Economics & Strategy – General Strategy: Second

London-based Stephen Dulake and newcomer Jan Loeys, who works out of New York, direct J.P. Morgan’s ten-member troupe to a second straight appearance in second place. “I use a number of signals to tell investors when I expect equities to significantly outperform — and these markets are not signaling green yet,” Loeys says. Signs he watches for include monetary tightening by central banks, an increase in corporate debt issuance, and changes to earnings forecasts, among others. At the moment, the team believes there is a modest upside-risk bias; that is, a higher probability that earnings forecasts will be revised upward rather than downward. The analysts are also assessing the impact of increasing bond yields: “The rise in rates that we’ve seen is at least challenging what seemed to be a fairly strongly held assumption that we would see no growth and no rise in yields at all this year,” Dulake observes. In light of this increase, the crew is advising clients to buy some protection against higher risk-free rates via Bund options, allocate to less interest-rate-sensitive sectors such as insurance, avoid tightly spread credits, and position for compression or engage in unfunded credit strategies by selling credit default swap protection. — Carolyn Koo