📝Adding Marginally to Our Bond Allocation: J.P. Morgan Strategy

We take profit on last month􏰀s move and add 1% back to our Bonds allocation. Geopolitics, valuations and less pro- nounced positioning call for increasing our small Bonds OW. Recent shifts in Fedspeak challenge the market􏰀s rate hike plans as the uptick in yields and steepening of the yield curve can function in lieu of the rate hike that the market had been expecting, with the likelihood of a hike into year-end dwindling.

We now add to our duration exposure given the uptick in yields and steepening in the last few months. Even as yields and steepness have come off the recent highs, we are encouraged by positioning turning more neutral than it has been since the spring.

The higher yields and steepening also support our bullish dollar view, as the long-end yields confirm the carry advan- tage and add to US exceptionalism ( we also low- ered our 4Q23 EUR/USD target to parity.

Our recent work on cross-as- set risk premia confirms an unfavorable tradeoff for stocks vs bonds, but perhaps surprisingly this tradeoff is also unattract- ive for the SPX ex Tech, which is screening expensive.

As for sector performance following the final Fed hikes, Insurance, Staples and Utilities stand out as outperformers in the history for both US and Europe, confirming our more defensive orientation.

- J.P. Morgan Strategy