not to sell in may

7/30/2019 NOT to sell in May

1/23www.jpmorganmarkets.c

North America Equity Research02 May 2013

US Equity Strategy FLASHNew cycle lows in HY spreads another reason NOT tosell in May; Contrarian to stay Cyclical in 2Q; 17 ideas

Portfolio Strategy

Thomas J Lee, CFAAC

(1-212) 622-6505

[email protected]

Katherine C Khor

(1-212) 622-0934

[email protected]

J.P. Morgan Securities LLC

See page 21 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 tfirm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factormaking their investment decision.

There are really two storylines supporting a constructive thesis on equity markets: (i)

falling equity risk premia (ERP) driving a re-rate and/or (ii) reflation/cyclical lift

driving earnings. On the former, investors are primarily leveraging this by seeking

spread compression equities, or bond-like equities, and re-rating those higher

hence, dividend stocks (although ironically, in past regimes of falling ERP, Cyclicals

usually have led). And naturally, in a reflationary world, capital spending rises

(incentives created), driving top-line/EPS acceleration and, thus, Cyclicals lead.

Neither is mutually exclusive, but the falling ERP remains the more credible base case

in investors consensus.

Balance of 2Q: what storyline leads? Referring to some axioms relied upon as

former sector analyst. In 2013, the cadence of the economic data, alternating

between cyclical lift and softness, has tilted towards soft-side readings recently

resulting in falling inflation expectations (TIPS, commodities, etc.) and, thus,

providing more support for an ERP thesis than cyclical lift/reflation. In any case, the

key question for the investor is what storyline gains credibility over the balance of

the 2Q (8 weeks). To answer this, we refer to axioms relied on during 15 years

(1993-2007) as former equity sector analyst covering Wireless Services (prior to

taking the mantle as Equity Strategist at J.P. Morgan).

Rule #1: The credit market (high-yield) is right (usually)High-Yield spreads

at new lows point to continued new highs for equities, or no sell in May.

Foremost, we learned in the early 1990s (and heard repeated many times from HY

counterparts), high-yield markets lead equities. This was particularly true covering

the capital-consuming wireless sector which relied on access to debt markets for

viability. What is it telling us at the moment? Take a look atFigure 3; HY spreads

recently fell to new tights (lows) for this cycle, at 484bp STW (below previous tights

of 503bp on 3/13). As we have noted many times in the past 4 years, new HY tights

point to new highs in equity levels, providing a supportive backdrop for stocks to

continue to build upon recent highs. The flip-side of this is the positive backdrop

for HY is negated if spreads widen by 25bp, or rise above 514bp STW.

Rule #2: Crowd is usually wrongthus, no sell in May. In The Wisdom of

Crowds, James Surowiecki argued that the judgment of the crowd is usually right

unless judgments are not derived independently (contrasting how many gumballs in

a jar vs. stock markets). We found this particularly pertinent when consensus is

grounded on intuitive arguments. Take the current consensus of sell in May

many guideposts argue for this: (i) treasury yields and commodities have plunged;

(ii) downside reads in economic data; and (iii) this has held up in 2010, 2011 and

2012, so why should 2013 be any different.

Source: J.P. Morgan, FactSet, Bloomberg.

Performance:

S&P500(LHS)5/2/131,598

Cyclicals(RHS),

5/2/13, 109

Defensives(RHS)5/2/13117

10

10

10

10

10

11

11

11

11

11

12

1,400

1,450

1,500

1,550

1,600

1,650

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

S&P500 (LHS) Cyclicals (RHS)

Defensives (RHS)

2Q12 3Q12 4Q12 1Q13 QTD

S&P500 (3%) 6% -1% 10% 2% 1

Cycl (Mat, IT, Disc, Ind) (5%) 5% 0% 8% 1%

Near- Cycl(Ener, Fin) (7%) 8% 1% 10% 1% 1

Def(Stpl, HC, Tel, Util) 5% 3% -3% 12% 4% 1

Valuation:

2013E 2014E

S&P500 Level 1598

EPS $110 $117

P/E (current) 14.5x 13.7x

Div Yield 2.2% 2.4%

S&P500 Year-End Targets:

Price 1580

P/E 13.2x 13.5x

Sector Ratings:

Overwei ght Neutral

Materials Telecom

Industrials

Discretionary Underweight

Technology Staples

Financials Utilities

Energy

HealthCare


2/23

2


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

We want to take the other side of this trade for multiple reasons, but the three most

notable: (i) client positioning is diametrically opposite of that in the last 3 yearsHF

beta, for instance, rather than registering the highs of the year in April (as was the casein 2010, 2011 and 2012) today is at the lowest levels since 8/12 (seeFigure 6); (ii) we

believe the early downturn in gasoline (and other commodities) will act as stimulus in

coming weeks by as much as 50bp lift to GDP (q/q)in past 3 years, gasoline surged in

2Q and thus was a headwind; (iii) the message from continued improvement in jobless

claims (new cycle lows this week at 324k) and the rally in HY market in the face of

mixed economic data argues the seasonal weakness in the economy is not likely to play

out in 2Q as in past years.

Rule #3: Give ideas time to workCyclicals (make that High FCF Yield Cyclicals)

should lead in 2Q. Being non-consensus also means feeling off-sides away from the

safety of the crowd. Thus, it is tempting to consider cutting losses and moving to

consensus. In our view, the continued outperformance of Defensives into 2Q is

consensusafter all, if one were to position for a sell in May, why look to buy a

Cyclical? And as noted above, the HF beta at new lows argues for investors expecting

a sell-off. We continue to support OW Cyclicals through 2Q, albeit, high-FCF yielding.

History supports this as we have noted in recent notes: (i) 1Q laggards have led in 2Q in

11 of 13 years (exceptions 2002 and 2008,US Equity Strategy FLASH: 1Q Laggards

to Outperform 2Q dated 4/4/13); (ii) the recent material underperformance of

Cyclicals by 821bp is the 8th worst since 1973, and in the 10 worst Cyclical

underperformance periods they outperformed in the following quarter 9 of 10 times (see

US Equity Strategy FLASH: Europe Feedback Part II dated 4/26/13); and (iii)

while valuations are not necessarily the reason to create turning points, Cyclicals trade

at the largest discount to Defensives (30%) since 1990 (seeFigure 7).

Obviously, improvements in economic data or policy backdrop will be key. Visibility

in the US housing recovery remains impressive and this is still a multi-year story.

There is also room for policy surprise in Europe whether from the ECB or potentiallyfrom an easing of austerity measures. And we continue to see the continued

improvement in US jobless claims as pointing to an economy sustaining momentum

despite concerns about seasonal weakness and sequester cuts.

What could go wrong? Consensus continues to be right in avoiding Cyclicals. The

risk to this view is that the consensus is right, more so on the favoring of Defensives.

Therefore, we would see the following as undermining our views: (i) evidence emerges

the price weakness in commodities is DUE TO DEMAND, thus, no 2Q lift; (ii) US

sequester is more severe than anticipated leading to further misswe will have some

sense looking at the April payrolls report; and (iii) the divergences last longer than

expected and Cyclicals extend their underperformance another quarter.

MARKET STRATEGY: 17 Ideas Our base case for the next two months, therefore, sees

equities higher through end of 2Q and Cyclicals outperforming during that period. But as

noted in past reports, we would rather buy high-FCF yield equities (over dividends),

inclusive of Cyclicals and other areas of the market. We have identified 17 stocks using

the following criteria: i) High FCF Yield (in the highest quartile of FCF yield, translating

to FCF Yield 5.5%); ii) OW rated by J.P. Morgan analysts; iii) High Dividend Yield

(above 2%); and iv) Positive upside to J.P. Morgan price targets. The tickers are: UFS,

TEVA, CA, AAPL, CMTL, STJ, CG, PRU, BBY, WFC, TWC, BA, SPLS, KEY,

CBL, CTL and GD (see Figure 8).
https://markets.jpmorgan.com/CFP_Research/ArticleServlet?doc=GPS-1088597-0&referrerPortlet=search_analysthttps://markets.jpmorgan.com/CFP_Research/ArticleServlet?doc=GPS-1088597-0&referrerPortlet=search_analysthttps://markets.jpmorgan.com/CFP_Research/ArticleServlet?doc=GPS-1088597-0&referrerPortlet=search_analysthttps://markets.jpmorgan.com/CFP_Research/ArticleServlet?doc=GPS-1105943-0&referrerPortlet=search_analysthttps://markets.jpmorgan.com/CFP_Research/ArticleServlet?doc=GPS-1088597-0&referrerPortlet=search_analysthttps://markets.jpmorgan.com/CFP_Research/ArticleServlet?doc=GPS-1088597-0&referrerPortlet=search_analysthttps://markets.jpmorgan.com/CFP_Research/ArticleServlet?doc=GPS-1105943-0&referrerPortlet=search_analyst


3/23

3



Figure 1: Summary Statistics S&P 500

Source: J.P. Morgan, FactSet and Bloomberg.

Figure 2: Potential Catalysts

Source: J.P. Morgan and FactSet.

Related ETF

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

GICS # Index Index T icker Pr ice (NT M) Meter Wk Ago 1 week 1 month YTD YTD - - - Neutra + + +

S&P 500 I ndex 1,583 S PY $158.28 15.1x 236 18 0.2 0.9 11.0 12.5

Russell 2000 947 IWM $91.82 15.6x 201 12 1.9 (0.4) 11.6 8.4

Cyclicals15 Materials 245 XLB $38.85 15.0x 184 48 1.0 (1.2) 2.9 1.4 - - | 1% -

25 Discretionary 430 XLY $54.32 15.5x 249 24 0.6 2.4 14.5 15.7 - - | 1% -

20 Industrials 355 XLI $40.91 14.5x 226 25 0.6 (2.0) 7.9 7.9 - - | 1% -

45 Technology 483 XLK $30.53 14.6x 216 9 2.8 0.0 4.2 10.2 - - | 1% -

Near-Cyclicals

10 Energy 569 XLE $77.05 12.9x 229 6 0.8 (2.5) 6.8 7.7 - - 0% - -

40 Financials 249 XLF $18.49 12.4x 268 23 0.4 1.6 12.7 14.9 - - | 2% -

Defensives

30 Staples 422 XLP $40.90 17.5x 250 31 (1.4) 2.7 16.9 19.0 -3% - | - -

35 Health Care 543 XLV $46.83 14.8x 235 30 (2.8) 1.8 17.3 14.3 - - 0% - -

50 Telecom 166 IYZ $26.45 17.9x 197 (5) (1.7) 5.0 13.6 10.5 - - 0% - -

55 Utilities 208 XLU $41.02 17.0x 236 4 0.5 4.9 17.3 17.6 -3% - | - -

Monday Tuesday Wednesday Thursday Friday

5/6 5/7 5/8 5/9 5/10

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

2:00pm Senior loan officer survey (2Q, tentative) 10:00am JOLTS (Mar) 8:30am Initial claims (w/e prior Sat) 2:00pm Federal budget (Apr)

3:00pm Consumer credit (Mar) 10:00am Wholesale trade (Mar)

Corporate Corporate Corporate Corporate Corporate

J.P. Morgan Events J.P. Morgan Events J.P. Morgan Events J.P. Morgan Events J.P. Morgan Events

Asia Rising Dragons Forum (Kuala Lumpur) Asia Rising Dragons Forum (Singapore) Asia Rising Dragons Forum (Singapore) Asia Rising Dragons Forum (Hong Kong) Asia Rising Dragons Forum (Hong Kong)

Earnings: APC, AMTG, AVID, BPI, DPM, EOG, FTR, GDP, GWAY,

HOLX, ORBK, PAA, PL, PSB, QLYS, RPAI, SMG, STAG, SHO,

SYY, TLLP, SSP, TSN, VNO, WLK

Earnings: ARAY, AER, ARC, ARB, ARCC, ARIA, CAR, BMC,

CHRW, CA, CHTR, CHSP, XEC, CNK, GSJK, DVA, DNDN, DTV,

DISCA, DISH, DIS, DEI, DRQ, EMR, ENDP, EXEL, GTY, GSM,

LOPE, HCN, HTA, HSIC, HFC, HUSKF, IFF, KGC, LPX, LUFK,

MAKO, MRO, MCK, MODN, TAP, MDLZ, MYGN, OAK, OMX,

ONXX, PLT, QLTY, RAX, RLOC, REG, RBCN, RHP, SD, BOX,

SGEN, SLRC, SYMC, TRNX, TW, TRIP, UUU CN, VVUS, WFM,

WMB, WPZ, WYNN

Earnings: AMRN, APO, BR, CSTE, CRZO, CTL, CLVS, CTSH,

CLR, CUZ, TRAK, DTSI, ETP, FSC, FOSL, G NMK, GEI CT, GLP,

GRPN, HL, HII, INFI, LAMR, MWE, MDVN, MBLX, NWSA, NICE,

OILT, PVA, PNNT, PRGO, PPO, KWK, RGP, SLH, WEN, TC, THI,

TDG, VSI, WPRT

Earnings: AGU, AL, AMCX, APEI, APA, BVMF3 BZ, BBD/B, CVC,

CFN, CF, CDE, CTB, CPA, CPNO, DF, ESE, EVEP, ET, FXCM,

GXP, PODD, LPI, LPR, MNKD, MPEL, MNST, NVDA, OREX,

PCLN, PSA, SVNT, SODA, GEVA, TSLA, CG, THS, VRTU, VC,

WR, WIN

Earnings: ARX, FOLD, BTE, BECN, CCXI, DDS, IAG SM, MGA,

MCP, NCLH, QRE, RNDY, SGNT, SLW, SIRO

Relevant Sector ETFs

Double Sectors Sing le Double

DU G E nergy XLE DIG

SMN M aterials XLB UYM

SIJ Industrials XLI U XI

S CC Discretionary XLY U C CSZK S taples XLP U G E

RXD Health C are XLV RXL

SKF Financials XLF U Y G

REW Technology XLK ROM

Telecom IYZ

SDP U tilities XLU UPW

SDS S&P 500 SPY SSO

**Single beta ETFs based on SP500, Double Beta & Telecom on DJ Indicies.

Positive BetaNegative Beta


4/23

4



Credit markets are right (usually) and HY sees equity marketscontinuing to rally...

Equities, as the junior piece of the capital structure, will generally take their cues from corporate bonds, as long as valuations incorporate bonds are not extremely over-valued. For most of the last 30 years, equities were most closely linked to high-grade butsince 2009 the most correlated market has been high-yield.

Take a look at Figure 3; HY spreads recently fell to new tights (lows) for this cycle, at 484 bp STW (below previous tights of503bp on 3/13).

As we have noted many times in the past 4 years, new HY tights point to new highs in equity levels, providing a supportivebackdrop for stocks to continue to build upon recent highs.

The flip-side of this is the positive backdrop for HY is negated if spreads widen by 25bp, or rise above 514bp STW.

Figure 3: JPM Global HY Spreads

Bloomberg CSSWHYI Index

Source: J.P. Morgan and Bloomberg.

4/26/10574.0

4/8/11499.0

3/14/12624.0

2/12/10710.0

6/9/10737.0

6/25/11605.0

6/5/12745.0

5/1/13484.0

4001/10 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,

4/23/10, 1217

S&P500 Peak,

4/29/11, 1364

S&P500 Peak,

4/02/12, 1419


5/23

5



How much can equities ultimately re-rate? High-Yield indicates 18x P/E ratio, High-Gradesays 29.5xwell above todays 13.9x

The question is, naturally, how high can the equity P/E re-rate?

Take a look at Figure 5below. The divergence between the equity market P/E and those of credit continues to widen. To

illustrate the differences in valuation, we inverted the yield of the HG and HY markets.

For instance, in 2009, equities traded at only a 4.6x discount to HG bonds and were actually at PREMIUM to HY by 3.1x.

Today, the difference has widened sharply. The discount to high-grade bonds is now 15.6x (HG trades at a 29.5x P/E) andequities are now at a discount to HY bonds (4.1x turn discount).

Figure 4: S&P 500 Forward P/E

Since 2009

Source: J.P. Morgan and Bloomberg.

Figure 5: Forward P/E of S&P 500, High Yield and High Grade

NTM P/E and inverted yield for high-grade and high-yield.

Source: J.P. Morgan, Bloomberg, Thomson Reuters. Note: Year reflects P/E as of 12/31 of respective year, i.e.

2009 reflects 12/31/2009.

5/1/13

13.8x

10.0x

11.0x

12.0x

13.0x

14.0x

15.0x

16.0x

1/1/09 7/1/09 1/1/10 7/1/10 1/1/11 7/1/11 1/1/12 7/1/12 1/1/13 7/1/13

S&P5

00NTMP

/E

14.0x13.1x

12.3x13.2x

13.9x

10.9x

12.9x11.6x

15.8x

18.0x18.6x

20.9x

23.2x

28.7x29.5x

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

2009 2010 2011 2012 5/1/2013

NTMP/E

S& P 50 0 J PMorgan Hig h Y ie ld I nd ex JU LI In de x- 4.6x discount to High-Grade

+ 3.1x PREMIUM to HY

- 15.6x discount to

- 4.1x DISCOUNT to


6/23

6



The market is positioned for a sell-offmost notable is that HFBeta is NEGATIVE

The consensus of sell in May is built on multiple arguments but the most prominent seem to be: (i) treasury yields andcommodities have plunged; (ii) downside reads in economic data; and (iii) this has held up in 2010, 2011 and 2012, so why should2013 be any different.

We want to take the other side of this trade for multiple reasons, but the three most notable: (i) client positioning is diametricallyopposite of that in the last 3 yearsHF beta, for instance, rather than registering the highs of the year in April (as was the case in2010, 2011 and 2012) is at the lowest levels since 8/12 (see Figure 6); (ii) we believe the early downturn in gasoline (and othercommodities) will act as stimulus in coming weeks by as much as 50bp lift to GDP (q/q)in past 3 years, gasoline surged in 2Qand thus was a headwind; (iii) the message from continued improvement in jobless claims (new cycle lows this week at 324k) andthe rally in HY market in the face of mixed economic data argues the seasonal weakness in the economy is not likely to play outin 2Q as in past years.

Figure 6: Hedge Fund Beta

Rolling 21-day beta of macro and equity long/short hedge-fund returns to the S&P 500

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.

5/1/13(0.034)

1/27/12(0.258)

7/12/12

(0.260)

3/30/100.369

5/10/110.569

3/20/12

0.404

Contrarian Sell Signal

Contrarian Buy Signal

(0.50)

(0.30)

(0.10)

0.10

0.30

0.50

0.70

0.90

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,

4/23/10, 1217

S&P500 Peak,

4/29/11, 1364

S&P500 Peak,

4/02/12, 1419 Hedge-fund

RISK-ON

(Contrarian Sell)

Hedge-fund

RISK-OFF

(ContrarianBuy)
https://markets.jpmorgan.com/CFP_Research/CFP?page=analyst_page&analystId=U943533&referrerPortlet=research-doc-analystshttps://markets.jpmorgan.com/CFP_Research/CFP?page=analyst_page&analystId=U943533&referrerPortlet=research-doc-analystshttps://markets.jpmorgan.com/CFP_Research/CFP?page=analyst_page&analystId=U943533&referrerPortlet=research-doc-analystshttps://markets.jpmorgan.com/CFP_Research/CFP?page=analyst_page&analystId=U943533&referrerPortlet=research-doc-analysts


7/23

7



Cyclicals should lead in 2Qultimately

We continue to support OW Cyclicals through 2Q, albeit, high-FCF yielding. History supports this as we noted in recent notes:

(i) 1Q laggards have led in 2Q in 11 of 13 years (exceptions 2002 and 2008 seeUS Equity Strategy FLASH: 1Q Laggards to

Outperform 2Q dated 4/4/13);

(ii) The recent material underperformance of Cyclicals by 821bp is the 8th worst since 1973, and in the 10 worst Cyclicalunderperformance periods, they outperformed in the following quarter 9 of 10 times (seeUS Equity Strategy FLASH:Europe Feedback Part II dated 4/26/13); and

(iii) While valuations are not necessarily the reason to create turning points, Cyclicals trade at the largest discount to Defensives(30%) since 1990 (see Figure 7).

Figure 7: Cyclicals vs Defensives P/E

Since 1973

Source: J.P. Morgan, Bloomberg and Datastream.

-50%

-30%

-10%

10%

30%

50%

70%

50%

70%

90%

110%

130%

150%

170%

190%

1/73 1/75 1/77 1/79 1/81 1/83 1/85 1/87 1/89 1/91 1/93 1/95 1/97 1/99 1/01 1/03 1/05 1/07 1/09 1/11 1/13

Cyclicalsvs.

Defensives(1-yrforward)

Cyclicals/Defensives(LTM

PE)

Cyclicals less Defensives (1-yr return) (right-axis) Cyclicals/Defensives (LTM PE) (left-axis)
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8



MARKET STRATEGY

Our base case for the next two months, therefore, sees equities higher through end of 2Q and Cyclicals outperforming during thatperiod. But as we have noted in past reports, we would rather buy high-FCF yield equities (over dividends), inclusive of Cyclicalsand other areas of the market. We have identified 17 stocks, listed in Figure 8,based on the following criteria:

High FCF Yield (in the highest quartile of FCF Yield, translating to FCF Yield 5.5%);

OW rated by J.P. Morgan analysts;

High Dividend Yield (above 2%); and

Positive upside to J.P. Morgan price targets.

These 17 names (see Figure 8) have an average upside potential to target prices of 15%, as well as an average 2013E P/E of 11.0xand a 1.42x P/B. On average, they have 18% FCF Yield and 3% Dividend Yield. The tickers are: UFS, TEVA, CA, AAPL,CMTL, STJ, CG, PRU, BBY, WFC, TWC, BA, SPLS, KEY, CBL, CTL and GD.


9/23

9



Figure 8: 17 Ideas, priced as of 5/1/13

Source: J.P. Morgan and Bloomberg

JPM Coverage Screen Metrics (2 of 2) EPS and Valuation

Name Sub-Industry Ticker

Current

Price

Market

Cap

JPM

Rtg JPM Analyst

arget

Price

Implied

Upside

High FCF Yield

(>=5.5%)

High Div

Yield (>2%)

2013E

EPS

P/E

('13E) P/B

1 Domtar C orp. Paper Products UFS $67.96 $2,314 OW Phil Gresh, CFA $95.00 40% 11.0% 2.3% $5.47 12.4x 0.83x

2 eva Pharmaceutical InduPharmaceuticals EVA $38.10 $35,952 OW Chris Schott, CFA $50.00 31% 7.9% 2.6% $5.05 7.5x 1.43x

3 CA Inc. Systems Software CA $26.80 $12,219 OW John DiFucci $34.00 27% 8.9% 4.0% $2.53 10.6x 2.23x

4 Apple Inc. Computer Hardware AAP L $439.29 $412,339 OW Mark Moskowitz $545.00 24% 9.1% 2.4% $39.76 11.0x 3.05x

5 Comtech TelecommunicatCommunications Equipment CMTL $23.84 $401 OW Joseph B. Nadol III $29.00 22% 5.5% 4.5% $0.82 28.9x 0.97x

6 St. Jude Medical Inc. Health Care Equipment STJ $40.70 $11,522 OW Michael Weinstein $49.00 20% 6.1% 2.3% $3.70 11.0x 3.14x

7 Car ly le Group LP Asset Management & Custody Ban CG $31.83 $1,376 OW Kenneth B. Worthington, C $37.50 18% 98.3% 2.1% $3.12 10.2x 1.29x

8 Prudential Financial Inc. Life & Health Insurance PRU $59.28 $27,583 OW Jimmy S. Bhullar, CFA $69.00 16% 73.4% 2.7% $7.86 7.5x 0.71x

9 Best Buy Co. Inc . Computer & Electron ics Retai l BBY $25.90 $8,774 OW Christopher Horvers, CF $29.00 12% 13.7% 3.1% $2.19 11.8x 2.86x

10 Wel ls Fargo & Co. Divers if ied Banks WFC $37.46 $198,118 OW Viv ek Juneja $41.00 9% 26.5% 2.6% $3.71 10.1x 1.32x

11 ime Warner Cable Inc. Cable & Satellite WC $94.37 $27,458 OW Philip Cusick, CFA $103.00 9% 5.9% 2.3% $6.43 14.7x 3.98x

12 Boeing C o. Aerospace & Defense BA $91.18 $69,177 OW Joseph B. Nadol III $98.00 7% 5.8% 2.1% $6.46 14.1x 9.27x

13 Staples Inc. Specialty Stores SPLS $13.08 $8,744 OW Christopher Horvers, CF $14.00 7% 6.6% 3.3% $1.33 9.9x 1.43x

14 K eyCorp Regional Banks KEY $9.88 $9,115 OW Steven Alexopoulos, CF $10.50 6% 11.0% 2.0% $0.88 11.2x 0.91x

15 CB L & Associates ProperRetail REITs CB L $23.57 $3,851 OW Michael W. Mueller, CFA $25.00 6% 8.0% 3.7% $0.62 38.0x 2.87x

16 CenturyLink Inc. Integrated Telecommunication ServicCTL $37.19 $22,857 OW Philip Cusick, CFA $38.00 2% 5.8% 8.3% $2.66 14.0x 1.21x

17 General Dynamics Corp. Aerospace & Defense GD $73.78 $26,058 OW Joseph B. Nadol III $75.00 2% 6.2% 2.9% $6.75 10.9x 2.25x

Average 15% 18% 3% 11.0x 1.43x


10/23

10



US Equity Strategy Recent Publications

US Strategy

Europe Feedback Part II: Too Consensus to Be UW Cyclicals and to Sell in May. 11Ideas. 4/26/13

S&P 500 1Q EPS: Doubts emerging about global growth: But we see 1Q at $26.75,$107 annualized. Investors cautious like 2Q12/4Q12. 20 Ideas. 4/19/13

Capitulating on "correction call". Case for FCF yield in 2Q. 25 ideas. 4/11/13

1Q Laggards to Outperform 2Q: Technology and Materials. More than Seasonals. 20Ideas. 4/4/13

Still see mixed risk/reward but performance anxiety and buybacks strong support.Focus on 1Q laggards for 2Q. 13 ideas. 3/7/13

Stepping Aside Short-Term; Fade Strength and Look for Better Entry Point Around1400-1450; Big Picture Constructive. 2/22/13

The Big Picture Remains Positive, Even as Rally Is Maturing Short-Term; 42 Ideas. 2/14/13

Advocating shift to high-quality. Lower risk short-term. Still see further gains prior to asell-off in 1H. 19 ideas. 1/31/13

P/E converging with CCC-bonds? ST constructive even as we reach 1H target of 1500.

36 ideas. 1/24/134Q12EPS Preview: Bar not high: investors more cautious than in front of 3Q3Q wastrough in growth. 26 ideas. 1/17/13

Stay constructive as active manager performance, low HF beta, and strong HY point tofurther gains. 20 ideas. 1/10/13

A very solid start for 2013. Favor Materials, Energy and Technology 1/3/13

Final thoughts on 2012. While Cliff fears weigh, Cyclicals outperform since mid-Dec12/31/12

Focus on Broken Stocks Like Late 2011; Raising YE Target to 1450 (from 1440); 20Ideas 12/20/12

Special Reports

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

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

SMid-Cap Perspective: Small-cap outperformance cycle underway. Raising Russell2000 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 1495Short-TermMarkets Base Case is Obama Victory 9/20/12

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

3PointsTV Video

(Click the links below for 3PointsTV and to view the required video, click on thePLAYLIST option in the video screen.)

Key takeaway from Europe, investors too defensive 4/26/13

1Q laggards outperform in 2Q 11 of last 13 years. 4/5/13

Still like small-caps and small-cap value. 3 new ideas. 3/22/13

Buybacks + perf anxiety support stocks. Favor laggards. 3/8/13

An upcycle in small-caps is underway thru 2014 2/8/13

Stay constructive but advocate switch to high quality. 2/1/13

Stay constructive even as we reach 1500 1H target. 1/25/13

4Q results should be supportive of equities. 1/18/13

Stay constructive given surge in HY and low client beta. 1/11/13

Raising S&P 500 target incrementally to 1450 from 1440. 12/21/12
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11/23

11



Ownership vs. Valuation Matrices

Figure 9: Comparative Risk Reward of Industries Ownership vs. Valuation MatrixX-axis is relative valuation; Y-axis is institutional ownership

Source: J.P. Morgan and FactSet., as of 4/26/13

Figure 10: Comparative Risk Reward of Styles Ownership vs. Valuation MatrixX-axis is relative valuation; Y-axis is institutional ownership

Source: J.P. Morgan and FactSet. as of 4/26/13

Energy Equip & Svcs

Oil Gas & ConsumableFuels

Chemicals

Metals & Mining

Paper & ForestProducts

Aerospace & Defense

Building Products

IndustrialConglomerates

MachineryCommercial Svcs/Supp

Airlines

Other TransportsAutos/Components

Consumer Durables &Apparel

Casinos & Gaming

Hotels, Resorts &Cruise Lines

Restaurants

Media

Internet & CatalogRetail

Multiline Retail

Specialty Retail

Food & Staples Retail

Food Beverage &Tobacco

HH & PersonalProducts

HealthCare Equip/Svcs

Biotech

Pharm

Life Scnces Tools &SvcsBanks

Dvrsfd Financial Svcs

Consumer Finance

Capital Markets

Insurance

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

RankofInsti

.OwnershipWeightingvs.

TotalMkt

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

Underowned

Overo

wned

Unattractive Risk

Reward

Better RiskReward

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 MomentumPure Growth

Pure Value

Low Leverage

High LeverageLeast Liked

Most 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

Ran

ko

fIns

ti.O

wners

hipWe

ightingvs

.To

talMkt

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

Un

derowne

d

Overow

ne

d

Unattractive Risk

Reward

Better RiskReward


12/23

12



Macro at a Glance

Economic Highlights

Case-Shiller house price index increased 1.2% samr in FebruaryThe housing recovery continues to expand throughout the United States. In February, the Case-Shiller 20-city composite indexincreased 1.2% samr (+9.3% oya). Geographically, the prices are up in all 20 metropolitan areas over the most recent 1, 3, 6 and12 months (SA). Despite the weakening of other economic indicators, recent housing dataprice rise above expectations forFebruary according to J.P. Morgan Economistshighlights the strength of the housing market. (SeeUS: Case-Shiller dated4/30/13.)

Initial claims down 18k during the week ending April 27

Initial claims for the week ending April 7 fell 18k to 324k, the lowest since Jan-08. As claims data is relatively timelycompared to most other economic indicators, the recent improvement is a positive for the economy, contrasting many of therecent signs of slowing economic growth of late. J.P. Morgan Economists believe that growth has slowed between 1Q and 2Q;however, it appears that growth is limited as labor market will be relatively modest. (SeeUS: Claims... dated 5/2/13.)

Figure 11: Case-Shiller Monthly Home Price Indices

Source: J.P. Morgan and Standard&Poors.

Figure 12: Initial Jobless Claims

Source: J.P. Morgan Economics and U.S. Department of L abor and Employment.
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13/23

13

North America Equity Research

02 May 2013Thomas J Lee, CFA(1-212) [email protected]

Industry Roadmap

Figure 13: INDUSTRY ROADMAP Trailing-Three-Month Relative Performance


Trailing 3-month Relative Performance

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

CyclicalsMaterials -4.6% - 1.5% -3.4% -2.4% -1.3% 1.7% 2.0% 3.0% 1.5% -2.2% -6.4% -6.6%

Capital Goods -3. 0% -2.2% -2. 0% -1.5% -0.3% 1.7% 2. 4% 3.2% 2. 6% 2. 0% -1.7% -4.4%

Commercial & Prof Svcs -2.8% -0.1% 0.8% -1.7% -5.0% -0.1% 2.6% 7.8% 3.0% 2.7% 1 .6% -0.7%

Transportation 1.4% 4.9% 1.0% -4.4% -11.8% -4.3% -2.6% 5.0% 3.1% 6.2% 3.2% -0.8%

Autos & Components -9.5% -15.0% -18.2% -15.6% -4.5% 11.8% 11.7% 21.3% 9.8% 5.2% -4.8% 0.8%

Consumer Durables & Apparel -4.1% -11.0% -11.7% -3.6% 4.4% 10.5% 4.7% 6.4% -1.8% -1.5% -1.2% 6.1%

Consumer Svcs 0.8% -3.2% -10.8% -9.7% -5.2% -0.4% 0.3% -0.1% 3.1% -0.3% 0.3% 0.3%

Media 3.8% 7.8% 8.0% 6.7% 4.9% 4.5% 4.2% 2.7% 2.7% 3.6% 4.7% 6.5%

Retailing 7.2% 2.0% -3.6% 0.4% 0.9% 2.3% 3.6% 0.7% 1.8% -2.2% 1.0% 1.3%

Software & Svcs -1.0% -0.6% -1.6% 1.4% 2.2% 1.1% -1.1% -1.4% 1.6% 1.7% -0.5% -1.4%

Tech Hardware & Equip -0.3% -6.4% -2.4% 4.4% 3.5% -5.3% -8.9% -9.8% -13.3% -16.6% -14.8% -6.8%

Semiconductors & Equip -5.7% -6.4% -7.3% -4.9% -14.3% -10.9% -12.9% 0.0% -0.9% 4.4% -2.4% 3.3%

Near Cyclicals

Energy -10.1% -3.2% -0.5% 4.3% 4.1% -0.6% -1.3% -2.6% 0.6% 0.7% 0.0% -6.2%

Banks 3.1% 1.0% 0.1% 2.4% -0.1% -1.7% -3.8% -2.0% -1.8% 0.7% -1.4% -1.3%

Dvrsfed Financials -9.6% -11.8% -10.4% 3.8% 4.1% 16.2% 9.2% 12.3% 7.1% 9.0% 1.4% -0.9%

Insurance -0.8% -0.2% -2.2% 0.6% 1.2% 5.8% 3.6% 3.7% 3.7% 4.5% 4.2% 2.0%

Real Estate 5.9% 6.5% 4.4% 0.3% -6.3% -5.6% -2.6% 4.7% -0.2% 0.1% -3.9% 3.9%

Defensives

Food & Staples Retailing 8.3% 9.2% 13.1% 0.0% 0.7% -2.1% 0.6% -0.9% -1.1% -1.6% 3.0% 6.5%

Food Beverage & Tobacco 8.7% 6.4% 4.6% -4.6% -5.4% -7.0% -0.2% -2.4% -1.7% -1.7% 4.3% 6.6%

HH & Pe rsonal Products 2.6% -0.9% 3.5% -1.2% 3.8% 1.5% 2.2% -1.4% 2.1% 2.4% 5.2% 0.6%

Health Care Equip & Sv cs 2.6% 1.0% -3.0% -4.0% -3.1% 4.3% 1.0% 0.4% 0.1% 1.1% 1.6% -1.0%

Pharma Biotech & Life Science 5.7% 6.2% 7.9% 0.9% 1.7% 0.0% 3.9% 0.1% 1.7% 2.0% 8.2% 6.4%

Telecom Services 13.0% 15. 9% 15.5% -0.1% 0.5% -6.5% -3.1% -5.6% -5.1% -3.2% -0.5% 4.5%

Utilities 9.0% 8.8% 7.2% -8.4% -8.0% -6.9% -3.5% -2.2% -5.4% -0.8% 2.1% 7.2%

S&P 500 -7.0% -3.3% -2.2% 10.1% 6.0% 3.8% 0.7% -1.3% 6.0% 7.2% 9.5% 4.6%


14/23

14



Index Performance Analysis

Figure 14: Sector Contribution to Five-Day S&P 500 Point Change

Source: FactSet and J.P. Morgan.

Figure 15: Sector Contribution to One-Month S&P 500 Point Change


Figure 16: Stock Contribution to Five-Day S&P 500 Point Change

Ten Largest Positive Contributors and Ten Largest Negative Contributors


Figure 17: Stock Contribution to One-Month S&P 500 Point Change

Ten Largest Positive Contrbutors and Ten Largest Negative Contributors


8.71.4

1.21.1

0.90.6

0.3(1.0)

(2.9)(6.3)

3.9

(10.0) (5.0) 0.0 5.0 10.0

echnologyFinancials

EnergyIndustrials

DiscretionaryMaterials

UtilitiesTelecomStaples

HealthCare

S&P 500

5.64.23.9

3.22.8

1.90.7

(0.8)(3.3)

(4.8)

13.5

(10.0) (5.0) 0.0 5.0 10.0 15.0

StaplesDiscretionary

FinancialsHealthCare

Utilitieselecom

echnologyMaterials

IndustrialsEnergy

S&P 500

3.62.1

1.00.8

0.60.60.50.40.40.4

(0.6)(0.6)(0.6)(0.7)

(0.9)(1.0)(1.1)(1.2)

(1.7)(1.8)

(3.0) (2.0) (1.0) 0.0 1.0 2.0 3.0 4.0

Apple Inc.Microsoft Corp.

Internationa l Business MachinesGeneral Electric Co.

Chevron Corp.Occidental Petroleum Corp.Google Inc. Cl A

Intel Corp.Philip Morris International Inc.

Oracle Corp.

Eli Lilly & Co.Gilead Sciences Inc.

QUALCOMM Inc.Amgen Inc.

AT&T Inc.Merck & Co Inc

Amazon.com Inc.Exxon Mobil Corp.

Procter & Gamble Co.Pfizer Inc.

S&P 500up 3.9points

3.91.31.31.2

1.21.10.90.90.90.9

(0.5)(0.5)(0.6)

(0.7)(0.8)

(0.9)(0.9)

(1.2)(1.7)

(1.9)

(3.0)(2.0) (1.0) 0.0 1.0 2.0 3.0 4.0 5.0

Microsoft Corp.Walt Disney Co.

Intel Corp.Wal-Mart Stores Inc.

Google Inc. Cl AVerizon Comm unications Inc.Coca-Cola Co.

Johnson & JohnsonAbbVie Inc.

Occidental Petroleum Corp.

Cognizant Technology SolutionsNewmont M ining Corp.

Marathon Petroleum Corp.Phillips 66

Hewlett -Packard Co.QUALCOMM Inc.Amazon.c om Inc.

General Electric Co.Exxon Mobil Corp.

International Business Machines

S&P 500up 13.5points

Positivechangesupported7 of the 10sectors

While Defensives contributednegative 9.8 points this week,Cyclicals and Near-Cyclicalscontributed positive 11.2 and2.6 points, respectively, to thepositive 3.9-point gain in theS&P this week

op names were

concentrated amongTechnology (6)

HealthCare saw 5 names

among the bottom

echnoled the with 4 itop tennames t

month


15/23

15



Figure 18: Best Two and Worst Two Sectors Relative Performance over the Past Month

Performance Relative to the S&P 500


Figure 19: Best Two and Worst Two Sectors Relative Performance over the Past Three Months



Figure 20: Best Two and Worst Two Industries Relative Performance over the Past Month



Figure 21: Best Two and Worst Two Industries Relative Performance over Past Three Months



Utilities, 3

Telecom, 2

Industrials, -2

Energy, -2

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

4/3 4/7 4/11 4/15 4/19 4/23 4/27 5/1

Re

lative

1mos

Performance

Utilities, 7

Telecom, 6

Energy, -7

Materials, -7

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

1/29 2/12 2/26 3/12 3/26 4/9 4/23

Re

lative

3mos

Performance

Wireless, 10

Semiconductors,7

Construction &Engineering, -7

CommunicationsEquipment, -8

-10

-5

0

5

10

15

4/3 4/7 4/11 4/15 4/19 4/23 4/27 5/1

Re

lative

1mos

Performance

Biotechnology, 19

LeisureEquipment &Products, 17

Metals & Mining,-22

ConstructionMaterials, -23-30

-20

-10

0

10

20

30

1/29 2/12 2/26 3/12 3/26 4/9 4/23

Relative3mosPerformance


16/23

16



Style Roadmap

Below is a Style roadmap that plots the recent relative performances of 10 style components, sorted from best to worst.

Figure 22: STYLE ROADMAP Trailing-Three-Month Relative Performance


Trailing 3-month Relative Performance

5/30/12 6/ 29/12 7/ 30/ 12 8/ 30/ 12 9/28/12 10/ 26/12 11/ 30/ 12 12/ 28/ 12 1/ 30/ 13 2/28/ 13 3/ 28/ 13 4/ 30/ 13

Beta Lower 5.3% 6.7% 4.4% -1.8% -3.7% -2.1% 0. 5% 0. 4% -1.1% -0.3% 2.5% 4.1%

Div Yield H igher 1.0% 1.7% 1.8% -0.4% -1.3% 0.0% -0.5% 0. 4% -1.0% 1.8% 3.1% 3.7%

Least Liked 0.4% 0.4% -0.3% 0.2% -0.7% 1.3% 0.5% 3.3% 3.9% 4.0% 3.0% 2.7%

Price Lower -5.1% -4.1% -4.7% 1.1% 1.2% 4.9% 2.2% 4.3% 6.7% 6.7% 5.5% 2.1%

FCF Yield Higher - 3. 0% - 3. 5% -4.3% 0.5% 0.7% 4.8% 1.9% 3.6% 6.8% 5.6% 4.7% 1.8%

S&P High Quality 2.2% 1.1% 0.6% - 1. 6% - 1. 0% -0 .4 % 1.1% 1.5% 0.4% 0.3% 1.1% 1.6%

Short Interest - Lower 0.6% 0.9% 0.4% -0.3% -0.7% -0.5% 0. 7% 2. 1% 2.1% 2. 3% 1. 3% 1.6%

Debt/EBITDA Higher -0.2% 0.9% 0.5% 2.0% 1.2% 4.1% 1.9% 3.4% 1.3% 2.5% 1.3% 1.2%

Market Cap Larger -0.3% -0.3% -0.6% -0.3% 0. 0% -0.4% 0. 8% 1.0% 1.3% 0.6% 1.0% 0.7%

Pure Growth 0.4% -0.3% -2.8% -1.6% -0.8% 0.8% 1.6% 2. 0% 2. 3% 0.2% 2.0% 0.6%

P/E cheaper -7.5% -6.2% -5.7% 1.2% 2.2% 5.5% 2.3% 5.2% 7.2% 5.6% 4.4% 0.6%

Momentum (high P/200d mavg) -0.4% -1.8% -2.0% -1.0% 0. 1% -0.2% 1.7% 1.2% 2.8% 1.3% 3.4% 0.4%

Short Interest - Higher -4.3% -4.6% -4.5% -0.2% 1.3% 4.2% 2.3% 3.4% 5.0% 4.6% 3.9% 0.0%

Market Cap Smaller -3.3% -2.1% -3.8% 0.6% 1.8% 5.5% 4.0% 6.3% 7.8% 6.1% 4.8% 0.0%

EV/EBI TDA cheaper - 8. 8% - 5. 8% -3.6% 2.4% 2.5% 2.6% 0.4% 2.4% 7.5% 5.5% 5.6% 0.0%

FCF Yield Lower -3.2% -1.0% -0.8% -0.2% 0.1% 0.6% 1.3% 2.3% 2.8% 2.4% 1.3% -0.1%

Broken (low P/200d mavg) -3.9% -2.2% -4.3% -1.2% -0.1% 4.1% 2.1% 5.6% 9.4% 3.6% 0.4% -0.4%

Pure Value -6.5% -5.3% -4.5% 1.7% 2.5% 6.2% 3.8% 6.0% 7.5% 7.5% 3.1% -0.5%

Div Yield Lower -3.2% -2.8% -3.2% 1.8% 2.0% 2.1% 2.2% 4.1% 8.3% 5.1% 2.9% -0.6%

Most Liked - 4. 3% - 4. 0% -2.5% -0.8% 1.0% 1.3% 2.3% 3.5% 3.5% 1.9% 1.3% -1.1%

EV/EBI TDA more ex pensive 1.8% 0.5% -1.3% -1.2% -0.1% 0.0% 1.3% 1.7% 3.0% 1.7% 0. 4% - 1. 2%

Price Higher -1.5% -1.7% -3.1% - 2. 6% - 2. 4% -0 .7 % 1.5% 1.7% 2.2% 0. 6% -0. 7% -1.2%

P/E more expensive 1.4% 1.2% -1.3% -1.9% -2.3% -1.5% 0. 3% 1. 5% 3. 4% 1. 6% 0. 2% - 1. 3%

S&P Low Quality -3.3% -2.6% -3.1% 0.4% 0.1% 2.3% 1.5% 3.5% 5.9% 4.3% 2.1% -1.5%

Debt/EBITDA Lower -2.6% -3.1% -3.9% -1.0% -0.7% -1.6% -0.6% 1.6% 5.4% 1.5% -1.2% -1.9%

Beta Higher -8.0% -7.7% -8.2% -1.0% 0.8% 3.6% 3.2% 6.4% 8.8% 5.3% 1.5% -2.9%

S&P 500 -3.8% -3.3% -0.9% 6.6% 5.8% 1.9% 1.2% -2.7% 6.4% 7.0% 11.9% 6.4%


17/23

17



Style Analysis

Figure 23: 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 24: Best Two and Worst Two Styles Relative Performance over the Past Three MonthsPerformance Relative to the S&P 500

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

Figure 25: S&P 500 Style Relative Performance over the Past MonthPerformance Relative to the S&P 500


Figure 26: S&P 500 Style Relative Performance over Past Three MonthsPerformance Relative to the S&P 500


High Div Yield, 2.4

Beta Lower, 1.3

More Liked, -1.4

Momentum (highP/200d mavg), -2.1

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

3/27 4/3 4/10 4/17 4/24 5/1

Relative1mosPerform

ance

Beta Lower, 4.3

High Div Yield, 3.8

Low Debt/EBITDA,-2.6

Beta Higher, -3.4-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

1/30 2/13 2/27 3/13 3/27 4/10 4/24

Relative3mosPerformance

2.4%1.3%

1.3%1.1%

0.8%0.8%

0.5%0.4%0.3%

0.0%-0.1%-0.1%

-0.3%-0.3%

-0.5%-0.6%-0.6%

-0.7%-0.7%-0.8%

-1.2%-1.2%

-1.3%-1.3%

-1.4%-2.1%

-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0%

High Div YieldBeta Lower

Less LikedHigh Debt/EBITDA

S&P High QualityBroken (low P/200d mavg)

Citigroup Pure GrowthShort Interest - HigherShort Interest - Lower

Low FCF YieldP/E cheaper

Market Cap LargerHigh FCF Yield

Price LowerLow Debt/EBITDA

Price HigherCitigroup Pure Value

S&P Low QualityP/E m ore expensive

EV/EBITDA more expensiveEV/EBITDA cheaper

Market Cap SmallerBeta HigherLow Div Yield

More LikedMomentum (high P/200d mavg)

1mos RelativePerf

4.3%3.8%

2.6%1.8%

1.6%1.5%

1.4%1.3%0.6%0.6%

0.3%0.0%

-0.2%-0.3%

-0.4%-0.4%-0.6%

-0.8%-1.0%

-1.2%-1.2%

-1.4%-1.5%

-1.6%-2.6%

-3.4%

-4.0% -2.0% 0.0% 2.0% 4.0% 6.0%

Beta LowerHigh Div Yield

Less LikedPrice Lower

Short Interest - LowerHigh FCF Yield

S&P High QualityHigh Debt/EBITDACitigroup Pure Growth

Market Cap LargerP/E cheaper

Broken (low P/200d mavg)Short Interest - Higher

Momentum (high P/200d mavg)Market Cap Smaller

EV/EBITDA cheaperCitigroup Pure Value

S&P Low QualityLow FCF Yield

EV/EBITDA more expensiveLow Div Yield

More LikedPrice Higher

P/E more expensiveLow Debt/EBITDA

Beta Higher

3mos Relative Perf


18/23

18



52-Week Highs/Lows

Net 32% of stocks hitting 52-week highs vs. 52-week lows

Despite the recent volatility in the markets, 10 of the 10 sectors saw a net positive percentage of stocks hitting 52-week highs vs.52-week lows in the past week. Overall, a net 32% of S&P 500 stocks have hit 52-week highs vs. 52-week lows. At the sectorlevel, Defensives, particularly Utilities, saw the largest net percentage of stocks hitting net highs, 77%, in the past five days.

Figure 27: 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 28: 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.

32%

13%

33%

34%

26%

9%

42%

48%

15%

25%

77%

0% 20% 40% 60% 80% 100%

S&P 500

Materials

Industrials

Discretionary

echnology

Energy

Financials

Staples

Health Care

Telecom

Utilities

Cyclicals

Defensives

Near-Cyclicals

100%

100%

100%

100%

100%

79%

75%

69%

69%

67%

63%

56%

55

50%

50%

50%

50

50%

50%

50%

45%

40%

40%

40%

40%

39

36%

33%

33%

33%

27%

25%

25%

25%

25%

25%

25%

25%

24%

23%

23%

20%

20%

20%

20

20%

20%

17%

13

13%

-7%

-14%

-20%

0%

20%

40%

60%

80%

100%

120%

PersonalProducts

Independen

tPowerProducers&

Hea

lthCareTechnology

GasUtilities

Airlines

Multi-Utilities

Tobacco

ElectricUtilities

RealEstateInvestmentTrusts

ProfessionalServices

Food

&StaplesRetailing

CommercialServices&Supplies

Insurance

ITServices

Road&Rail

Textiles&Apparel&LuxuryGoods

Automobiles

AutoComponents

TradingCompanies&Distributors

LeisureEq

uipment&Products

Aerospace&Defense

Diversifie

dFinancialServices

InternetSoftware&Services

FoodProducts

Internet&CatalogRetail

SpecialtyRetail

HotelsRestaurants&Leisure

Beverages

ElectronicEquipment&Instruments

WirelessT

elecommunications

Media

Pharmaceuticals

Chemicals

HouseholdProducts

ConsumerFinance

MultilineRetail

AirFreight&Logistics

HouseholdDurables

Semiconductors&Semiconductor

CommercialBanks

CapitalMarkets

DiversifiedT

elecommunications

HealthCareP

roviders&Services

Biotechnology

Machinery

LifeScienc

esTools&Services

Con

tainers&Packaging

Software

OilGas&

ConsumableFuels

Computers&Peripherals

HealthCareEquipment&Supplies

Metals&Mining


19/23

19



Analyst Upgrades/Downgrades

As for the Streets view, downgrades sharply outnumbered upgrades in the past week, with 15 net downgrades overall and 15industries with net downgrades.

Figure 29: Net Upgrades in the Past Five Days Sectors


Figure 30: Net Upgrades in Past Five Days Industries


-15

-5

5

11

-21

11

-2

-8

1

-3

-4

-30 -20 -10 0 10 20

S&P 500

Materials

Industrials

Discretionary

Technology

Energy

Financials

Staples

Health Care

elecom

Utilities

Defensives

Near-Cyclicals

Cyclicals

77

444433

22

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

-4-4

-6

-9-10

-8

-6

-4

-2

0

2

4

6

8

OilGas&ConsumableFuels

Aerospace&Defense

CommercialBanks

SpecialtyRetail

Hea

lthCareProviders&Services

EnergyEquipment&Services

MultilineRetail

Road&Rail

InternetSoftware&Services

Internet&CatalogRetail

Insurance

HouseholdProducts

HealthCareEquipment&Supplies

Multi-Utilities

ConsumerFinance

Containers&Packaging

ITServices

Beverages

FoodProducts

AirFreight&Logistics

Metals&Mining

Diversified

TelecommunicationsServices

CommunicationsEquipment

Sem

iconductors&Semiconductor

Equipment

Software

c


20/23

20



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 five stocks in the list of 10 mostupgraded stocks. Financials also saw the largest share (five) of stocks in the list of most downgraded stocks.

Figure 31: Ten Most Upgraded Stocks

Net # of Upgrades as % of Analysts Covering Stock


Figure 32: Ten Most Downgraded Stocks

Net # of Upgrades as % of Analysts Covering Stock


33%

25%

20%

17%

14%

14%

13%

13%

12%

11%

0% 10% 20% 30% 40%

Prologis Inc.

AvalonBay

Vornado Realty Trust

Ryder System Inc.

Boston Properties Inc.

J.C. Penney Co. Inc.

Sherwin-Williams Co.

Chipotle Mexican Grill

Cabot Oil & Gas Corp.

Assurant Inc.

-29%

-24%

-17%

-15%

-14%

-14%

-14%

-14%

-12%

-12%

-30% -25% -20% -15% -10% -5% 0%

Ventas Inc.

Microsoft Corp.

Equity Residential

Intuit Inc.

Varian Medical Systems Inc.

Apartment Investment & Management Co.

NASDAQ OMX Group Inc.

SLM Corp.

Molex Inc.

McCormick & Co. Inc.


21/23

21



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