Economy, Markets Resilient to  Shutdown Risks, JPMorgan Says - video Dailymotion

Watch Economy, Markets Resilient to  Shutdown Risks, JPMorgan Says - Bloomberg on Dailymotion

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00:00I do think that, historically speaking, we tend to see a lot of noise around government shutdowns.

00:04But when we do look historically, typically markets do remain quite unaffected

00:09between the beginning of the event and then when it ends.

00:13But I do think with that, there are more important drivers for markets.

00:18But I think that's also going to play out in terms of what's a little bit different this time around

00:22for this potential government shutdown.

00:25Firstly, you have the administration talking about potential for permanent job cuts

00:29rather than just temporary furlough.

00:31You have the potential for a delayed jobs report that could muddy that decision-making for the Fed.

00:36And then, of course, you also have globally fiscal stress rising as well.

00:39So I think those factors might create a little bit more noise this time around.

00:43But broadly speaking, we do believe in the underlying strength of the economy and the market.

00:48How do you think about valuations at this point?

00:50I keep seeing lots of stories, people thinking about whether something has fundamentally, structurally changed

00:54that justifies PEs perhaps trading at a much higher multiple than their recent history or than history would suggest.

01:02And lots of people pointing to some sensible reasons why it might be different this time

01:05and we should expect things to be more expensive than they were.

01:08And some saying, you know, that's a constant drift upwards in valuation

01:11and others saying, no, we just drift up once and we re-anchor at a higher level.

01:14How are you thinking about the valuation story?

01:16I am in the camp of believing that these higher valuations are justified.

01:20And I do think that it's important to point to those structural and those cyclical reasons.

01:24Structurally, we know that the index, you know, mix shift has changed quite considerably

01:29over the course of the last 20 years with a much higher proportion towards technology and communication services.

01:35And those have driven the lion's share of not just, you know, the market rally,

01:39but I think this brings into the cyclical point of earnings growth as well.

01:43So we've seen the Magnificent Seven grow earnings last quarter, 28% year over year.

01:48That matched what we saw the quarter prior.

01:50We do think that, you know, shifts back down to around 15% year over year in the next quarter.

01:55But importantly, that's still quite, I think, profound earnings growth.

01:59And then from there as well, when we historically look at Fed easing cycles,

02:03typically risk assets tend to outperform quite meaningfully when the Fed starts cutting.