Every quarter I like to do a summary of JP Morgan's Guide to the Market. It's a great summary of where markets are and always gives me good insights. Writing about it helps give clarity to my own thoughts.

Here is the 🧵. I hope it is helpful.

Valuations stayed basically where they were at about 22x forward earnings. When regressed against past returns, this implies a slightly negative return over the next 5 years. Of course, interest rates haven't been this low before so adjustments should be made for that
YoY EPS growth went from a -33% in Q2 to -5% in Q3. Progress!

Despite dividends declining 5% over the last year, the energy sector is still offering a dividend yield of 6.5%.
Growth is still not as expensive relative to value as we saw during the dot com bubble. The weight of the top 10 stocks in the S&P 500 came down but still sits near all time highs (28.6%). These companies do contribute 24% to earnings
The valuation spread is huge. The 20th percentile in the S&P 500 has a P/E of ~12x and the 80th percentile has a valuation of ~33x.

Certainly feeling like we are nearing the inflection point for value stocks.
Nothing is cheap, but small cap value stocks are the least expensive, trading at 107% of their 20 year trailing P/E. Given interest rate declines over the last 20 years, this doesn't seem terribly expensive.

Small cap growth is trading at 199% (!) of the past 20 year average.
Despite its decline, energy stocks still look pretty expensive, trading at 31x forward earnings

The healthcare sector looks pretty attractive at 16x forward earnings. Does anyone have a good beat as to why this sector is trading at lower multiples?
COVID fatalities had become decoupled from confirmed cases but now appear to moving in lock step as testing has become more consistent.
The growth in hotels and travel has stalled and people eating at seated diners has begun to decline again. This vaccine cannot come quick enough.
My kids are up now so more to come later :)
Consumer still in really strong position. Despite debt service ratio coming up slightly, it's still very low (9%). Household net worth is extremely high as well. Of course, these numbers are averages, not medians so they could be top heavy. Top 10% now account for 50% of income
Working age population growth in the U.S. is stalling due to an aging population and fewer immigrants. The work force is projected to grow just 0.2% annually over the next 10 years
Core CPI has stayed low at 1.7%. I've seen anecdotal evidence of rising prices but it doesn't seem to have made it through in the numbers yet. The Fed is still only projecting 2% inflation over the next 5 years
Despite US rates falling, it still has a positive rate differential (+1.1%) vs its major trading partners
30 yr US Treasuries still look pretty attractive when considering the yield vs correlations. They are yielding around 1.9% and have a correlation of around -0.35.
Spreads on both IG and HY are extremely low and don't really look all that attractive at this point.

EM Debt is the only sector trading above its long-term spreads
Duration on IG corporates is now at 8.8 years - very high. Could be a bad year for corporates should interest rates continue to climb and spreads blow out if we get a protracted recession
Taking another break. More to come later
Despite international doing well this quarter, the spread in valuations that began widening in 2012 is still very large. International stocks are trading at 16.7x forward earnings vs US at 22.3x. EM trading at only 1.99x book.
Developed markets are trading at 79% of the P/E of U.S. markets. This is almost 2 standard deviations outside the norm.
Mobility in developed markets has really fallen off as cases have picked back up. While mobility is down about 20% over the last year in the US it looks like it is down 40-60% in other developed markets.
Interestingly, the fiscal response in European countries seems to be centered around loans and guarantees. In the U.S. it has been driven more around spending and revenue measures.
I had never noticed this before, but the number of listed companies in the U.S. has risen substantially in the last 2 years (SPACS?) and now sits at 6,179. Still not near the 8,000+ we saw in 97/98. Companies are still taking longer and longer to go public.
Vacancy rates in Industrial sectors are still extremely low (<5%). Vacancy rates across all sectors are still low relative to historic norms.
Inflation adjusted gold prices are back near all time highs. Will be interesting to see how it reacts if we get unexpected inflation.

Relative to historic norms, other commodities are still trading at very low levels. Livestock in particular is on the low end range. not sure y
The average investor has earned just 2.5% per year over the last 20 years. Diversified target date funds still are probably the best option for the vast majority of investors.
That's it - hope it was helpful!

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More from @InstAllocator

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Part of my issue with the whole Parler thing is when does a company go from a company to the obligation of free speech? Does anyone have a framework around this?

When I think about issues like this I think of them on a continuum and go to the extremes. 1/x
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Interesting stats from the treasure trove that is JP Morgan's Guide to the Markets:


Forward P/E is now 21.7 and highest since '00 and implies a 0% return over next 5 years if past regression holds true😬

2. Growth is now 0.97 standard deviations away in relative value vs. value stocks. We have seen 3 standard deviation events ('99) so the imbalance could get worse before it gets better. Growth is now trading at 29.8 P/E - 158% higher than 20 year trailing history
3. Consumer discretionary now trading at 45 x forward P/E. Healthcare is trading closest to its 20 year forward P/E average
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