyAmgen Inc.

Philip Morris International Inc.Merck & Co., Inc.

Pfizer Inc.Exxon Mobil Corporation

Oracle CorporationGoogle Inc. Class A

Amazon.com, Inc.Chevron Corporation

S&P 500 down 11 points

1.7 0.9

0.8 0.7 0.7 0.7 0.6

0.6 0.5 0.5

(0.3)(0.4)

(0.4)(0.4)(0.5)(0.5)

(0.6)(1.3)(1.4)

(1.5)

Microsoft CorporationBristol-Myers Squibb Company

The Boeing CompanyThe Walt Disney CompanyGeneral Electric Company

Actavis PlcComcast Corporation Class A

Walgreen Co.NIKE, Inc. Class B

Visa Inc. Class A

Bank of America CorporationEMC Corporation

The Coca-Cola CompanyEli Lilly and Company

QUALCOMM IncorporatedCisco Systems, Inc.Google Inc. Class A

Exxon Mobil CorporationChevron Corporation

Apple Inc.

S&P 500 up 12 points

It was a relatively decent week for Staples, which was the strongest sector. 4 of its names made the top 10.

It was a rough week for Cyclicals, which in aggregate, dragged the Index lower by 9 points.

There has been a lot of volatility in the markets over the past month, but it still managed to inch higher within this time frame. Only 2 sectors are lower vs a month ago: Tech and Energy

3 Healthcare names made the bottom 10.

Discretionary names took 3 of the top 10 spots

Technology made up half of the bottom 10.

15



Figure 22: Best Two and Worst Two Sectors – Relative Performance over the Past Month

Performance Relative to the S&P 500


Figure 23: Best Two and Worst Two Sectors – Relative Performance over the Past Three Months



Figure 24: Best Two and Worst Two Industries – Relative Performance over the Past Month



Figure 25: Best Two and Worst Two Industries – Relative Performance over Past Three Months



Utilities, 3

Materials, 1

Telecom, -1

Energy, -1

-3

-2

-1

0

1

2

3

4

9/12 9/16 9/20 9/24 9/28 10/2 10/6 10/10

Rel

ativ

e 1m

os

Per

form

ance

Materials, 5

Industrials, 3

Staples, -4

Telecom, -7-10

-8

-6

-4

-2

0

2

4

6

7/11 7/25 8/8 8/22 9/5 9/19 10/3

Rel

ativ

e 3m

os

Per

form

ance

Health Care Technology, 12

Airlines, 10

Trading Cos & Distributors, -5

Paper & Forest Products, -9

-15

-10

-5

0

5

10

15

9/12 9/16 9/20 9/24 9/28 10/2 10/6 10/10

Rel

ativ

e 1m

os

Per

form

ance

Gas Utilities, 17

Airlines, 13

Multiline Retail, -9

Leisure Equipment & Products, -9-15

-10

-5

0

5

10

15

20

7/11 7/25 8/8 8/22 9/5 9/19 10/3

Rel

ativ

e 3m

os

Per

form

ance

16



Style Roadmap — Trailing 1-Mo and 3-Mo Rel Performance

Figure 26: STYLE ROADMAP – Trailing-One-Month Relative Performance


10/9/12 11/9/12 12/7/12 1/9/13 2/8/13 3/8/13 4/9/13 5/9/13 6/7/13 7/9/13 8/9/13 9/9/13 10/9/13

Pure Growth -0.4% 1.6% 0.5% 0.4% 0.4% 0.5% -0.5% 2.2% -0.2% 0.0% 0.6% 1.3% 1.0%

Price Higher -0.5% 1.9% 0.2% 0.0% 0.7% -0.6% -0.8% 0.7% -0.4% 0.5% 1.0% 0.6% 0.8%

Short Interest - Lower -0.2% 1.4% 0.6% 0.2% 1.1% 0.7% 0.8% -0.1% -0.3% 0.0% -0.2% -0.6% 0.7%

Beta — Lower 0.8% 0.8% 0.4% -2.3% 0.6% 0.7% 2.6% -1.7% -1.6% 0.5% 0.7% -1.9% 0.6%

Most Liked -0.3% 2.0% 0.8% 2.2% 0.3% -0.3% -0.6% 0.4% -0.1% 0.1% 0.9% 1.4% 0.6%

Div Yield — Higher 0.1% 0.7% -0.7% -0.6% 1.2% -0.1% 2.5% -0.6% -2.2% 0.4% 1.0% -1.8% 0.5%

EV/EBITDA — cheaper -0.2% 0.3% 1.6% 2.2% 3.5% -0.7% 0.4% 0.5% 1.2% -0.3% 2.3% -0.1% 0.4%

S&P High Quality -0.1% 1.6% -0.1% -0.4% 0.0% 0.3% 0.8% 0.0% -0.8% 0.3% 0.7% -0.8% 0.4%

Short Interest - Higher -0.2% 2.1% 0.5% 2.0% 2.4% -0.4% -0.3% 2.5% -0.1% 0.1% 1.7% 0.5% 0.3%

Momentum (high P/200d mavg) -0.2% 1.0% 1.1% 0.9% 1.8% 1.4% -1.3% 0.4% 1.0% 0.6% 1.4% 0.5% 0.3%

Pure Value 0.6% 1.3% 1.4% 2.9% 2.6% -0.4% 0.4% 0.2% 1.0% 0.8% 2.1% 0.1% 0.2%

FCF Yield — Lower -0.1% 1.2% 0.7% 0.6% 1.9% -1.2% 0.9% 0.2% -2.2% -0.6% 0.8% 0.7% 0.2%

Market Cap Larger -0.2% 0.8% 0.2% 0.6% 0.1% 0.1% 0.4% 0.0% 0.3% -0.1% 0.3% 0.0% 0.1%

Div Yield — Lower -1.1% 1.2% 2.3% 2.4% 2.2% 0.0% -1.5% 2.1% 1.1% 0.4% 1.3% 1.9% 0.1%

EV/EBITDA — more expensive -2.8% 1.2% 0.5% 0.6% 0.6% 0.3% -1.2% 0.3% -0.9% -0.3% 0.9% 1.4% 0.1%

P/E — cheaper 0.1% 1.2% 1.1% 3.1% 2.5% -0.5% 1.1% 1.1% 2.5% 0.9% 1.5% 0.6% 0.0%

FCF Yield — Higher 0.2% 1.1% 1.0% 2.1% 2.6% 1.1% -0.5% 1.2% 1.9% 1.4% 1.4% -0.6% 0.0%

Least Liked -0.1% 1.4% 0.3% 1.5% 1.4% 0.2% 1.3% 0.4% -1.3% 1.3% 0.7% -0.7% -0.1%

S&P Low Quality -1.0% 0.7% 1.0% 2.4% 2.0% -0.4% -1.1% 1.0% -0.4% -0.3% 1.4% 1.1% -0.1%

P/E — more expensive -1.1% 1.0% 0.2% 1.2% 0.6% -0.4% -0.8% 0.4% -2.1% 0.0% 0.8% 0.8% -0.1%

Price Lower -0.5% 1.4% 1.6% 3.3% 2.7% 1.6% -0.2% 1.1% 0.7% 0.7% 1.6% 0.5% -0.2%

Market Cap Smaller 0.0% 2.6% 1.1% 3.1% 2.5% 0.2% -1.1% 1.1% -0.6% 0.5% 2.1% 0.4% -0.3%

Broken (low P/200d mavg) -1.3% 1.8% 1.2% 2.3% 1.9% -1.4% 0.6% 1.4% -0.6% -0.9% 1.1% 0.4% -0.4%

Beta — Higher -1.5% 2.0% 1.6% 4.2% 1.6% -0.6% -2.3% 2.0% 0.4% -0.3% 0.9% 1.4% -0.4%

S&P 500 0.2% -4.3% 2.8% 3.0% 3.9% 2.2% 1.1% 3.7% 1.0% 0.5% 2.4% -1.2% -0.9%

17



Figure 27: STYLE ROADMAP – Trailing-Three-Month Relative Performance


10/9/12 11/9/12 12/7/12 1/9/13 2/8/13 3/8/13 4/9/13 5/9/13 6/7/13 7/9/13 8/9/13 9/9/13 10/9/13

Div Yield — Lower 1.9% 1.8% 2.3% 6.0% 7.8% 4.9% 0.5% 0.4% 1.7% 3.8% 3.0% 3.8% 3.4%

Most Liked 1.1% 1.9% 2.3% 4.4% 3.6% 2.9% -0.3% -0.4% -0.5% 0.5% 1.5% 3.0% 3.0%

Pure Growth -0.6% 1.5% 1.7% 2.6% 1.6% -0.3% 0.4% 2.3% 1.5% 2.1% 0.6% 2.0% 3.0%

EV/EBITDA — cheaper 2.2% -0.7% 1.3% 4.2% 7.7% 5.0% 3.5% 1.4% 3.6% 1.6% 3.3% 2.4% 2.5%

Price Higher -2.2% 1.2% 1.4% 2.4% 1.1% -0.1% -1.1% -1.0% -0.7% 0.7% 1.2% 2.5% 2.5%

Short Interest - Higher 1.0% 2.5% 2.8% 4.6% 4.8% 4.7% 1.7% 1.6% 1.9% 2.9% 1.7% 2.4% 2.4%

Momentum (high P/200d mavg) -1.5% 1.3% 1.1% 2.7% 2.7% 3.6% 2.2% 1.5% 0.2% 2.1% 2.9% 2.5% 2.4%

Pure Value 3.6% 3.3% 3.4% 5.8% 8.4% 8.6% 3.0% 0.1% 1.6% 2.2% 4.0% 2.9% 2.3%

S&P Low Quality 0.2% 0.0% 0.6% 4.1% 5.9% 4.3% 0.5% -0.6% -0.7% 0.4% 0.7% 2.2% 2.3%

EV/EBITDA — more expensive -1.7% 0.1% -0.4% 2.3% 1.4% 1.1% -0.4% -0.7% -2.5% -1.0% 0.0% 1.9% 2.3%

Price Lower 1.8% 1.8% 2.1% 5.9% 8.0% 7.8% 4.1% 2.8% 1.8% 3.0% 3.4% 2.8% 2.1%

Beta — Higher 2.1% 2.5% 2.3% 8.1% 8.1% 5.2% -1.3% -0.8% 0.3% 2.7% 0.6% 1.4% 2.0%

P/E — more expensive -2.9% 0.5% 0.5% 2.8% 2.7% 1.4% -0.9% -0.9% -2.3% -1.5% -1.8% 1.3% 2.0%

Market Cap Smaller 2.2% 3.6% 3.7% 7.2% 7.3% 6.8% 2.1% 0.7% -0.6% 0.9% 2.4% 2.7% 2.0%

FCF Yield — Lower 0.1% 0.3% 2.0% 2.4% 3.3% 1.5% 1.3% -0.4% -1.2% -2.6% -1.9% 0.5% 1.7%

P/E — cheaper 3.6% 2.7% 2.5% 5.2% 7.9% 5.7% 3.4% 1.1% 5.2% 4.7% 5.3% 3.0% 1.5%

Broken (low P/200d mavg) 1.6% 1.7% 1.7% 6.7% 6.5% 1.7% 1.6% 0.0% 0.3% 0.6% 0.5% -0.2% 1.1%

FCF Yield — Higher 1.7% 2.3% 1.4% 4.0% 6.2% 5.8% 4.0% 2.6% 3.1% 4.8% 4.2% 2.3% 0.6%

Market Cap Larger -0.2% 0.6% 0.8% 1.7% 1.1% 0.7% 0.8% 0.7% 0.9% 0.0% 0.5% 0.2% 0.4%

S&P High Quality -1.4% 1.5% 1.8% 1.2% -0.5% 0.0% 1.3% 1.2% 0.0% -0.4% 0.2% 0.1% 0.2%

Short Interest - Lower -0.6% 0.3% 1.5% 2.2% 1.9% 1.4% 2.3% 1.5% 0.6% -0.4% 0.0% -0.7% 0.0%

Least Liked -1.2% 0.1% 1.6% 3.6% 3.0% 3.2% 3.2% 2.1% 1.2% 1.1% 0.3% 0.9% -0.7%

Div Yield — Higher -0.8% -0.5% -0.2% -0.1% -0.5% 0.8% 4.2% 1.4% -1.0% -2.5% -1.2% -1.0% -0.7%

Beta — Lower -3.8% 0.2% 1.9% -1.0% -1.2% -0.8% 4.0% 1.6% -1.0% -3.0% -0.2% -0.7% -1.0%

S&P 500 6.6% -1.6% -1.4% 1.4% 10.0% 9.4% 7.4% 7.2% 5.9% 5.3% 4.0% 1.7% 0.2%

18



Style Analysis

Figure 28: Best Two and Worst Two Styles – Relative Performance over the Past MonthPerformance Relative to the S&P 500

Source: FactSet and J.P. Morgan. Note: Performance is for the top quartile and bottom quartile of stocks in each style.

Figure 29: Best Two and Worst Two Styles – Relative Performance over the Past Three MonthsPerformance Relative to the S&P 500


Figure 30: S&P 500 Style Relative Performance over the Past MonthPerformance Relative to the S&P 500


Figure 31: S&P 500 Style Relative Performance over Past Three MonthsPerformance Relative to the S&P 500


Citigroup Pure Growth, 1.7

Momentum (high P/200d mavg), 1.3

Market Cap Larger, 0.3

Less Liked, 0.2

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

9/6 9/13 9/20 9/27 10/4

Rel

ativ

e 1m

os

Per

form

ance

Momentum (high P/200d mavg), 3.1

Citigroup Pure Value, 3.0

High Debt/EBITDA, -0.1

Less Liked, -0.9-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

7/12 7/26 8/9 8/23 9/6 9/20 10/4

Rel

ativ

e 3m

os

Per

form

ance

1.7%1.3%

1.2%1.0%

0.9%0.9%0.9%0.9%

0.9%0.8%

0.8%0.7%

0.7%0.6%0.6%

0.5%0.5%0.5%

0.5%0.4%

0.4%0.3%

0.3%0.2%

Citigroup Pure GrowthMomentum (high P/200d mavg)

Short Interest - HigherLow Debt/EBITDA

More LikedPrice Higher

S&P Low QualityEV/EBITDA — cheaper

Citigroup Pure ValuePrice Lower

Beta — HigherP/E — cheaperHigh Div Yield

Market Cap SmallerShort Interest - Lower

High FCF YieldHigh Debt/EBITDA

Low Div YieldP/E — more expensive

S&P High QualityBeta — Lower

EV/EBITDA — more expensiveMarket Cap Larger

Less Liked

1mos Relative Perf

3.1%3.0%2.9%

2.7%2.5%2.5%2.5%

2.4%2.3%

2.2%2.1%

1.9%1.9%

1.7%1.5%

1.0%0.8%

0.7%0.7%

0.5%0.5%

0.0%-0.1%

-0.9%

Momentum (high P/200d mavg)Citigroup Pure Value

More LikedLow Debt/EBITDA

Low Div YieldPrice Higher

Beta — HigherShort Interest - HigherCitigroup Pure Growth

Price LowerEV/EBITDA — cheaper

P/E — cheaperMarket Cap Smaller

S&P Low QualityP/E — more expensive

Low FCF YieldEV/EBITDA — more expensive

S&P High QualityMarket Cap Larger

Short Interest - LowerHigh FCF Yield

Broken (low P/200d mavg)High Debt/EBITDA

Less Liked

3mos Relative Perf

19



52-Week Highs/Lows

Net 8% of stocks hitting 52-week highs vs. 52-week lows

Over the past week, we saw 8% of stocks hitting their 52-week highs vs 52-week lows. At the sector level, HealthCare stocks saw the greatest net % of stocks (19%) hitting their 52-week highs, followed by Energy (14%). Only 3 sectors saw more companies hitting 52-week lows vs highs: Telecom (-14%), Utilities (-3%) and Materials (-3%). On the Industry level, 2 Industries saw 100% of stocks hitting 52-week highs: Office Electronics and Airlines.

Figure 32: % of Stocks Hitting 52-Week Highs vs. 52-Week Lows in Past Five Days – Sectors

Source: FactSet and J.P. Morgan. Note: Calculated as (# of stocks hitting

52-week high minus # of stocks hitting 52-week low in past five days) divided

by total stocks in that sector.

Figure 33: Net % of Stocks Hitting 52-Week High vs. 52-Week Low – Industries

Source: FactSet and J.P. Morgan. Note: Calculated as (# of stocks hitting 52-week high minus # of stocks hitting 52-week low in past five days) divided by total stocks in that industry.

8%

-3%

5%

12%

6%

14%

9%

7%

19%

-14%

-3%

S&P 500

Materials

Industrials

Discretionary

Technology

Energy

Financials

Staples

Health Care

Telecom

Utilities

Cyclicals

Defensives

Near-Cyclicals

100%

100%

60%

36%

33%

25%

25%

25%

21%

20%

20%

20%

18%

17%

17%

16%

14%

14%

13%

13%

12%

11%

11%

8%7%

-6%

-8%

-8%

-14%

-20%

Offi

ce E

lect

ron

ics

Airl

ines

Inte

rne

t & C

ata

log

Re

tail

Div

ersi

fied

Fin

anc

ial S

erv

ice

s

Pro

fess

iona

l Se

rvic

es

Food

& S

tap

les

Ret

aili

ng

Con

sum

er F

ina

nce

Au

to C

om

pon

ents

Hea

lth C

are

Pro

vid

ers

& S

erv

ice

s

Inte

rnet

So

ftwar

e &

Se

rvic

es

Hea

lth C

are

Eq

uip

men

t & S

upp

lies

Life

Sci

ence

s To

ols

& S

erv

ice

s

Ho

tels

Res

tau

ran

ts &

Le

isur

e

Pha

rma

ceu

tica

ls

Bio

tech

nolo

gy

Oil

Gas

& C

ons

umab

le F

uels

Insu

ranc

e

Co

mm

uni

catio

ns

Equ

ipm

ent

Mu

ltilin

e R

eta

il

Ho

use

hold

Dur

abl

es

Sem

ico

ndu

ctor

s &

Se

mic

ond

uct

or …

Spe

cia

lty R

eta

il

Be

vera

ges

Ene

rgy

Eq

uipm

ent &

Ser

vice

s

Mac

hin

ery

Re

al E

sta

te In

vest

me

nt T

rust

s

Ele

ctric

Util

itie

s

So

ftw

are

Met

als

& M

inin

g

Div

ers

ifie

d T

elec

om

mun

ica

tions

…

20



Analyst Upgrades/Downgrades

As for the Street’s view, upgrades sharply outnumbered downgrades in the past week, with 20 net upgrades overall. 15 industries saw net upgrades and 10 had net downgrades. Defensive sectors were particularly strong; Utilities and Healthcare had 14 and 11 net upgrades, respectively. On the Industries level, topping the list of most net upgrades was Electric Utilities with +8, followed close by another Utilities industry: Multi-Utilities with +7. The Industries with the largest number of net downgrades (-4) were Multiline Retails, Hotels Restaurants & Leisure, Software and Oil Gas & Consumable Fuels.

Figure 34: Net Upgrades in the Past Five Days – Sectors


Figure 35: Net Upgrades in Past Five Days – Industries


20

-1

-2

-7

-2

-2

0

7

11

2

14

S&P 500

Materials

Industrials

Discretionary

Technology

Energy

Financials

Staples

Health Care

Telecom

Utilities

Defensives

Near-Cyclicals

Cyclicals

87

5444

333322222

-2-2-3-3-3-3

-4-4-4-4

Ele

ctric

Util

ities

Mul

ti-U

tiliti

es

Che

mic

als

Foo

d &

Sta

ples

Ret

ailin

g

Hea

lth C

are

Equ

ipm

ent &

Sup

plie

s

Sem

icon

duct

ors

& S

emic

ondu

ctor

Equ

ipm

ent

Pha

rmac

eutic

als

Com

mer

cial

Ban

ks

Hea

lth C

are

Pro

vide

rs &

Ser

vice

s

Mac

hine

ry

Med

ia

Div

ersi

fied

Tel

ecom

mun

icat

ions

Ser

vice

s

Ene

rgy

Equ

ipm

ent &

Ser

vice

s

Airl

ines

Per

sona

l Pro

duct

s

Inte

rnet

Sof

twar

e &

Ser

vice

s

Pap

er &

For

est P

rodu

cts

Aer

ospa

ce &

Def

ense

Rea

l Est

ate

Inve

stm

ent T

rust

s

Air

Fre

ight

& L

ogis

tics

Met

als

& M

inin

g

Oil

Gas

& C

onsu

mab

le F

uels

Sof

twar

e

Hot

els

Res

taur

ants

& L

eisu

re

Mul

tilin

e R

etai

l

c

21



Stock Highlights: Upgrades and Downgrades

We looked at which stocks have been upgraded and downgraded the most in the past five days by looking at net upgrades (upgrades minus downgrades) as a percentage of analysts covering a stock. Financials had 3 stocks in the list of 10 most upgraded stocks. On the flip side, it was also the sector that saw the largest number of stocks (4) in the top 10 most downgraded.

Figure 36: Ten Most Upgraded Stocks

Net # of Upgrades as % of Analysts Covering Stock


Figure 37: Ten Most Downgraded Stocks

Net # of Upgrades as % of Analysts Covering Stock


20%

20%

15%

14%

13%

13%

13%

12%

12%

11%

Snap-on Incorporated

Public Service Enterprise Group Incorporated

Safeway Inc.

E*TRADE Financial Corporation

BB&T Corporation

Moody's Corporation

H&R Block, Inc.

The Sherwin-Williams Company

The J. M. Smucker Company

Pinnacle West Capital Corporation

-67%

-29%

-25%

-25%

-20%

-20%

-15%

-12%

-11%

-11%

Prologis, Inc.

J. C. Penney Company, Inc.

NRG Energy, Inc.

Boston Properties, Inc.

HCP, Inc.

Ventas, Inc.

Rockwell Collins, Inc.

The Clorox Company

Alcoa Inc.

International Paper Company

22



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Overweight(buy)

Neutral(hold)

Underweight(sell)

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JPMS Equity Research Coverage 42% 50% 8%IB clients* 76% 65% 57%

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23



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24



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