3Q | 2013 As of June 30, 2013 Guide to the Markets ® Easing Up on Easy Money Anastasia Amoroso, CFA Vice President – Global Market Strategist

Topics  US: With the Fed winding down its bond purchase program, are there more peaks left to climb?  International: How long can emerging markets continue to be casualties of the Fed and what might be the saving grace?  International: Europe and Japan are still marching up the mountain in hopes of reaching prior peaks - what could help them get there?  A Better Question: not when there will be a market pullback, but what to do amidst a market pullback?

Topic 1  US Economic and Market Outlook With the Fed winding down its bond purchase program, are there more peaks left to climb?

S&P 500 Index at Inflection Points 6 GTM – U.S.

Corporate Profits and Leverage 10 GTM – U.S.

To Taper, or Not to Taper, That Is the Question 34 GTM – U.S.

Reasons to Taper - Cumulative Improvement in Employment 24 GTM – U.S.

The Uncomfortable Truth about US Unemployment 25 GTM – U.S.

Housing Market Is Key to Self-Sustaining Recovery 20 GTM – U.S.

Reasons to Taper - Who Says You Can’t Go Home? 19 GTM – U.S.

Banks – Able to Lend but Willing? 35 GTM – U.S.

12 Reasons Not to Taper - Credit Propelled Momentum Slowing … Economy Sources: Mortgage Bankers Association, Census Bureau, Bankrate, Bloomberg, FactSet, J.P. Morgan Asset Management. Data are as of 9/23/13. Housing Starts Annual rate, seasonally adjusted, reported versus consensus expectations LHS MBA mortgage applications purchase index, RHS 30-year mortgage rate Mortgage Applications and Rates Consensus Expectation (RHS) Mortgage Rates (LHS) Mortgage Applications to Purchase Index

Consumer Confidence Held Hostage No More Source: University of Michigan, FactSet, J.P. Morgan Asset Management. Peak is defined as the highest index value before a series of lower lows, while a trough is defined as the lowest index value before a series of higher highs. Subsequent 12-month S&P 500 returns are price returns only, which excludes dividends. Data are as of 6/30/2013. Consumer Sentiment Index – University of Michigan Average: 85.3 Economy Feb % May % Oct % Mar % Nov % Aug % Mar % Jan % Jan % May % Aug % Oct % Jan % 29 GTM – U.S. Sentiment Cycle Low and subsequent 12-month S&P 500 Index return

Cyclical Indicators Have Room to Run 18 GTM – U.S.

Confidence, Stocks, Yields and the Fed 12 GTM – U.S.

Stocks Can Rise Alongside Rising Yields 13 GTM – U.S.

Earnings Estimates and Multiples 8 GTM – U.S.

Topic 2  International How long can emerging markets continue to be casualties of the Fed and what might be the saving grace?

A Tale of Two Returns – Developed versus Emerging 39 GTM – U.S.

Global Equity Valuations – Emerging Markets 55 GTM – U.S.

GEM Slows, G3 Grows … 41 GTM – U.S.

The Case for Stronger Dollar … 47 GTM – U.S.

Relative to the U.S. Dollar … and the Carry Trade Unwind Source: FactSet, Federal Reserve, IMF, J.P. Morgan Global Economic Research, J.P. Morgan Asset Management. *U.S. Dollar Index is the nominal trade-weighted exchange rate index: broad definition. Past performance is not indicative of future results. Data are as of 8/28/13. Currency Performance Depreciated Appreciated International Year-to-date % change

Investors Flee the Weakest Links Source: MRB Partners, U.N. Commodity Trade Statistics Database, IMF, J.P. Morgan Asset Management. *Commodities defined by SITC codes 0-4. Data are as of 8/22/13. EM Sensitivity to Capital Flows and Currency Exposure Current Account (% of GDP) Commodity Exports (% of GDP) Commodity Imports (% of GDP) Net Commodity Exporters Net Commodity Importers

Know Your Time Horizon – Growth of Emerging Market Consumer 43 GTM – U.S.

Know Your Time Horizon - A Five Stage Global Cycle  Early Cycle Recovery  Mid Cycle Pause  Late Cycle Expansion - US  Tightening - China  Recession  Early part  Late part – Europe, Japan Source: IMF

Know Your Time Horizon - Short-Term Market Drivers  Valuation  Positioning –Fund flows –Cash levels  BUT valuation + positioning ≠ outcome.. UNLESS … there is a catalyst  Catalysts –Central bank action –Liquidity –Credit –Fiscal policy –Cyclical forces –Data surprises

The Importance of Exports – the Saving Grace for EM 43 GTM – U.S.

What’s Your EM Trade - Currency, Duration or Credit Spread? 38 GTM – U.S.

Time to Break Apart the BRICs 55 GTM – U.S.

China : Shifting Gears  New government increasingly comfortable with slower growth Source: The Economist

China: Economic Growth – Slower but Steady China GDP Contribution Year-over-year % change Source: National Bureau of Statistics of China, The People’s Bank of China, FactSet, CEIC, J.P. Morgan Asset Management. Values may not sum to 100% due to rounding. RRR represents the reserve requirement ratio. *As defined by Total Social Financing. **Other: bankers acceptance bills (13%), trust loans (11%), entrusted loans (11%), corporate bond financing (11%), foreign currency loans (5%), and non- financial equity financing (2%). Data are as of 6/21/13. Investment Consumption Net Exports 50 GTM – U.S. International RMB billions, new for the month Credit Growth* RMB Bank Loans Other** Inflation Year-over-year % change Avg. since Jan May 2013 Headline CPI: 2.3% 2.1% Non-Food CPI: 1.0% 1.6% RRR Working Capital Rate Monetary Policy Rates May 2013: 6% May 2013: 20% 9.6% 9.1% 10.4% 9.3% 7.8%

Fixed Asset Investment Year-over-year % change, 3-month moving average China: Cyclical Indicators – a Second Half Rebound Source: National Bureau of Statistics of China, China Association of Automobile Manufacturers, China Ministry of Construction, FactSet, J.P. Morgan Asset Management. Data are as of 9/18/13. International Auto and Retail Sales Year-over-year % change 52 GTM – U.S. Index, rebased 2007=100, national average Residential Real Estate Price Aug. 2013: 20.4% Property Tightening Measures Announced Auto Sales Aug. 2013: 10.3% Retail Sales Aug. 2013: 13.4% Residential Floor Space Started Year-over-year % change, 3-month moving average, seasonally adjusted

China and Europe – a Symbiotic Relationship 11

Europe : Rome Wasn’t Built in a Day  Out of the woods at last? Source: The Economist

Europe: Economic Growth – Where Art Thou Growth? 48 GTM – U.S.

Manufacturing Momentum – a Glimpse of a Better Tomorrow 42 GTM – U.S.

Eurozone: Sovereign Bond Yields – Room to Maneuver 50 GTM – U.S.

Europe: Austerity – When Less Is More 49 GTM – U.S.

Japan: Uncharted Waters ( 大航海時代, Dai-kōkai jidai)  A lot of hope for a sustained recovery needs to be supported by progress overtime to prove this time is different: Bond purchase programs before were small relative to the size of the issue Balance sheet problems for banks and firms were not fixed Source: The Economist

Japan: Economic Snapshot 53 GTM – U.S.

Japan: Economic Snapshot 17

Sovereign Debt Stresses 45 GTM – U.S.

Japan: Public Finance 19

Global Equity Valuations – Developed Markets 54 GTM – U.S.

Topic 3  A Better Question What to do amidst a market pullback?

47 A Better Question: What to Do Amidst a Market Pullback?  Evaluate sector positioning in both fixed income and equities  Add to core investment themes  Approach emerging markets selectively

Investment Themes  Equities US late cycle sectors Regional opportunities Secular growth themes  Info Tech  Energy  Emerging Market Consumer  Fixed Income Converts Floating rate Credit sensitive non-agency MBS High yield corporates – US, developed ex-US, emerging

Time to Re-Define ‘Safety’ in Fixed Income 32 GTM – U.S.

The World Is Not a One Peak Wonder  More peaks left to climb –US housing, Europe, Japan  Higher peaks require extra skills –Sector tilts in equities and fixed income –Security selection matters  New horizons warrant extra tools –Currency, commodity and emerging market performance is greatly differentiated  The world is a rich opportunity set –Active management is key to identifying pockets of opportunity in any set of market conditions

3Q | 2013 As of June 30, 2013 Guide to the Markets ®

Table of Contents EQUITIES ECONOMY FIXED INCOME INTERNATIONAL ASSET CLASS U.S. Market Strategy Team Dr. David P. Kelly, CFA Joseph S. Tanious, Andrés D. Anastasia V. Amoroso, Brandon D. Gabriela D. Anthony M. Past performance is not indicative of future returns.

Page Reference

Returns by Style 4 GTM – U.S.

Returns by Sector 5 GTM – U.S.

S&P 500 Index at Inflection Points 6 GTM – U.S.

Stock Valuation Measures: S&P 500 Index 7 GTM – U.S.

Earnings Estimates and Multiples 8 GTM – U.S.

Valuations by Sector and Style 9 GTM – U.S.

Corporate Profits and Leverage 10 GTM – U.S.

Sources of Earnings per Share Growth 11 GTM – U.S.

Confidence and the Capital Markets 12 GTM – U.S.

Interest Rates and Equities 13 GTM – U.S.

Deploying Corporate Cash 14 GTM – U.S.

P/E Ratios and Equity Returns 15 GTM – U.S.

Equity Correlations and Volatility 16 GTM – U.S.

Economic Growth and the Composition of GDP 17 GTM – U.S.

Cyclical Sectors 18 GTM – U.S.

The Aftermath of the Housing Bubble 19 GTM – U.S.

Consumer Finances 20 GTM – U.S.

Federal Finances: Outlays and Revenues 21 GTM – U.S.

Federal Finances: Deficits and Debt 22 GTM – U.S.

Trade and the U.S. Dollar 23 GTM – U.S.

Employment 24 GTM – U.S.

Employment and Income by Educational Attainment 25 GTM – U.S.

Consumer Price Index 26 GTM – U.S.

Oil and the Economy 27 GTM – U.S.

Global Energy Supply 28 GTM – U.S.

Consumer Confidence and the Stock Market 29 GTM – U.S.

Fixed Income Sector Returns 30 GTM – U.S.

Interest Rates and Inflation 31 GTM – U.S.

Fixed Income Yields and Returns 32 GTM – U.S.

Correlation to 10-Year Treasury Returns 33 GTM – U.S.

The Fed and the Money Supply 34 GTM – U.S.

Credit Conditions 35 GTM – U.S.

High Yield Bonds 36 GTM – U.S.

Municipal Finance 37 GTM – U.S.

Emerging Market Debt 38 GTM – U.S.

Global Equity Markets: Returns 39 GTM – U.S.

Global Equity Markets: Composition 40 GTM – U.S.

Global Economic Growth 41 GTM – U.S.

Manufacturing Momentum 42 GTM – U.S.

The Importance of Exports 43 GTM – U.S.

The Impact of Global Consumers 44 GTM – U.S.

Sovereign Debt Stresses 45 GTM – U.S.

Global Manufacturing Wages 46 GTM – U.S.

Global Monetary Policy 47 GTM – U.S.

Europe: Economic Growth 48 GTM – U.S.

Europe: Austerity 49 GTM – U.S.

Eurozone: Sovereign Bond Yields 50 GTM – U.S.

China: Growth and Economic Policy 51 GTM – U.S.

China: Cyclical Indicators 52 GTM – U.S.

Japan: Economic Snapshot 53 GTM – U.S.

Global Equity Valuations – Developed Markets 54 GTM – U.S.

Global Equity Valuations – Emerging Markets 55 GTM – U.S.

Emerging Market Equity Composition 56 GTM – U.S.

Asset Class Returns 57 GTM – U.S.

Correlations: 10-Years 58 GTM – U.S.

Mutual Fund Flows 59 GTM – U.S.

Yield Alternatives: Domestic and Global 60 GTM – U.S.

Global Commodities 61 GTM – U.S.

Historical Returns by Holding Period 62 GTM – U.S.

Diversification and the Average Investor 63 GTM – U.S.

Annual Returns and Intra-year Declines 64 GTM – U.S.

Cash Accounts 65 GTM – U.S.

Corporate DB Plans and Endowments 66 GTM – U.S.

Stock Market Since GTM – U.S.

J.P. Morgan Asset Management – Index Definitions

J.P. Morgan Asset Management – Definitions, Risks & Disclosures