J.P. Morgan: Expensive valuations of risk assets provide headwind to future returns

J.P. Morgan: Expensive valuations of risk assets provide headwind to future returns

December 7, 2020

Equity
Beursvloer (01)

Valuations across equity and credit markets are richer today than coming out of the Global Financial Crisis recession. As we discuss in our Investment Outlook 2021: Bridge over troubled waters, investors will have to work harder to get the return they desire from risk assets in their portfolios. 

This year, policymakers took extraordinary actions to bridge the gap for consumers and businesses to the other side of the Covid-19 crisis. These measures have done a good job of supporting economies and markets. The fall in real rates has supported valuations while earnings have suffered, and liquidity injections from central banks have helped credit spreads tighten. But investors should remember that long-term returns are generally affected by starting valuations – the emphasis going forward will have to be on selectively identifying regions, sectors and companies that have the most underappreciated earnings prospects.

Forward price-to-earnings multiple (LHS); % point option-adjusted spread (RHS)

JPMorgan_Insights_Weekly_Brief_EN

Source: Bloomberg Barclays, ICE BofA, MSCI, Refinitiv Datastream, S&P, J.P. Morgan Asset Management. Global HY: ICE BofA Global High Yield; Global IG: Bloomberg Barclays Global Aggregate – Corporates. Data as of 30 November 2020.

Related posts