JP MORGAN little book

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    As of September 30, 2013

    As of December 31, 2014

    i h M rk i h M rk

    1

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    Global Market Insights Strategy Team

    Americas Europe Asia

    Dr. David P. Kelly, CFANew York

    Stephanie H. FlandersLondon

    Tai HuiHong Kong

    Andrew D. GoldbergNew York

    Maria Paola ToschiMilan

    Geoff LewisHong Kong

    Anastasia V. Amoroso, CFAHouston

    Vincent JuvynsLuxembourg

    Yoshinori ShigemiTokyo

    . ,Chicago

    ,Madrid

    ,Hong Kong

    Julio C. CallegariSo Paulo

    Tilmann Galler, CFAFrankfurt

    Ian HuiHong Kong

    David M. Lebovitz David Stubbs, PhD Ben LukNew Yor Lon on Hong Kong

    Gabriela D. SantosNew York

    Lucia GutierrezMadrid

    Ainsley E. Woolridge

    New York

    Kerry Craig, CFA

    London

    Hannah J. AndersonNew York

    Alexander W. DrydenLondon

    Abigail B. DwyerNew York

    Nandini RamakrishnanLondon

    2Past performance is no guarantee of comparable future results. For China and Australia distribution, please note thiscommunication is for intended recipients only and is for wholesale clients only in Australia. For details, please refer to the fulldisclaimer at the end. Unless otherwise stated, all data is as of December 31, 2014 or most recently available.

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    Page Reference

    4. S&P 500 Index at Inflection Points5. Returns and Valuations by Style6. Returns and Valuations by Sector

    36. Fixed Income Yields and Returns37. Global Fixed Income38. Municipal Finance39. High Yield Bonds40. Emerging Market Debt

    Equities Page 4

    7. Stock Valuation Measures: S&P 500 Index8. Corporate Profits and Leverage9. Sources of Earnings per Share Growth10. Equity Performance in Bull Markets11. Interest Rates and Equities12. Deploying Corporate Cash13. Annual Returns and Intra- ear Declines

    41. Fixed Income Sector Returns

    42. Global Equity Markets43. International Equity Earnings and Valuations44. Global Economic Growth45. Manufacturing Momentum

    International Page 42

    14. Equity Correlations and Volatility15. Stock Market Since 1900

    16. Economic Growth and the Composition of GDP17. Consumer Finances18. Credit Conditions

    46. Sovereign Debt Stresses47. Europe: Cyclical Headwinds and Tailwinds48. Europe: Unemployment, Inflation, and Credit Markets49. Japan: Economic Snapshot

    50. China: Economic and Credit Growth51. Demographics and Development52. Emer in Market Currencies

    Economy Page 16

    19. Cyclical Sectors20. Residential Real Estate21. Long-term Drivers of Economic Growth22. Federal Finances23. Unemployment and Wages24. Labor Market Perspectives

    53. Emerging Market Equities54. Global Equity Valuations: Developed Markets55. Global Equity Valuations: Emerging Markets

    56. Asset Class Returns

    Asset Class Page 56

    .26. Inflation27. Trade and the U.S. Dollar28. Energy: Supply, Demand and Prices29. Energy Price Impacts30. Consumer Confidence and the Stock Market

    .58. Alternative Asset Class Returns59. Fund Flows60. Yield Alternatives: Domestic and Global61. Global Real Assets62. Global Commodities63. Life Expectancy and Pension Shortfall

    PFixed Income Page 31

    3

    31. Interest Rates and Inflation32. The Fed and Interest Rates33. Shape of the Yield Curve34. Global Monetary Policy35. Sources of Bond Returns

    .

    65. Diversification and the Average Investor66. Cash Accounts67. Corporate DB Plans and Endowments

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    S&P 500 Index at Inflection Points

    2,200Index level 1,527 1,565 2,059

    S&P 500 Index

    Dec. 31, 2014P/E (fwd.) = 16.2x

    Characteristic Mar-2000 Oct-2007 Dec-2014

    E q u

    i t i e s

    1,800

    2,000

    . . . .Dividend yield 1.1% 1.8% 1.9%10-yr. Treasury 6.2% 4.7% 2.2%

    E q u

    i t i e s ,

    Oct. 9, 2007

    1,400

    1,600

    . ,P/E (fwd.) = 25.6x

    1,527

    +101%

    . .1,565

    +204%+

    1,000

    1,200

    -49%

    -57%

    '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14600

    800 Oct. 9, 2002P/E (fwd.) = 14.1x

    777

    Dec. 31, 1996P/E (fwd.) = 16.0x

    741Mar. 9, 2009

    P/E (fwd.) = 10.3x677

    4

    Source: Standard & Poors, First Call, Compustat, FactSet, J.P. Morgan Asset Management.Dividend yield is calculated as the annualized dividend rate divided by price, as provided by Compustat. Forward Price to Earnings Ratio is a bottom-upcalculation based on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is providedby FactSet Market Aggregates. Returns are cumulative and based on S&P 500 Index price movement only, and do not include the reinvestment ofdividends. Past performance is not indicative of future returns.Guide to the Markets U.S. Data are as of 12/31/14.

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    Returns and Valuations by Style

    Value Blend Growth Value Blend Growth

    4Q14 2014 Current P/E vs. 20-year avg. P/E

    15.5 16.2 18.7

    Value Blend Growth

    e

    L a r g e

    5.0% 4.9% 4.8% L a r g e

    13.5% 13.7% 13.0%

    M i d 6.1% 5.9% 5.8% M i

    d14.7% 13.2% 11.9%

    E q u

    i t i e s

    14.0 16.1 21.0

    16.4 18.6 20.0

    14.2 16.5 21.9

    L a r g

    M i d

    S m a l

    l

    9.4% 9.7% 10.1% S m a l

    l

    4.2% 4.9% 5.6%

    Since Market Low (March 2009)Since Market Peak (October 2007)Current P/E as % of 20-year avg. P/E

    E.g.: Large Cap Blend stocks are fairly

    16.4 18.1 20.0

    14.5 17.3 21.5 S m a l

    l

    Value Blend Growth Value Blend Growth

    L a r g e

    42.1% 54.0% 70.1% L a r g e

    254.4% 244.2% 246.9%

    d d

    valued compared to histor ical average.

    Value Blend Growth

    L a r g e

    110.1% 100.6% 89.0%

    M i . . . M i . . .

    S m a l

    l

    48.1% 57.6% 66.7% S m a l

    l

    266.2% 279.9% 293.3%

    M i d 118.1% 112.7% 94.5%

    S m a l

    l

    113.1% 104.4% 93.3%

    5

    Source: Russell Investment Group, Standard & Poors, FactSet, J.P. Morgan Asset Management. All calculations are cumulative total return, including dividends reinvested for the stated period. Since Market Peak represents period 10/9/07 12/31/14, illustrating market returnssince the S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 12/31/14, illustrating market returns since the S&P500 Index low on 3/9/09. Returns are cumulative returns, not annualized. For all time periods, total return is based on Russell-style indexes with theexception of the large blend category, which is reflected by the S&P 500 Index. Past performance is not indicative of future returns. P/E ratios reflectlatest available data. Earnings estimates are as of November for Russell Indexes and as of December for Standard & Poors.Guide to the Markets U.S. Data are as of 12/31/14.

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    Stock Valuation Measures: S&P 500 Index

    U.S. Equity: Valuation Measures Historical AveragesValuation Latest

    1-year 5-year 10-year 25-year*. . .

    P/E Price to Earnings 16.2x 15.4x 13.5x 13.8x 15.6x

    CAPE Shiller's P/E 27.3 25.5 22.5 22.9 25.3Div. Yield Dividend Yield 1.9% 1.9% 2.0% 2.0% 2.1%REY Real Earnings Yield 3.7% 3.7% 4.3% 3.3% 2.3%

    E q u

    i t i e s

    r ce o oo . . . . .P/CF Price to Cash Flow 11.4 10.8 9.3 9.7 11.3EY Spread EY Minus Baa Yield 1.5% 1.6% 2.2% 1.3% -0.7%

    S&P 500 Earnings Yield vs. Baa Bond YieldS&P 500 Index: Forward P/E Ratio

    18x

    20x

    22x

    24x

    26x

    8%

    10%

    12%

    14%

    S&P 500 Earnings Yield(Inverse of fwd. P/E): 6.2%

    Current: 16.2x

    ' ' ' ' ' ' ' ' ' ' ' ' '8x

    10x

    12x

    14x

    16x

    '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '142%

    4%

    6%

    Moodys Baa Yield: 4.7%

    Average: 15.6x

    7

    Source: Standard & Poors, FactSet, Robert Shiller Data, FRB, J.P. Morgan Asset Management. Price to Earnings is price divided by consensus analystestimates of earnings per share for the next 12 months. Shillers P/E uses trailing 10-years of inflation adjusted earnings as reported by companies.Dividend Yield is calculated as the trailing 12-month average dividend divided by price. Real Earnings Yield is defined as (trailing four quarters of reportedearnings/price) - year over year core CPI inflation. Price to Book Ratio is the price divided by book value per share. Price to Cash Flow is price divided byNTM cash flow. EY Minus Baa Yield is the forward earnings yield (consensus analyst estimates of EPS over the next 12 months divided by price) minusthe Moodys Baa seasoned corporate bond yield. *P/CF is a 20-year avg. due to cash flow data availability.Guide to the Markets U.S. Data are as of 12/31/14.

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    Corporate Profits and Leverage

    $31

    S&P 500 Earnings Per Share and PerformanceIndex level and quarterly operating earnings

    Profit Margins

    4Q14*: $30.50 10%

    11%

    S&P 500 Operating EPS % of Sales per Share**-

    3Q14*:10.1%

    $23

    $27

    E q u

    i t i e s

    2Q07: $24.06

    6%

    7%

    8%

    9%

    3Q14:8.8%

    , . . ,

    $15

    $19

    Total Leverage

    4%

    5%

    '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10

    $7

    $11

    160%

    180%

    200%

    220%

    , ,

    -$1

    $3

    '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14' ' ' ' ' ' ' ' ' '

    80%

    100%

    120%

    140%4Q14:100%

    verage:

    8

    Source: BEA, Standard & Poors, Compustat, J.P. Morgan Asset Management.EPS levels are based on operating earnings per share. *Most recently available data is 3Q14 as 4Q14 is a Standard & Poors preliminary estimate. **S&P 500Operating EPS % of Sales per Share fell to 0% in 4Q2008 and is adjusted on the chart. Past performance is not indicative of future returns.Guide to the Markets U.S.Data are as of 12/31/14.

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    Sources of Earnings per Share Growth

    50%

    S&P 500 Year-Over-Year EPS GrowthGrowth broken into revenue, changes in profit margin & changes in share count

    Share of EPS Growth 3Q14*

    20%

    30%

    40%

    E q u

    i t i e s Margin 3.6%

    Revenue 6.3%

    Share count 0.1%

    0%

    10%

    -30%

    -20%

    -10%

    -50%

    -40%

    3Q143Q123Q103Q083Q063Q043Q023Q003Q983Q963Q94

    9

    Source: Standard & Poors, Compustat, J.P. Morgan Asset Management.EPS levels are based on operating earnings per share. *Most recently available data is 3Q14. Past performance is not indicative of future returns.4Q2008, 1Q2010 and 2Q2010 reflect -101%, 92% and 51% growth in operating earnings, and are adjusted on the chart.Guide to the Markets U.S.Data are as of 12/31/14.

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    Equity Performance in Bull Markets

    300% 90%% of days during bull markets the S&P 500 is at and near record highs

    S&P 500 Performance and Average Valuation S&P 500 Levels Near Market HighsPrice returns to peak after crossing average real earnings yield

    Returns to eak rice after avera e valuation

    0%

    240%

    78%

    70%

    80%

    E q u

    i t i e s 1991-2000

    2002-2007

    2009-Today

    Returns before markets pass average valuation

    *

    Average valuation isdefined as the average realearnings yield of the S&P

    49%

    83%180%

    36%

    42%

    40%

    50%

    60%500 from 1963 until today

    16%

    30%

    4%

    0%

    60%

    120%

    13%

    33%

    17%20%

    30%

    29% 49% 73% 121% 59% 180% 101% 204%

    15%

    0%'66 '70 '74 '82 '87 '90 '02 '09

    0%

    10%

    New High Within 1% Within 5%

    Start of Bull MarketPercent of days during a Bull Market

    10

    Source: Standard & Poors, J.P. Morgan Asset Management.Valuations are based on real earnings yield for the S&P 500 which is defined as (trailing four quarters of reported earnings/price) - year over year coreCPI inflation. Period after average valuation defined by 15-day moving average passing below average real earnings yield. *As depicted on the left handchart, the return to peak price for the current bull market is 0% as the S&P 500 has yet to cross its long run average real earnings yield. The S&P 500would need to appreciate over 22% to reach its long-term average real earnings yield of 2.5%.Guide to the Markets U.S.Data are as of 12/31/14

    ,

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    Interest Rates and Equities

    0.8

    Correlations Between Weekly Stock Returns and Interest Rate MovementsWeekly S&P 500 returns, 10-year Treasury yield, rolling 2-year correlation, May 1963 Dec. 2014

    When yields are

    0.4

    0.6

    E q u

    i t i e s

    Positiverelationshipbetween yieldmovements

    e ow , r s ngrates aregenerallyassociated withrising stockprices

    Last 12 Months

    1963 12 Months Ago

    Graph Key

    0

    0.2

    returns

    l a t i o n

    C o e

    f f i c i e n

    t

    -0.4

    -0.2

    Negativerelationship

    between yield

    C o r r

    -0.8

    -0.6

    0% 2% 4% 6% 8% 10% 12% 14% 16%

    movements anstock returns

    -

    11

    Source: Standard & Poors, U.S. Treasury, FactSet, J.P. Morgan Asset Management.Returns are based on price index only and do not include dividends. Markers represent monthly 2-year correlations only.Guide to the Markets U.S.Data are as of 12/31/14.

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    Deploying Corporate Cash

    1 600

    $1,800

    1 700

    $1,80032%

    Corporate Cash as a % of Current AssetsS&P 500 companies cash and cash equivalents, quarterly

    Corporate Growth

    Capital Expenditures M&A Activity$bn, nonfarm nonfinancial capex, quarterly value of deals completed

    $600

    $800

    $1,000

    $1,200

    $1,400

    ,

    $1,200

    $1,300

    $1,400

    $1,500

    $1,600

    ,

    E q u

    i t i e s

    20%

    22%

    24%

    26%

    28%

    $0

    $200

    $400

    $900

    $1,000

    $1,100

    '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '1414%

    16%

    18%

    Dividend Payout Ratio

    Cash Returned to Shareholders

    $100

    $120

    $140

    $160

    $30

    $33

    $36

    $39

    50%

    60% , , , -

    Dividends per Share

    $20

    $40

    $60

    $80

    $15

    $18

    $21

    $24

    ' ' ' ' ' ' ' ' ' ' ' ' ' ' ''00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '1420%

    30%

    Share Buybacks

    12

    Source: Standard & Poors, FRB, Bloomberg, FactSet, J.P. Morgan Securities, J.P. Morgan Asset Management. (Top left) Standard & Poors,FactSet, J.P. Morgan Asset Management. (Top right) M&A activity is the quarterly value of officially agreed transactions and capital expendituresare for nonfarm nonfinancial corporate business. (Bottom left) Standard & Poors, FactSet, J.P. Morgan Asset Management. (Bottom right) Standard& Poors, Compustat, FactSet, J.P. Morgan Asset Management.

    Guide to the Markets U.S. Data are as of 12/31/14.

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    Annual Returns and Intra-year Declines

    40%

    S&P 500 Intra-year Declines vs. Calendar Year ReturnsDespite average intra-year drops of 14.2%, annual returns positive in 27 of 35 years*

    2014

    26

    1517

    26

    1512

    27 26

    20

    31

    27

    20

    26

    14

    23

    13 13

    30

    11

    20%

    30%

    E q u

    i t i e s

    -10

    1 2

    -7

    47

    -2

    -10

    3 4

    0

    -7 -8-9

    -8 -8 -6 -6 -5

    -9

    -3-8 -8 -7 -8

    -10 -10

    -6-7-10%

    %

    10%

    -13

    -23

    -17 -18 -17

    -13

    -34

    -20

    -

    -19

    -12

    -17

    -30

    -34

    -14

    -28

    -16-19

    -30%

    -20%

    -38

    -49

    -60%

    -50%

    -

    '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

    13

    Source: Standard & Poors, FactSet, J.P. Morgan Asset Management.Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough duringthe year. For illustrative purposes only. *Returns shown are calendar year returns from 1980 to 2014.Guide to the Markets U.S.Data are as of 12/31/14.

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    Equity Correlations and Volatility

    70%

    Large Cap StocksCorrelations Among Stocks

    Sovereign DebtCrisis

    LehmanGreat Depression /World War II

    30%

    40%

    50%

    E q u

    i t i e s an ruptcy

    Tech Bust & 9/11

    ras

    OPEC Oil

    Crisis

    Cuban Missile Crisis

    0%

    10%

    '26 '32 '38 '44 '50 '56 '62 '68 '74 '80 '86 '92 '98 '04 '10

    Volatilit Measure 08 Peak Avera e LatestDaily Volatility of DJIA

    Average: 27.0Dec. 2014: 37.4%

    2.0%

    2.5%

    3.0%

    3.5%

    45

    60

    75

    90DJIA (Left) 3.30% 0.71% 0.58%VIX (Right) 80.9 20.0 19.2

    DJIA vol. shownin 3-month

    moving average

    '30 '35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '100.0%

    0.5%

    1.0%

    1.5%

    0

    15

    30

    14

    Source: (Top) Empirical Research Partners LLC, Standard & Poors, J.P. Morgan Asset Management. Capitalization weighted correlation of top 750 stocks by marketcapitalization, daily returns, 1926 Sep. 1, 2014. (Bottom) CBOE, Dow Jones, J.P. Morgan Asset Management. DJIA volatility are represented as three-month movingaverages of the daily absolute percentage change in the Dow Jones Industrial Average.Charts shown for illustrative purposes only. Guide to the Markets U.S.Data are as of 12/31/14.

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    Stock Market Since 1900

    S&P Composite Index

    Log Scale

    1,000

    300

    E q u

    i t i e s

    1001966 1974

    101900 1924

    1937 1948

    '00 '10 '20 '30 '40 '50 '60 '70 '80 '90 '00 '10

    15

    Source: Robert Shiller, FactSet, J.P. Morgan Asset Management.Data shown in log scale to best illustrate long-term index patterns.Past performance is not indicative of future returns. Chart is for illustrative purposes only.

    Guide to the Markets U.S.

    Data are as of 12/31/14.

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    Economic Growth and the Composition of GDP

    1810%

    Real GDPYear-over-year % chg

    3 14

    Components of GDP3Q14 nominal GDP, trillions USD

    3.2% HousingReal GDP

    y $14

    $16

    6%

    8% YoY % chg: 2.7% 13.3% Investment Ex-housing

    18.2% Govt Spending

    QoQ % chg: 5.0%

    E c o n o

    $8

    $10

    $12

    2%

    4%

    3.0%

    $4

    $6

    -2%

    0%

    .

    ExpansionAverage:

    2.3%

    -$2

    $0

    $2

    ' ' ' ' ' ' ' ' ' '-6%

    -4%

    - 2.9% Net Exports

    16

    Source: BEA, FactSet, J.P. Morgan Asset Management.Values may not sum to 100% due to rounding. Quarter over quarter percent changes are at an annualized rate. Average represents the annualized growt h rate for thefull period. Expansion average refers to the period starting in the second quarter of 2009.

    Guide to the Markets U.S.

    Data are as of 12/31/14.

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    Consumer Finances

    $100 14%

    Household Debt Service RatioDebt payments as % of disposable personal income, seasonally adjusted

    4Q07:

    Consumer Balance Sheet3Q14, Trillions of dollars outstanding, not seasonally adjusted

    Total Assets: $95.4tn 3Q-07 Peak: $82.1tn

    $80

    $90

    11%

    12%

    13%

    y

    1Q80:10.6%

    4Q14**:9.9%

    .

    Homes: 24%

    1Q-09 Low: 67.0tn

    $50

    $60

    $70

    '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '149%

    10%

    E c o n o

    Household Net Worth 4Q14**:

    Deposits: 9%

    Pension Funds: 21%

    Other Tangible: 6%

    $30

    $40

    $60,000

    $70,000

    $80,000

    $90,000

    ,$82,9072Q07:

    $67,874Other Non-revolving: 1%Revolving*: 6%

    Auto Loans: 7%Other Liabilities: 9%

    Student Debt: 9%

    $0

    $10

    $20

    '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14$10,000

    $20,000

    $30,000

    $40,000

    50,000

    Total Liabilities: $14.1tnOther Financial

    Assets: 39%

    Mortgages: 68%

    17

    Source: (Left) FRB, J.P. Morgan Asset Management. Data include households and nonprofit organizations. (Right) BEA, FRB, J.P. Morgan AssetManagement. *Revolving includes credit cards. **4Q14 household debt service ratio and 4Q14 household net worth are J.P. Morgan Asset Managementestimates. Values may not sum to 100% due to rounding.Guide to the Markets U.S.Data are as of 12/31/14.

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    Credit Conditions

    14%

    Common Equity as a % of Total Assets

    2013:

    All FDIC insured institutions, 1934 201312%

    Delinquency Rates All banks, seasonally adjusted

    8%

    10%

    12%

    y

    11.1%

    Average: 7.7%

    4%

    6%

    8%

    10%Consumer Loans

    Commercial and Industrial Loans

    7.0%

    4%

    6%

    '34 '40 '46 '52 '58 '64 '70 '76 '82 '88 '94 '00 '06 '12 E c o n o

    '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '140%

    2%

    0.8%

    .

    Loan Growth

    Lending Standards for Approved Mortgage Loans

    720

    740

    760

    10%

    20%

    30%Real Estate Loans Nov. 2014:

    12.8%

    row n oans ou s an ng a commerca an s, o , seasona y a us eNov. 2014:

    744

    660

    680

    700

    ' ' ' ' ' ' ' ' ' ' ' ' ' ' ''00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14-30%

    -20%

    -10%

    0%

    Commercial and Industrial Loans

    Nov. 2014:2.7%

    18

    Source: (Top left) FDIC, J.P. Morgan Asset Management. (Top right) Federal Reserve, FactSet, J.P. Morgan Asset Management. (Bottom left): Federal Reserve, FactSet, J.P.Morgan Asset Management. (Bottom Right) McDash, J.P. Morgan Securitized Product Research, J.P. Morgan Asset Management.

    All data reflect most recently available releases.

    Guide to the Markets U.S. Data are as of 12/31/14.

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    Cyclical Sectors

    24Millions, seasonally adjusted annual rateLight Vehicle Sales

    46

    47

    Manufacturing and Trade InventoriesDays of sales, seasonally adjusted

    y 141618

    20

    Average: 15.3

    Dec. 2014:16.8

    41

    4243

    44

    45

    Oct. 2014:39.5

    E c o n o

    '96 '98 '00 '02 '04 '06 '08 '10 '12 '148

    10

    12

    Housing Starts

    Real Capital Goods Orders

    '96 '98 '00 '02 '04 '06 '08 '10 '12 '1437

    38

    39

    1,600

    2,000

    2,400ousan s, seasona y a us e annua rae

    $60

    $65

    $70

    $75on- eense cap a goo s or ers ex. arcra , n, seasona y a us e

    Nov. 2014:61.0

    ' ' ' ' ' ' ' ' ' '0

    400

    800

    ,

    Nov. 2014:1,028

    verage: ,

    '96 '98 '00 '02 '04 '06 '08 '10 '12 '14$40

    $45

    $50

    $55

    Average: 56.8

    19

    Source: (Top left) BEA, FactSet, J.P. Morgan Asset Management. (Top right) Census Bureau, FactSet, J.P. Morgan Asset Management. (Bottom left) Census Bureau,FactSet, J.P. Morgan Asset Management. (Bottom right) Census Bureau, FactSet, J.P. Morgan Asset Management.Capital goods orders deflated using the producer price index for capital goods with a base year of 2004.Guide to the Markets U.S.Data are as of 12/31/14.

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    Residential Real Estate

    40%125

    Indexed to 100, seasonally adjustedHome Prices Housing Affordability Index

    Avg. mortgage payment as a % of household income

    20%

    25%

    30%

    5

    y115

    120Case Shiller 20-cityFHFA Purchase Only

    Average Existing Home Nov. 2014:12.1%

    Avera e: 20.3%

    10%

    15%

    '75 '78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08 '11 '14 E c o n o

    100

    105

    110

    Home Inventories

    90

    95

    3.5

    4

    4.5, ,

    Nov. 2014:2.4

    ' ' ' ' ' ' ' ' ' '75

    80

    85

    ' ' ' ' ' ' ' ' ' ' '1.5

    2

    2.5

    20

    Sources: (Left) National Association of Realtors, Standard & Poors, FHFA, FactSet, J.P. Morgan Asset Management. (Top right) Census Bureau, J.P. Morgan Asset Management.Monthly mortgage payment assumes the prevailing 30-year fixed-rate mortgage rates and average new home prices excluding a 20% down payment. (Bottom right) CensusBureau, National Association of Realtors, J.P. Morgan Asset Management.

    Guide to the Markets U.S.

    Data are as of 12/31/14.

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    Long-term Drivers of Economic Growth

    Private nonresidential fixed investment, % of GDP16%

    Gross Investment and DepreciationDepreciationGross investments endin

    5%

    Five year moving average of year-over-year % changeGrowth in Employment and Real Output Per Worker*

    8%

    12%

    y

    4%

    verage growt50 yr. 10 yr. 5 yr.

    Employment 1.5% 0.5% 1.1%

    Real OutputPer Worker 1.5% 1.1% 1.3%

    GDP 3.0% 1.6% 2.4%

    '90 '95 '00 '05 '100%

    4%

    E c o n o

    Real Capital Stock Growth

    2%

    3%

    Real Output Per Worker

    3%

    4%

    5%

    2013: 1.6%

    , - -

    1%

    Employment Growth

    0%

    1%

    2%

    '70 '80 '90 '00 '10-1%

    0%

    21

    Source: BEA, BLS, FactSet, J.P. Morgan Asset Management.*Labor Force includes the population age 16+ working or looking for work, Real Output Per Worker is calculated as real GDP growth minus civilianemployment growth. Averages are calculated as the annualized growth rate.

    Guide to the Markets U.S.

    Data are as of 12/31/14.

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    Federal Finances

    $4.0

    The 2015 Federal BudgetCBO Baseline forecast, trillions USD

    -12%

    Federal Budget Surplus/Deficit% of GDP, 1990 2024, 2014 CBO Baseline

    Forecast

    $3.0

    $3.5

    y

    o a pen ng: . n

    Other

    $550bn (15%)

    Net Int.: $251bn (7%)

    Borrowing:$469bn (13%)

    Other: $302bn (8%)

    -

    -8%

    -6%-4%

    -2%

    2015:-2.6%

    $2.0

    $2.5

    E c o n o

    Defense:$608bn (16%)

    Non-defense Disc.:$506bn (13%) Social Insurance:

    $1,065bn (28%)'90 '95 '00 '05 '10 '15 '20 '25

    0%

    2%

    4%

    Federal Net Debt (Accumulated Deficits)

    $1.0

    $1.5 Social Security:$887bn (24%)

    Income:

    Corp.: $389bn (10%)

    80%

    100%

    120% , , ,

    2024:77.2%2015:

    74.0%

    Forecast

    $0.0

    $0.5Medicare & Medicaid:

    $948bn (25%)

    ,

    20%

    40%

    60%

    ' ' ' ' ' ' ' ' ' ' '

    22

    Source: U.S. Treasury, BEA, CBO, St. Louis Fed, J.P. Morgan Asset Management.2015 Federal Budget is based on the CBOs August 2014 Baseline Budget Forecast. Other spending includes, but is not limited to, health insurance sub sidies, incomesecurity, and federal civilian and military retirement.Note: Years shown are fiscal years (Oct. 1 through Sep. 30). 2015 numbers are CBO estimates as of August 2014.Guide to the Markets U.S. Data are as of 12/31/14.

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    Unemployment and Wages

    Civilian Unemployment Rate and Year-over-Year Growth in Wages of Production and Non-Supervisory WorkersSeasonally adjusted, percent

    m y

    10%

    Oct. 2009:

    10.0%

    E c o n o

    6%

    8%

    50-yr. Average: 6.1%

    Unemployment

    4% 49-yr. Average: 4.3%

    Nov. 2014:5.8%

    Nov. 2014:

    2.2%

    '70 '80 '90 '00 '100%

    2% Wage Growth

    23

    Source: BLS, FactSet, J.P. Morgan Asset Management.Guide to the Markets U.S.

    Data are as of 12/31/14.

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    Labor Market Perspectives

    Employment Total Private PayrollTotal job gain/loss (thousands)

    6008.8mm 67%

    68%Labor Force Participation Rate

    y -400-200

    0

    200

    400 jobs lost

    10.9 mm jobs 64%

    65%

    66%

    E c o n o

    Net Job Creation Since Feb. 2010 Millions of Jobs

    '05 '06 '07 '08 '09 '10 '11 '12 '13 '14-1,000

    -800

    -600 gained

    '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '1462%

    63%

    Nov. 2014: 62.8%

    Ratio of Unemployed to Job Openings

    4

    5

    6

    7

    3.22.9

    2.1 1.9

    1 mm

    2 mm

    3 mm

    '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '141

    2

    3

    Oct. 2014: 1.9

    0.9

    -0.5

    -1 mm

    0 mm

    Info. Fin &Bus. Svcs .

    Mfg. Trade &Trans.

    Leisure,Hosp t. &

    Other Svcs.

    Edu. &Health Svcs.

    Mining &Construct.

    Gov't

    24

    Source: BLS, FactSet, J.P. Morgan Asset Management.

    Guide to the Markets U.S.

    Data are as of 12/31/14.

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    Employment and Income by Educational Attainment

    18%

    Unemployment Rate by Education Level

    $84,852$90,000

    Average Annual Earnings by Highest Degree EarnedFull-time workers aged 18 and older, 2012, USD

    14%

    16%

    y

    High School No CollegeSome College

    College or Greater $70,000

    $80,000

    +28K

    10%

    12%

    E c o n o

    Nov. 2014:

    5.6%

    .8.5% $56,665

    $50,000

    $60,000

    +26K

    4%

    6%Nov. 2014:

    4.9%

    $30,627

    $20,000

    $30,000

    $40,000

    '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '140%

    2%Nov. 2014:

    3.2%

    $0

    $10,000

    '

    25

    Source: BLS, Census Bureau, FactSet, J.P. Morgan Asset Management.Unemployment rates shown are for civilians aged 25 and older.

    Guide to the Markets U.S.

    Data are as of 12/31/14.

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    Inflation

    15%

    CPI and Core CPI% change vs. prior year, seasonally adjusted CPI

    ComponentsWeight in

    CPI 12-month Change

    y

    12%

    -yr. vg. ov.

    Headline CPI 4.2% 1.3%

    Core CPI 4.1% 1.7%Headline PCE 3.6% 1.2%Core PCE 3.5% 1.4%

    oo ev. . .

    Housing 32.3% 3.0%

    Apparel 3.5% -0.3%

    Transportation 5.6% 1.8%

    E c o n o

    6%

    9%Medical Care 5.8% 2.3%

    Recreation 2.0% -2.8%

    Edu. & Comm. 0.6% -4.0%

    3%

    Other 1.6% 1.5%

    Headline CPI 100.0% 1.3%

    Less:

    '65 '70 '75 '80 '85 '90 '95 '00 '05 '10-3%

    0% Energy 8.9% -4.8%

    Food 14.1% 3.2%

    Core CPI 77.1% 1.7%

    26

    Source: BLS, FactSet, J.P. Morgan Asset Management.CPI used is CPI-U and values shown are % change vs. one year ago and reflect November 2014 CPI data. CPI component weights are as of November 2014.Core CPI is defined as CPI excluding food and energy prices. The Personal Consumption Expenditure (PCE) deflator employs anevolving chain-weighted basket of consumer expenditures instead of the fixed weight basket used in CPI calculations.Guide to the Markets U.S. Data are as of 12/31/14.

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    Trade and the U.S. Dollar

    -7%

    Current Account Balance and Oil Imports, % of GDP

    4Q05:115

    U.S. Dollar IndexMonthly average of nominal trade-weighted exchange index: major currencies

    -6%

    -5% y

    -6.2%

    105

    110Forecast*

    -4% E c o n o

    90

    95

    **-3%

    -2%

    3Q14:-2.3%

    urren ccoun a ance

    80

    85

    . :84.0

    .84.3

    -1%

    0%' ' ' ' ' ' ' ' '

    Net Oil Imports

    :-3.1%

    3Q14:-1.0%

    '96 '98 '00 '02 '04 '06 '08 '10 '12 '1465

    70 Mar. 2008:70.3

    27

    Source: BEA, EIA, Federal Reserve, FactSet, J.P. Morgan Asset Management.*Oil imports as a percent of GDP is an EIA forecast. **December U.S. Dollar index value is a J.P. Morgan Asset Management estimate.

    Guide to the Markets U.S.

    Data are as of 12/31/14.

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    Energy: Supply, Demand and Prices

    $160

    Change in Production and Consumption of Oil

    2013 2014* 2015* Growth since

    Production, consumption and inventories, million barrels per dayPrice of OilBrent crude, nominal prices , USD/bbl

    $60

    $80

    $100

    $120

    y

    2013Production

    U.S. 12.3 13.9 14.9 20.7%

    OPEC 36.0 36.0 35.9 -0.3%

    '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14$0

    $20

    $40

    E c o n o

    Other 41.8 42.1 41.9 0.4%

    Global 90.2 92.0 92.8 2.9%

    Consumption

    Dec. 2014:$57.33

    U.S. Natural Gas Production**

    EIA

    20

    25

    30

    35U.S. 19.0 19.0 19.1 0.7%

    Europe 13.6 13.5 13.4 -1.9%

    Japan 4.5 4.4 4.2 -6.4%

    China 10.6 11.0 11.3 6.9%

    Gbl. Natural Gas Prices

    Japan $13.86Germany $10.16U.S. $3.65

    ,

    Shale Gas

    Forecast

    ' ' ' ' ' ' '0

    5

    10

    15Other 42.8 43.6 44.3 3.6%

    Global 90.5 91.4 92.3 2.0%

    Inventory Change -0.3 0.5 0.4

    Other***

    28

    Source: EIA, FactSet, J.P. Morgan Asset Management. *Forecasts are from EIA Annual Energy Outlook and start in 2013. **Production numbers as of 2013. ***Other includesconventional on and offshore natural gas drilling, tight gas, and coalbed methane. Natural gas prices are $/mmbtu and are as of December 2014.

    Guide to the Markets U.S.

    Data are as of 12/31/14.

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    Energy Price Impacts

    14% Imports as a % of GDP

    Percent of Income Spent on Gasoline and Motor OilBefore-tax income quintile, percent of spending, 2013

    Oil Importers and ExportersNet imports as a percent of GDP, 2013

    -

    6%

    8%

    10% -3.6%

    0.9%

    1.6%

    - - - -

    Canada

    U.K.

    U.S. e d y

    0%

    2%

    Lowest Second Third Fourth Highest

    2.2%

    2.4%

    2.4%

    Italy

    France

    GermanyGasoline Prices

    D e v e

    l o

    E c o n o

    3.6%

    -13.6%

    0.7%

    Japan

    Russia*

    Brazil

    ,

    $3.00

    $4.00

    $5.00 Dec. 2014:$2.61

    g

    2.4%

    4.8%

    5.3%

    China

    South Africa

    India' ' ' '

    $0.00

    $1.00

    $2.00

    D e v e

    l o p

    i

    29

    Source: (Top left) BEA, (Bottom Left) Department of Labor, FactSet, (Right) EIA, IMF, J.P. Morgan Asset Management.

    *Russia imports as a percent of GDP was -13.6% in 2013 and is adjusted on the chart.

    Guide to the Markets U.S.

    Data are as of 12/31/14.

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    Consumer Confidence and the Stock Market

    130Consumer Sentiment Index University of Michigan

    Impact on Consumer Sentiment from a

    y110

    120

    Mar. 1984

    Jan. 2000

    -2.0%Jan. 2004

    +4.4%

    - . p s+1.9+2.8-5.2

    y-o-y r se n gaso ne pr ces10% y-o-y rise in home prices10% y-o-y rise in the S&P 5001% y-o-y rise in the unemployment rate

    E c o n o

    90

    100

    Average: 84.8

    +13.5%May 1977

    +1.2%

    .-6.2%

    Jan. 2007-4.2%

    .93.6

    60

    70

    Oct. 1990

    Mar. 2003+32.8% Oct. 2005

    +14.2%

    ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' '40

    50

    Feb. 1975+22.2%

    May 1980+19.2%

    .

    Nov. 2008+22.3%

    Aug. 2011+15.4%Sentiment Cycle Low and

    subsequent 12-month S&P 500 Indexreturn

    30

    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 higherhighs. Subsequent 12-month S&P 500 returns are price returns only, which excludes dividends. Impact on consumer sentiment is based on a multivariate monthly regression between 1/31/2000 5/31/2014.

    Guide to the Markets U.S. Data are as of 12/31/14.

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    Interest Rates and Inflation

    20%Nominal and Real 10-year Treasury Yields

    Average

    15%

    . ,15.84%

    Nominal Yields 6.30% 2.17%Real Yields 2.50% 0.46%

    Inflation 3.80% 1.71%

    10%

    c o m

    eNominal 10-yearTreasury Yield

    5%

    F i x e

    d I . , .

    Real 10-yearTreasury Yield

    '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15-5%

    Dec. 31, 2014: 0.46%Rising Rate Corp. Bonds S&P 5001958-1981 3.0% 8.6%Ann. Inflation 5.0% 5.0%Ann. Real Return -2.0% 3.5%

    Falling Rate Corp. Bonds S&P 5001982-2014 9.6% 11.7%Ann. Inflation 3.0% 3.0%Ann. Real Return 6.6% 8.6%

    31

    Source: Federal Reserve, BLS, J.P. Morgan Asset Management.Real 10-year Treasury yields are calculated as the daily Treasury yield less year-over-year core CPI inflation for that month except for December 2014,where real yields are calculated by subtracting out November 2014 year-over-year core inflation. All returns above reflect annualized total returns, whichinclude reinvestment of dividends. Corporate bond returns are based on a composite index of investment grade bond performance.Guide to the Markets U.S.Data are as of 12/31/14.

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    The Fed and Interest Rates

    7%

    Feds Balance Sheet: Assets$ trillions

    Other

    Federal Funds Rate ExpectationsFOMC and market expectations for the Fed Funds rate

    $4.0

    $4.5Federal Funds Rate

    3%

    4%

    5%U.S. Treasuries

    Agency MBS

    $1.5

    $2.0

    $2.5

    $3.0

    $3.5

    FOMC Long Run Projection

    FOMC Year-End EstimatesMarket Expectations

    0%

    1%

    '99 '01 '03 '05 '07 '09 '11 '13 '15 '17

    c o m

    e

    Feds Balance Sheet: Liabilities

    Federal Reserve Summary of Economic Projections

    $0.0

    $0.5

    $1.0

    '04 '06 '07 '08 '09 '10 '11 '12 '13 '14

    F i x e

    d I

    $2.5

    $3.0

    $3.5

    $4.0

    $4.5

    Excess Reserves

    Required Reserves

    Other Liabilities

    FOMC December 2014 Forecasts*Percent

    2014 2015 2016 2017 LongRun

    Change in real GDP, Q4 to Q4 2.4 2.8 2.8 2.4 2.2

    '05 '06 '07 '08 '09 '10 '11 '12 '13 '14$0.0

    $0.5

    $1.0

    $1.5

    $2.0Unemployment Rate, Q4 5.8 5.3 5.1 5.1 5.4

    PCE Inflation, Q4 to Q4 1.3 1.3 1.9 1.9 2.0

    Federal Funds Rate, end of year 0.13 1.13 2.50 3.63 3.75

    32

    Source: Federal Reserve, FactSet, J.P. Morgan Asset Management.Monetary base is defined as the total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits heldin the central bank's reserves. Other liabilities of the Federal Reserve primarily consist of currency outstanding. Market expectations are the federalfunds rates priced into the fed futures market. *Forecasts of 17 Federal Open Market Committee (FOMC) participants, midpoints of central tendencyexcept for federal funds rate which is a median estimate.

    Guide to the Markets U.S. Data are as of 12/31/14.

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    Shape of the Yield Curve

    4.5%

    Yield CurveU.S. Treasury Yield Curve

    4.0%

    1.5%

    2.0%

    2.5%

    3.0%

    3.5%

    . Dec. 31, 2013

    Dec. 31, 2014

    1.1% 2.0%2.2%

    2.8%

    3.0%

    2.5%

    1.8%

    0.1%

    0.0%

    0.5%

    1.0%

    Nominal 2 Year and 10 Year U.S. Treasury Yields Treasuries Outstanding 3Q14

    c o m

    e 3m 1y 2y 3y 7y 10y 30y5y

    0.3%0.7%

    .

    0.8%0.4%

    0.5%

    0.6%

    0.7%

    .

    2.6%

    2.8%

    3.0%

    . , ,

    F i x e

    d I

    Foreign official

    State and local

    gov'ts

    Financialinstitutions

    7%

    Households6%

    Other 1%

    Jan '14 A r '14 Jul '14 Oct '14 Jan '150.2%

    0.3%

    0.4%

    2.0%

    2.2%

    2.4%

    10Y UST (RHS)2Y UST (LHS)

    32%

    FederalReserve

    19%Foreign private

    15%

    Mutual funds9%

    7%

    33

    Source: Federal Reserve, FactSet, J.P. Morgan Asset Management.Guide to the Markets U.S.Data are as of 12/31/14.

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    Global Monetary Policy

    80%

    Central Bank Assets Percent of Nominal GDPJPMAM

    Forecast* 1

    Correlation of Government Bonds6-month rolling correlation of weekly change in USTs and German Bund yields

    60%

    70%

    0.2

    0.4

    0.6

    0.8

    10-yr. Bonds

    40%

    50%

    c o m

    e

    Real Policy Rates Monthly

    -0.2

    0

    '10 '11 '12 '13 '14

    2-yr. Bonds

    20%

    30%

    F i x e

    d I

    3%4%5%6%7%Bank of Japan

    Emerging Markets

    0%

    10%

    '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15-3%-2%-1%0%1%

    ' ' ' ' ' ' ' ' ' ' ' ' ' ' '

    uropean en ra an

    U.S. Federal Reserve Developed Markets

    34

    Source: J.P. Morgan Global Economics Research, FactSet, J.P. Morgan Asset Management.Real policy rates represent GDP weighted aggregates estimated by J.P. Morgan Global Economics Research. Real policy rates are short-term targetinterest rates set by central banks minus year-over-year inflation. *Central bank assets as percent of nominal GDP is forecasted through 2015 using J.P. Morgan Global Economics Research nominal GDP forecasts and assumptions for central bank balance sheet size based on statements released byeach respective central bank and its governors.Guide to the Markets U.S.Data are as of 12/31/14.

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    Sources of Bond Returns

    Coupon Return2014 C

    Total Return2014 A + B + C

    Treasury Base Rate Return2014 A

    Spread to Treasury Return2014 B

    20145-yr. 5-yr.2013

    .

    8.2%

    26.0%

    10-yr.

    30-yr.

    .

    2.6%

    3.4%

    .

    10.7%

    29.4%

    10-yr.

    30-yr.

    c o m

    e

    4.4%

    -3.3%

    10-yr. Muni

    U.S. HY -1.1%

    4.3%

    6.8%

    8.7%

    2.5%

    10-yr. Muni

    U.S. HY

    F i x e

    d I 0.3%

    3.7%

    2.0%

    IG Corp .

    U.S. MBS

    -1.2%

    -0.5%

    0.4%

    5.6%

    4.2%

    3.7%

    4.8%

    7.5%

    6.1%

    IG Corp.

    U.S. MBS

    2.7%

    -1.4%

    U.S. Agg .

    FRN (BBB)

    0.1%

    0.1%

    3.2%

    1.3%

    6.0%

    0.1%

    U.S. Agg .

    FRN (BBB)

    35

    Source: Federal Reserve, Barclays, J.P. Morgan Asset Management. All returns reflect year to date returns. Treasury base, spread, and coupon returns based on Barclays and J.P. Morgan Asset Managementestimates. The sum of charts A and B equate to price return for each sector. Indices used include Barclays US Treasury Bellwethers (10Y),Barclays US Aggregate, Barclays US Aggregate Credit Corporate Investment Grade, Barclays US Aggregate Credit Corporate High Yield,Barclays Muni 10-year Index, Barclays US MBS Index, Barclays Floating Rate Index, and Barclays Emerging Markets USD.Guide to the Markets U.S. Data are as of 12/31/14.

    - - - - - - - -

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    Fixed Income Yields and Returns

    Price Impact of a 1% Rise/Fall in Interest Rates*

    -2.0%0.9%2y USTU.S. Treasuries # of

    issuesCorrelation to

    10-year Avg.

    Maturity 12/31/2014 9/30/2014 4Q14 2014

    Yield Return

    -17.8%

    -8.6%

    -5.7%

    -4.7%

    23.2%

    9.5%

    6.7%

    .

    30y UST

    10y UST

    TIPS

    5y UST 2-Year 95 0.63 2 years 0.67% 0.58% 0.17% 0.66%

    5-Year 97 0.90 5 1.65% 1.78% 1.14% 2.89%

    10-Year 17 1.00 10 2.17% 2.52% 3.57% 10.74%

    30-Year 20 0.92 30 2.75% 3.21% 10.06% 29.38%

    c o m

    e

    -3.9%

    -3.2%

    -0.1%

    3.9%

    3.6%

    0.1%

    ABS

    Convertibles

    Flo ating Rate

    TIPS 35 0.58 10 0.49% 0.55% -0.03% 3.64%

    Sector

    Broad Market 9,054 0.85 7.7 years 2.25% 2.36% 1.79% 5.97%

    MBS 410 0.80 6.5 2.60% 2.88% 1.79% 6.08%

    F i x e

    d I

    -

    -5.6%

    -5.5%

    -4.3%

    5.5%

    5.5%

    3.4%

    4.2%

    Munis

    US Aggregate

    MBS

    US HY Municipals 9,080 0.45 10.0 2.04% 2.13% 1.38% 8.72%

    Corporates 5,212 0.45 10.7 3.11% 3.10% 1.77% 7.46%

    High Yield 2,253 -0.24 6.5 6.61% 6.13% -1.00% 2.45%

    Floating Rate 49 -0.21 2.7 1.61% 0.98% -1.43% 0.08%

    Source: U.S. Treasury, Barclays Capital, FactSet, J.P. Morgan Asset Management. Fixed income sectors shown above are provided by Barclays Capital and are represented by Broad Market: Barclays U.S. Aggregate; MBS: U.S. Aggregate Securitized - MBS Index; Corporate: U.S. Corporates; Municipals: Muni Bond 10-year Index; High Yield: Corporate High

    +

    -6.7%

    .7.7%

    -30% -10% 10% 30%

    IG Corps Convertibles 518 -0.29 -- 1.11% 1.14% 1.06% 8.17%

    ABS 1,727 -0.04 4.4 2.15% 2.18% 1.27% 3.44%

    36

    . . .CMBS. Treasury securities data for # of issues based on U.S. Treasury benchmarks from Barclays Capital. Yield and return information based on bellwethers for Treasury securities.Sector yields reflect yield to worst, while Treasury yields are yield to maturity. Correlations are based on 10-years of monthly returns for all sectors. Change in bond price is calculatedusing both duration and convexity according to the following formula: New Price = (Price + (Price * -Duration * Change in Interest Rates))+(0.5 * Price *Convexity * (Change in Interest Rates)^2). *Calculation assumes 2-year Treasury interest rate falls 0.67% to 0.00%, as interest rates can only fallto 0.00%. Chart is for illustrative purposes only. Past performance is not indicative of future results.Guide to the Markets U.S. Data are as of 12/31/14.

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    Global Fixed Income

    $100

    Global Bond MarketUSD, trillions

    12/31/89 6/30/14EM: $14tn

    Yield

    Aggregates Correl to

    Duration 12/31/2014 9/30/2014 4Q14 2014

    Return

    70

    $80

    $90U.S. 60.7% 36.1%Dev. ex U.S. 38.2% 49.5%EM 1.1% 14.4%

    -

    U.S. 0.83 5.6 Yrs 2.25% 2.36% 1.79% 5.97%

    Gbl. ex. U.S. 0.37 7.1 1.29% 1.46% -2.61% -2.21%

    Japan 0.49 8.3 0.36% 0.52% -6.38% -8.35%

    $50

    $60 Developed exU.S.: $50tn

    c o m

    e

    Germany 0.25 6.0 0.58% 0.76% -1.87% -3.70%

    U.K. 0.17 9.4 1.94% 2.36% 1.57% 5.82%

    Italy 0.07 6.6 1.50% 1.67% -1.80% 0.84%

    $20

    $30

    $40

    U.S.: $35tn

    F i x e

    d I . . . . - . .

    Sector

    Euro Corp. 0.11 4.8 1.04% 1.20% -2.73% -4.82%

    Euro HY. -0.39 3.9 4.65% 4.58% -3.27% -6.02%

    $0

    $10

    '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

    EMD ($) 0.20 6.7 5.62% 5.39% -0.55% 7.43%

    EMD (LCL) 0.08 4.9 6.50% 6.74% -5.71% -5.72%

    EM Corp. -0.26 5.6 5.56% 5.28% 0.31% 6.74%

    37

    Source: Barclays Capital, BIS, FactSet, J.P. Morgan Asset Management. All returns are in USD. Fixed income sectors shown above are provided by Barclays Capital and are

    represented by the global aggregate for each country except where noted. EMD sectors are represented by the J.P. Morgan EMBIG Diversified Index (USD), the J.P. Morgan GBI EMGlobal Diversified Index (LCL), and the J.P. Morgan CEMBI Broad Diversified Index (Corp). European Corporates are represented by the Barclays Euro Aggregate Corporate Indexand the Barclays Pan-European High Yield index. Sector yields reflect yield to worst. Duration is modified duration. Correlations are based on 7-yearsof monthly returns for the all sectors. Past performance is not indicative of future results.Guide to the Markets U.S. Data are as of 12/31/14.

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    Municipal Finance

    12% 10%% of current expenditures

    10-Year Muni Taxable Equivalent Yield

    3Q14: 7.9%

    Taxable equivalent Muni and Treasury yieldsState & Local Government Debt Service

    10%

    6%

    7%

    8%

    Taxable Equivalent 10-yr. Muni Yield

    6%

    8%

    3%

    4%

    '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

    Municipal Bond Issuance*

    c o m

    e

    4%

    ,

    10-yr. Treasury Yield F i x e

    d I

    $300

    $400

    $500

    0%

    2%

    '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

    Spread

    $0

    $100

    $200

    '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

    38

    Source (Left chart): Barclays Capital, U.S. Treasury, FactSet, J.P. Morgan Asset Management. (Top right) BEA, J.P. Morgan Asset Management. (Bottom right) SIFMA, J.P.Morgan Asset Management.Taxable equivalent yields are calculated for the highest federal marginal tax bracket. 2014 tax rate includes the net investment income tax of 3.8%.*Excludes maturities of 13 months or less and private placements. Interest payments include interest accrued on defined benefit liabilities.2014 issuance data is as of November 2014.Guide to the Markets U.S. Data are as of 12/31/14.

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    High Yield Bonds

    20% Average LatestHY Spreads 5.9% 5.7%HY Defaults Rates 4.0% 3.0%

    U.S. High Yield Spreads and Defaults

    HY Spreads

    5%

    10%

    e au a es

    0%'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

    c o m

    e

    Global High Yield SpreadsS read over Treasuries

    Sector Weights Other 5%100%

    7%

    9%

    F i x e

    d I

    Euro HY

    Telecom 18%Telecom 21%

    Industrial 20%

    Industrial 29% Industrial 24%Energy 17%

    Energy 2% Energy 11%Other 17%

    60%

    80%

    3%

    5%

    '12 '13 '14

    U.S. HY

    Consumer 28% Consumer 31%Consumer 17%

    Financial 7%Financial 13%

    Financial 22%

    e ecom

    0%

    20%

    U.S. HY Euro HY EM HY

    39

    Source: U.S. Treasury, J.P. Morgan, Strategic Insight, J.P. Morgan Asset Management. Default rates are defined as the par value percentage of the total market trading at orbelow 50% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. Spreads indicated are benchmark yield to worst less comparablematurity Treasury yields. Yield to worst is defined as the lowest potential yield that can be received on a bond without the issuer actually defaultingand reflects the possibility of the bond being called at an unfavorable time for the holder. J.P. Morgan Domestic HY, J.P. Morgan Euro HY, andJ.P. Morgan CEMBI Non-IG indexes were used for Spreads and Industry Weights. Past performance is not indicative of comparable future results.Guide to the Markets U.S. Data are as of 12/31/14.

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    Emerging Market Debt

    1,317Russia

    Local denominated debt, 5 years, spread to Treasuries, basis pointsEMD Indices by Region EMD Sovereign Spreads

    Brazil 27% Latin America Latin America30%

    100%

    1,089Brazil

    India

    S. Africa 9%

    Turkey 10%

    Poland 11%

    Mexico 20%

    Asia 39%

    Europe 31%

    Europe 13%

    40%

    60%

    592Indonesia

    ColombiaEMD Indices by Credit Ratings c o m

    e

    Other 23% Middle East &Africa 13%

    Middle East &Africa 18%

    0%

    20%

    Local Sovereign USD Sovereign USD Corporate

    Mexico

    China

    Philippines

    5 year average F i x e

    d I

    Current spread

    Graph Key

    InvestmentGrade 85%

    InvestmentGrade 65%

    InvestmentGrade 69%60%

    80%

    100%

    146

    49

    0 200 400 600 800 1,000 1,200 1,400

    Hungary

    PolandNon Investment

    Grade 15%

    NonInvestmentGrade 35%

    NonInvestmentGrade 31%

    0%

    20%

    40%

    Lo cal So verei n USD So verei n USD Co r o rate

    40

    Source: J.P. Morgan Global Economic Research, FactSet, J.P. Morgan Asset Management.Spreads measure the credit risk premium over comparable maturity U.S. Treasury bonds. The J.P. Morgan EMBI Global (EMBIG) Index is a USD-denominated external debt indextracking bonds issued by sovereigns and quasi-sovereigns in developing nations. The J.P. Morgan Corporate Emerging Bond Index Broad (CEMBI) is aUSD-denominated external debt index tracking bonds issued by corporations in developing nations. The J.P. Morgan Government Bond Index EM(GBI-EM) is a local currency denominated index tracking bonds issued by emerging market sovereigns. Past performance is not indicative of Comparable future results. Index breakdown may not equate to 100% due to rounding.Guide to the Markets U.S. Data are as of 12/31/14.

    633

    626288

    428

    348

    181

    168

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    Global Equity Markets

    Weights in MSCI All Country World Index% global market capitalization, float adjusted

    Countr / Re ion

    4Q14 2014

    Local USD Local USD

    UnitedStates

    51%

    Europe ex-U.K.16%

    U.K. 7%

    EmergingMarkets

    Regions / Broad Indexes

    U.S. (S&P 500) - 4.9 - 13.7EAFE 1.8 -3.5 6.4 -4.5

    - - -11%

    Japan7%

    C a n a

    d a

    4 %

    Global Equity Market Correlations

    - . . . - . . - .

    Pacific ex-Japan 3.1 -1.5 5.8 -0.3

    Emerging Markets 0.1 -4.4 5.6 -1.8

    MSCI: Selected Countr ies

    0.50

    0.60

    0.70

    0.80

    0.90 - ,

    o n a

    l

    United Kingdom -0.4 -4.2 0.5 -5.4

    France -1.7 -5.8 3.6 -9.0

    Germany 4.0 -0.4 2.8 -9.8

    Japan 6.7 -2.4 9.8 -3.7

    0.00

    0.10

    0.20

    0.30

    0.40

    ' ' ' ' ' ' ' ' ' '

    Dec. 2014: 0.44

    I n t e r n a t i China 7.0 7.2 8.3 8.3

    India 1.5 -0.7 26.4 23.9

    Brazil -7.5 -14.8 -2.8 -13.7

    Russia -5.9 -32.8 -12.1 -45.9

    42

    Source: Standard & Poors, MSCI, FactSet, J.P. Morgan Asset Management. All return values are MSCI Gross Index (official) data. Chart is for illustrative purposes only. Past performance is not indicative of future results. Pleasesee disclosure page for index definitions. Countries included in global correlations include Argentina, South Africa, Japan, UK, Canada, France,Germany, Italy, Australia, Austria, Brazil, China, Colombia, Denmark, Finland, Hong Kong, India, Malaysia, Mexico, Netherlands, New Zealand, Peru,Philippines, Portugal, Korea, Spain, Taiwan, Thailand, Turkey, United States.Guide to the Markets U.S. Data as of 12/31/14.

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    International Equity Earnings and Valuations

    18x

    Forward Price to EarningsEarnings per Share

    26007/08 Peak Current % Change

    EPS for next 12-month consensus, local currency, rebased to 100 P/E ratios for next 12-month consensus EPS

    Average Current

    16x220

    240MSCI EM 217 167 -23%S&P 500 150 179 19%MSCI Europe 161 123 -24%

    MSCI EM 11.3x 11.0xS&P 500 13.8x 16.2xMSCI Europe 12.0x 14.1x

    12x

    14x

    180

    200

    10x

    o n a

    l

    120

    140

    160

    6x

    8x

    ' ' ' ' ' ' ' ' ' ' '

    I n t e r n a t i

    ' ' ' ' ' ' ' ' ' '80

    100

    43

    Source: MSCI, FactSet, J.P. Morgan Asset Management.Forward Price to Earnings Ratio is based on each index price, divided by consensus estimates for earnings per share (EPS) in the next 12 months (NTM),and is provided by FactSet Market Aggregates. Past performance is not indicative of future returns.

    Guide to the Markets U.S.

    Data are as of 12/31/14.

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    Global Economic Growth

    Year-over-year % chg. forecasts from JPMSIEmerging Market Country Real GDP Growth

    4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

    Historical

    3Q15

    JPMSI Forecast

    10%

    2%

    4%

    6%

    Developed Market Country Real GDP Growth

    -4%

    -2%

    Emerging Markets China India Korea Mexico South Africa Russia Brazil

    o n a

    l

    - - .

    4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

    s or ca

    3Q15

    orecas

    4%

    6%

    8%

    10%

    I n t e r n a t i

    -4%

    -2%

    0%

    2%

    44

    Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management.

    Forecast and aggregate data come from J.P. Morgan Global Economic Research. Historical growth data collected from FactSet Economics.

    Guide to the Markets U.S.

    Data are as of 12/31/14.

    . . . .

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    Sovereign Debt Stresses

    10%

    Bubble size = 10-yearovernment bond ield

    GDP Growth, Gross Debt to GDP and Borrowing Costs

    Turkey

    na

    India

    Indonesia

    Malaysia

    10%

    5%

    6%

    8%

    0 1 4 F )

    Brazil

    South Africa

    Mexico

    U.S.

    Korea

    France

    GermanyJapanRussia

    Singapore

    EU

    Aust ralia

    U.K.

    0%

    2%

    G r o w

    t h ( 2 0 1 2

    Greece

    ItalySpain

    or uga

    -4%

    -2%

    o n a

    l R e a

    l G D P

    -8%

    -6%

    0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200% I n t e r n a t i

    Gross Debt-to-GDP Ratios 2013245%

    Developed MarketsEmerging Markets

    46

    Source: IMF, FactSet, Bloomberg, J.P. Morgan Economics, Barclays, J.P. Morgan Asset Management.Growth and debt data are based on the October 2014 World Economic Outlook.Borrowing costs based on local currency debt. EU overall borrowing cost based on Barclays Capital Euro-Aggregate 7-10 year treasury. South Africasborrowing cost is based on 7-year government bond yield due to data availability.Guide to the Markets U.S. Data are as of 12/31/14.

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    Europe: Cyclical Headwinds and Tailwinds

    13.9%14%35%12/31/14

    Government Fiscal DragEuropean Sovereign Funding Costs10-year benchmark bond yield % of potential GDP, reduction in structural deficits from one period to the next

    10%

    12%30%

    Greece 9.42%Portugal 2.67%Italy 1.86%

    Spain 1.61%Ireland 1.24%Germany 0.53%

    2010-2013

    2013-2016

    r e f i s c a

    l d r a g

    6.0%

    4.6%

    6%

    8%

    20%

    M

    LTRO

    3.5%.

    3.3% 3.1%2.7%

    0.5%1.2% 1.1% 1.4%

    0.5% 0.8%

    2%

    4%

    o n a

    l10%

    15%

    OMT

    s f i s c a

    l d r a g

    -0.4% -0.1%

    -2% I n t e r n a t i

    ' ' ' ' ' '0%

    5% L e

    47

    Source: Tullett Prebon, FactSet, IMF, J.P. Morgan Asset Management. Data are based on the October 2014 World Economic Outlook.Government deficits are calculated by the IMF as the general government structural balance. The structural balance excludes the normal impact of the business cycle, providing aclearer measure of the independent impact of changes in government spending and taxation on demand in the economy.*Eurozone includes a J.P. Morgan Asset Management estimate for the 2016 structural deficit as a % of GDP.Guide to the Markets U.S.Data are as of 12/31/14.

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    Europe: Unemployment, Inflation and Credit Markets

    20%

    10%

    12%

    Euro Area

    Oct. 2014: 11.5%Unemployment Rates Euro Area Credit Growth% year-over-year loan growth

    5%

    10%

    15%

    4%

    6%

    8%

    U.S.

    Nov. 2014: 5.8%

    Nov. 2014: -1.6%Households

    Nov. 2014:-0.4%

    -5%

    %

    '06 '07 '08 '09 '10 '11 '12 '13 '14'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '140%

    2%

    Europe Inflation Euro Area Asset-Backed Securities Outstanding

    o n a

    l

    CoreEuro AreaPeriphery

    - -

    3%

    4%

    5%

    2,500

    3,000

    I n t e r n a t i

    '05 '06 '07 '08 '09 '10 '11 '12 '13 '14-1%

    0%

    1%

    1,000

    1,500

    ,

    ' ' ' ' ' ' ' ' ' ' '

    48

    Source: Eurostat, BLS, SIFMA, ECBC, FactSet, IMF, J.P. Morgan Asset Management.(Top left) Unemployment rate levels for the U.S. and Euro Area are not directly comparable due to calculation differences. (Bottom right) Euro Area securitization outstandingincludes Covered Bonds, Asset-Backed Securities, Residential Mortgage-Backed Securities, Commercial Real Estate Mortgage-Backed Securities,and Small and Medium-Sized Enterprise Asset-Backed Securities.Guide to the Markets U.S.Data are as of 12/31/14.

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    Japan: Economic Snapshot

    120

    130

    18,000

    20,000Inflation and Japanese Government Bond YieldsYear-over-year % change for inflation Japanese Yen per U.S. Dollar

    Nikkei 225

    Japanese Yen and the Stock Market

    6%

    8%

    90

    100

    110

    10 000

    12,000

    14,000

    16,000Owners of Japanese Gov. BondsOther Domestic 74%Bank of Japan 21%Foreign 4%

    4%'05 '06 '07 '08 '09 '10 '11 '12 '13 '14

    70

    80

    6,000

    8,000

    Government Fiscal Balance

    0%

    2%

    o n a

    l

    Nominal 10-year Yield -12%-10%

    -8%

    -6%

    -4%

    forecast

    '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

    -2% I n t e r n a t i Core CPI

    '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

    -2%

    0%

    2%

    4%

    49

    Source: (Left) Bank of Japan, OECD, IMF, FactSet, J.P. Morgan Asset Management. (Right) FactSet, J.P. Morgan Asset Management.

    Core CPI is defined as CPI excluding fresh food. Other Domestic includes banks, insurance and pensions, public pensions, and households. Valuesmay not sum to 100% due to rounding. Government bond data is calculated from the Bank of Japans December 2014 flow of funds.

    Guide to the Markets U.S. Data are as of 12/31/14.

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    China: Economic and Credit Growth

    16% 40%

    China Real GDP ContributionYear-over-year % change Year-over-year % change, 3-month moving average for credit

    Credit* vs. GDP Growth

    12%30%

    35%Investment

    Consumption

    Net Exports

    9.6%

    9.2%

    10.4%9.3%

    Credit

    Real GDP

    GDP Deflator

    4.5%

    8.1%

    5.5% 4.5%

    3.9% 4.2%

    8%

    20%

    25%7.7% 7.7%

    0.9%

    4.2%4.6%

    4.5% 5.2%4.1% 3.8%

    4%

    5%

    10%

    o

    n a

    l

    -3.5%

    .

    -0.4% -0.2% -0.3%

    -4%2008 2009 2010 2011 2012 2013

    -5%

    0%

    '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

    I n t e r n a t i

    50

    Source: National Bureau of Statistics of China, The Peoples Bank of China, EM Advisors Group, FactSet, CEIC, J.P. Morgan Asset Management.Values may not sum to 100% due to rounding. *As defined by Total Social Financing: RMB bank loans, bankers acceptance bills, trust loans,entrusted loans, corporate bond financing, foreign currency loans, and non-financial equity financing. TSF data uses an assumption of outstandingcredit in Dec. 2001.Guide to the Markets U.S. Data are as of 12/31/14.

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    Demographics and Development

    $60,000

    The Impact of UrbanizationUrbanization ratios and GDP per capita (current USD), 1961 2013

    Demographic Snapshot

    Investment(% of GDP)

    GDP PerCapita

    Population % of Pop.

    under 20

    $50,000 Japan

    U.S.2013: $53,142 Developed

    U.S. $53,101 316 mm 26% 20%

    Canada 51,990 35 22 24

    U.K. 39,567 64 24 14

    $30,000

    $40,000

    D P p e r

    C a p

    i t a

    Germany 44,999 81 18 17

    France 43,000 64 24 19

    Japan 38,491 127 18 21

    Ital 34,715 60 19 17

    $10,000

    $20,000

    G

    China

    Korea

    o n a

    l 1961: $2,935

    Emerging

    Korea 24,329 50 22 26

    India 1,505 1,243 38 35

    Brazil 11,311 198 33 18

    $-15% 25% 35% 45% 55% 65% 75% 85% 95%

    Urbanization Ratio

    India

    I n t e r n a t i Mexico 10,630 118 38 22

    Russia 14,819 143 21 24

    China 6,747 1,361 20 48

    51

    Source: FactSet, World Bank, United Nations, J.P. Morgan Global Economics Research, OECD, Bureau of Statistics of China, Ministry of Statistics &Programme Implementation of India, J.P. Morgan Asset Management.

    GDP per capita and Investment as % of GDP in the Demographic Snapshot table are IMF estimates for 2014.

    Guide to the Markets U.S.

    Data are as of 12/31/14.

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    Emerging Market Currencies

    Russia

    25%

    2014 Currency PerformancePerformance of foreign currency versus USD

    Commodity Exposure and External Vulnerability

    ChileIndonesia

    Colombia Depreciation(-0% to -10%)

    17%

    m o

    d i t y E

    x p o r t e r

    2014Currency Performance

    -13.4%

    -18.7%

    -45.2%

    Chile

    Colombia

    Russia

    Brazil Mexico

    South Africa Depreciation

    (over -10%)

    1%

    9%

    -8% -6% -4% -2% 0% 2% 4% 6% 8%

    N e

    t C o

    -9.5%

    -11.1%

    -11.2%

    South Africa

    Mexico

    Brazil

    ChinaIndia

    Turkey-7%

    o n a

    l

    o d i t y I m p o r t e r s

    -2.4%

    -4.0%

    -8.1%

    China

    Korea

    Turkey

    Korea

    -23%

    -15%

    I n t e r n a t i

    N e

    t C o m

    Current Account Sur lusCurrent Account Deficit

    -1.7%

    -2.0%

    -50% -40% -30% -20% -10% 0% 10% 20%

    Indonesia

    India

    52

    Source: IMF, U.N. Commodity Trade Statistics Database, FactSet, J.P. Morgan Asset Management.Commodities defined by SITC codes 0-4. Net commodity exporters/importers plotted as a % of GDP.Current accounts as a percentage of GDP are IMF estimates for 2014.Guide to the Markets U.S. Data are as of 12/31/14.

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    Emerging Market Equities

    400

    EM Earnings by RegionMSCI EM Index by RegionEPS for next 12-month consensus, local currency, rebased to 100

    Europe

    Africa/Mideast8%

    Latin Americaex Brazil

    7%Brazil12%

    200250

    300Latin AmericaAsia

    Asia ex China& Korea

    28%Korea16%

    Europe10%

    '05 '06 '07 '08 '09 '10 '11 '12 '13 '1450

    100

    MSCI EM Country Index by Sector

    China19%

    o n a

    lOther

    Commodities

    Financials18%

    15%23%

    69%

    19% 14%17%

    9%

    13% 7% 21% 24% 31%14%

    60%

    80%

    100%

    I n t e r n a t i Tech

    Consumer 4%

    24%10%

    20% 15%35%

    23%

    23%14%

    40%36%

    15%

    33% 17%

    0%

    20%

    40%

    *

    53

    Source: MSCI, FactSet, J.P. Morgan Asset Management. Other is comprised of Health Care, Industrials, Telecom, and Utilities sectors.*Mexican Telecom sector accounts for 17% of the countrys market capitalization. Values may not sum to 100% due to rounding.Guide to the Markets U.S.Data are as of 12/31/14.

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    Global Equity Valuations: Developed Markets

    +5 Std Dev+6 Std Dev+7 Std Dev

    Developed Market Countries

    r a g e

    Expensive

    Example

    +3 Std Dev+2 Std Dev+1 Std Dev

    Average-1 Std Dev-2 Std Dev

    +4 Std Dev

    e v

    f r o m

    G

    l o b a

    l A v e

    Expensiverelative to own

    history

    world

    Cheap relativeAverageCurrent

    -3 Std Dev-4 Std Dev-5 Std Dev

    S t d

    relative to

    world

    World(ACWI)

    EAFEIndex

    U.K. France Germany Australia Canada Japan Switzerland UnitedStates

    Current Current 10-year avg.

    o n a

    l

    Fwd. P/E P/B P/CF Div. Yld. Fw d. P/E P/B P/CF Div. Yld.

    World (ACWI) 0.71 14.8 2.1 8.7 2.5% 13.1 2.0 7.5 2.5%EAFE Index -0.48 14.2 1.6 7.5 3.2% 12.7 1.7 6.7 3.2%U.K. -0.76 13.8 1.8 7.3 3.9% 11.4 2.0 7.4 3.7%France -0.69 13.8 1.4 7.7 3.3% 11.5 1.6 5.9 3.5%

    Index

    I n t e r n a t i

    Germany -0.58 12.9 1.6 7.5 2.9% 11.5 1.6 5.8 3.1%Australia -0.37 14.7 1.9 8.8 4.8% 13.5 2.2 9.2 4.3%Canada 0.46 15.5 1.9 8.6 2.8% 13.7 2.1 8.5 2.3%Japan 0.70 14.3 1.4 8.1 1.8% 16.1 1.4 6.4 1.6%Switzerland 1.36 15.7 2.5 11.3 3.2% 13.5 2.4 9.9 2.8%United States 2.68 16.4 2.8 11.0 1.9% 14.0 2.4 8.7 1.9%

    54

    Source: MSCI, FactSet, J.P. Morgan Asset Management.Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd. P/E), price to current book (P/B), price to last 12 monthscash flow (P/CF) and price to last 12 months dividends. Results are then normalized using means and average variability over the last 10 years.The grey bars represent one standard deviation in variability relative to that of the MSCI All Country World Index (ACWI).See disclosures page at the end for metric definitions.Guide to the Markets U.S. Data are as of 12/31/14.

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    Global Equity Valuations: Emerging Markets

    +5 Std Dev+6 Std Dev+7 Std Dev

    Emerging Market Countries

    r a g e Expensive

    relative to

    Example

    +3 Std Dev+2 Std Dev+1 Std Dev

    Average-1 Std Dev-2 Std Dev-3 Std Dev

    e v

    f r o m G

    l o b a

    l A v

    Expensiverelative to own

    history

    Cheap relativeto own histor

    Average

    Current

    World(ACWI)

    EMIndex

    Russia Brazil China Taiwan Korea Thailand South Africa

    Indonesia Mexico India

    -4 Std Dev-5 Std Dev-6 Std Dev

    S t d

    relative to

    world

    Current Current 10-year avg.

    o

    n a

    l

    Fw d. P/E P/B P/CF Div. Yld. Fw d. P/E P/B P/CF Div. Yld.

    World (ACWI) 0.71 14.8 2.1 8.7 2.5% 13.1 2.0 7.5 2.5%EM Index -1.49 11.0 1.4 5.4 2.8% 11.1 1.9 6.3 2.7%Russia -5.52 3.8 0.4 1.8 6.6% 7.3 1.3 4.4 2.2%Brazil -2.58 10.2 1.2 5.2 4.5% 10.0 1.8 5.6 3.2%China -2.35 9.4 1.4 4.0 3.2% 11.7 2.1 6.8 2.7%

    Index

    I n t e r n a t i

    a w an - . . . . . . . . .Korea 0.09 9.6 1.0 5.8 1.3% 9.7 1.4 5.1 1.5%Thailand 0.22 13.2 2.1 9.4 3.0% 10.9 2.0 7.2 3.6%South Africa 1.41 15.7 2.6 11.0 3.0% 11.7 2.5 8.9 3.2%Indonesia 2.62 15.0 3.3 12.6 2.4% 12.8 3.5 10.3 2.7%Mexico 3.17 18.3 2.6 7.1 1.4% 14.7 2.8 7.5 1.8%India 3.90 16.7 3.0 12.2 1.5% 15.7 3.2 13.0 1.3%

    55

    Source: MSCI, FactSet, J.P. Morgan Asset Management.Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd. P/E), price to current book (P/B), priceto last 12 months cash flow (P/CF) and price to last 12 months dividends. Results are then normalized using means and average variability over thelast 10 years. The grey bars represent one standard deviation in variability relative to that of the MSCI All Country World Index (ACWI). See disclosurespage at the end for metric definitions. See disclosures page at the end for metric definitions.Guide to the Markets U.S. Data are as of 12/31/14.

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    Correlations and Volatility

    zU.S.

    LargeCap EAFE EME Bonds

    Corp.HY Munis Currcy. EMD Cmdty. REITs

    HedgeFunds

    EqMarket

    Neutral*Ann.

    Volatility

    U.S. Large Cap 1.00 0.88 0.78 -0.26 0.76 - 0.09 -0.50 0.61 0.50 0.78 0.81 0.61 16%

    EAFE 1.00 0.91 -0.17 0.78 - 0.03 -0.72 0.70 0.63 0.68 0.87 0.74 20%

    EME 1.00 -0.11 0.82 0.04 -0.66 0.79 0.67 0.58 0.89 0.58 25%

    Bonds 1.00 -0.06 0.81 -0.08 0.26 -0.24 -0.01 -0.27 -0.18 3%

    Corp. HY 1.00 0.16 -0.53 0.87 0.57 0.70 0.78 0.41 12%

    Munis 1.00 -0.08 0.47 -0.17 0.06 -0.07 -0.11 4%

    Currencies 1.00 -0.53 -0.66 -0.40 -0.58 -0.69 7%

    EMD 1.00 0.49 0.62 0.66 0.34 8%

    Commodities 1.00 0.36 0.72 0.45 21%

    REITs 1.00 0.54 0.43 26%

    Source: Standard & Poors, FRB, Barclays Capital Inc., MSCI Inc., Credit Suisse/Tremont, NCREIF, DJ UBS, J.P. Morgan Asset Management.

    Indexes used Large Cap: S&P 500 Index; Currencies: Federal Reserve Trade Weighted Dollar; EAFE: MSCI EAFE; EME: MSCI EmergingMarkets; Bonds: Barclays Capital Aggregate; Corp HY: Barclays Capital Corporate High Yield; EMD: Barclays Capital Emerging Market; Cmdty.: s

    e t C l a s s

    Hedge Funds 1.00 0.60 7%

    Eq Market Neutral* 1.00 4%

    57

    DJ UBS Commodity Index; Real Estate: NAREIT Equity REIT Index; Hedge Funds: CS/Tremont Multi-Strategy Index; Equity Market Neutral:CS/Tremont Equity Market Neutral Index. *Market Neutral returns include estimates found in disclosures.

    All correlation coefficients and annualized volatility calculated based on quarterly total return data for period 12/31/04 to 12/31/14.

    This chart is for illustrative purposes only.

    Guide to the Markets U.S. Data are as of 12/31/14.

    A s

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    Fund Flows

    Billions, USD AUM YTD 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

    Mutual Fund Flows

    Domestic Equity 6,283 (39) 19 (159) (133) (81) (28) (149) (68) (3) 17 100 120 (25) 57 258 176

    World Equity 2,158 89 141 7 4 57 26 (80) 142 151 107 72 24 (4) (23) 58 11

    Taxable Bond 2,942 39 (13) 256 129 221 301 22 100 44 21 0 40 125 76 (36) 7

    Tax-exempt Bond 560 24 (58) 50 (12) 12 70 8 11 15 5 (15) (7) 17 12 (14) (12)

    Cumulative Flows Into Global Stock & Bond Funds

    Cumulative Flows Into U.S. Equity Funds

    Hybrid 1,377 31 71 45 40 35 20 (26) 40 20 43 53 39 8 7 (37) (13)

    Money Market 2,623 (75) 15 (0) (124) (525) (539) 637 654 245 62 (157) (263) (46) 375 159 194

    $0

    $400

    $800

    $1,000

    $1,200

    $1,400

    $1,600, ,

    Nov. 14: $1,406 billion into bond fundsand fixed income ETFs since 07

    Nov. 14: $707 billion intoInstitutional

    , ,

    Nov. 14: $626 billion into U.S.equity funds and ETFs byinstitutional investors since 07

    -$800

    -$400

    '07 '08 '09 '10 '11 '12 '13 '14$0

    $200

    $400

    $600

    ' ' ' ' ' ' ' ' s e

    t C l a s s Bonds

    Stocks

    s oc un s an equ yETFs since 07

    RetailNov. 14: $643 billion out of U.S.equity funds and ETFs by retailinvestors since 07

    59

    A s

    Source: Investment Company Institute, J.P. Morgan Asset Management.TOP: Data includes flows through November 2014 and excludes ETFs. BOTTOM: Data includes flow through November 2014 and includesETFs. ICI data are subject to periodic revisions. World equity flows are inclusive of emerging market, global equity and regional equity flows.Hybrid flows include asset allocation, balanced fund, flexible portfolio and mixed income flows.Guide to the Markets U.S.Data are as of 12/31/14.

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    Yield Alternatives: Domestic and Global

    S&P 500 Total Return: Dividends vs. Capital Appreciation Average annualized returns Capital Appreciation

    Dividends20%

    4.7% 5.4% 6.0% 5.1% 3.3% 4.2% 4.4% 2.5%1.8%

    4.0%

    13.9%

    3.0%

    13.6%

    4.4%1.6%

    12.6% 15.3%

    -2.7%

    5.9%

    0%

    5%

    10%

    15

    Equity Dividend Yields REIT Yields

    - .

    -10%

    -5%

    1926 to 1929 1930's 1940's 1950's 1960's 1970's 1980's 1990's 2000's 1926 to 2014

    ,10-year governmentbond yield

    10-year governmentbond yield

    ,

    3.6%

    5.8% 5.6%

    5.0%

    4.1%3.8%4%

    5%

    6%

    7%4.6%

    3.8%

    3.3%

    2.9% 2.8%

    2.5%3%

    4%

    5%

    s e

    t C l a s s

    3.0% 2.9%

    0%

    1%

    2%

    3%

    U.S. Canada Singapore F ranc e Aus tralia Global U. K. J apan

    2.0%

    1.8%

    0%

    1%

    2%

    U. S. Aust ralia U. K. France Canada Swit zerland ACW I Ja an

    60

    A s

    Source: (Top chart) Standard & Poors, Ibbotson, J.P. Morgan Asset Management. (Bottom right) FactSet, NAREIT, J.P. Morgan Asset Management.Dividend vs. capital appreciation returns are through 12/31/14. Yields shown are that of the appropriate FTSE NAREIT REIT index, which excludesproperty development companies. (Bottom left) FactSet, MSCI, J.P. Morgan Asset Management. Yields shown are that of the appropriate MSCI index.Guide to the Markets U.S.Data are as of 12/31/14.

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    Global Real Assets

    12%25%

    Commercial Vacancy Rates by Sector Percent at year end

    Property Appreciation and Operating Income GrowthYoYNCREIF ODCE Index* unlevered property appreciation and NOI growth

    Appreciation

    0%

    4%

    8%

    20%

    Office 16.7%Retail 10.1%Industrial 9.5%Apartment 4.2%

    -8%

    -4%

    '10 '11 '12 '13 '1415%

    Allowed Return on Equity over the Cost of Debt

    10%

    12%

    14%

    16%10%

    Electric

    Nat. Gas

    Recession

    0%

    2%

    4%

    6%

    ' ' ' ' ' s e

    t C l a s s

    0%' ' ' ' ' ' ' ' ' ' ' '

    bond10y UST

    61

    A s

    Source: Reis, Inc., PREA, NCREIF, Regulatory Research Associates, Barclays Capital, FactSet, J.P. Morgan Asset Management.Vacancy rate data provided by Reis, Inc. *NCREIF Open End Diversified Core Equity Index.Guide to the Markets U.S.Data are as of 12/31/14.

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    Global Commodities

    Commodity Prices Gold Prices$ / oz$3,000450

    Weekly index prices rebased to 100

    $1,000

    $1,500

    $2,000

    $2,500 Dec. 2014:$1,206

    ,Gold

    350

    400 Precious Metals

    Commodity Prices and Inflation- -

    '75 '80 '85 '90 '95 '00 '05 '10$0

    $500

    250

    300

    Industrial Metals

    2%

    4%

    6%

    8%

    20%

    40%

    60%

    80% .

    Headline CPI(Y/Y % chg.)

    DJ-UBS Commodity Index(Y/Y % chg.)

    100

    150

    200

    s e

    t C l a s s

    ' ' ' ' ' ' ' ' ' '-6%

    -4%

    -2%

    0%

    -60%

    -40%

    -20%

    0%

    ' ' ' ' ' ' ' ' ' '0

    50Energy

    LivestockGrains

    62

    A s

    Source: Dow Jones/UBS, EcoWin, BLS, U.S. Department of Energy, FactSet, J.P. Morgan Asset Management. CPI adjusted gold values are calculatedusing monthly averages of gold spot prices divided by the CPI value for that month. CPI is rebased to 100 at the end of the chart. Returns based onnominal prices. Commodity prices represented by the appropriate Bloomberg Commodity sub-index.

    Guide to the Markets U.S.

    Data are as of 12/31/14.

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    Life Expectancy and Pension Shortfall

    100% 25

    Probability of Reaching Ages 80 and 90 Perceived retirement shortfall by country

    Expected savingsshortfall (years)

    Savings expectedto last (years)

    Personsaged 65, by gender, and combined couple

    69%

    87%

    80% 20

    Women

    Couple at least onelives to specified age

    7 11

    58%60%

    10

    15 8

    10

    108

    8

    10

    58

    6

    28%

    41%40%

    108

    14

    911 11

    9

    1210 10 9 9

    5

    0%80 Years 90 Years

    0

    A v e r a g e

    U . S .

    F r a n c e

    C h i n a

    C a n a

    d a

    A u s t r a

    l i a

    U . K .

    B r a z i

    l

    i n g a p o r e

    I n d i a

    U A E

    M e x i c o

    s e

    t C l a s s

    63

    Source: (Left) SSA 2010 Life Tables, J.P. Morgan Asset Management. (Right) The Future of Retirement: A new reality study by HSBC, J.P. Morgan AssetManagement. Figures represent the expected portion of retirement that will not be covered by retirement savings based on survey data.Guide to the Markets U.S.Data as of 12/31/14.

    A s

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    Historical Returns by Holding Period

    Annual total returns, 1950 2014Range of Stock, Bond and Blended Total Returns

    Annual Avg. Growth of $100,00060%

    50/50 Portfolio 9.0% $565,743Bonds 6.2% $327,106Stocks 10.8% $833,227

    o a e urn over 20 years

    51%

    43%

    30%

    40%

    50%

    28%

    23% 21%19%

    16% 17%

    18%

    12%

    14%

    10%

    20%

    Stocks

    -8%

    -15%

    -2% -2% 1% -1% 1% 2% 1%

    -20%

    -10%

    0%

    s e

    t C l a s s 50/50 Portfolio

    Bonds

    -37%

    -40%

    -30%

    1-yr. 5-yr. 10-yr. 20-yr.

    64

    A s

    Sources: Barclays Capital, FactSet, Robert Shiller, Strategas/Ibbotson, Federal Reserve, J.P. Morgan Asset Management.

    Returns shown are based on calendar year returns from 1950 to 2014. Growth of $100,000 is based on annual average total returns from1950-2014.

    Guide to the Markets U.S.

    Data are as of 12/31/14.

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    Diversification and the Average Investor

    Equity Mkt. Neutral

    Source: Morningstar Direct, Dalbar Inc.,J.P. Morgan Asset Management. (Top)Indexes and weights of the traditionalportfolio are as follows: U.S. Stocks:55% S&P 500; U.S. Bonds: 30%Barclays Capital Aggregate;

    Traditional Portfolio More Diversified PortfolioMaximizing the Power of Diversification (1994 2013)

    8%8%

    8%

    4%

    26% REIT

    S&P 500Russell 2000

    55%

    30% S&P 500

    MSCI EAFE

    Barclays Agg.

    n erna ona oc s: .Portfolio with 25% in alternatives is asfollows: U.S. Stocks: 22.2% S&P 500,8.8% Russell 2000; InternationalStocks: 4.4% MSCI EM, 13.2% MSCIEAFE; U.S. Bonds: 26.5% BarclaysCapital Aggregate; Alternatives: 8.3%CS/Tremont Equity Market Neutral:8.3% , DJ/UBS Commodities: 8.3%

    9%

    MSCI EM

    Barclays Agg.

    NAREIT Equity REIT Index. Return andstandard deviation calculated usingMorningstar Direct.Charts are shown for illustrativepurposes only. Past performance is notindicative of future returns.Diversification does not guaranteeinvestment returns and does notReturn: 8.02%Standard Deviation: 10.64% Return: 7.95%Standard Deviation: 9.71%

    20-year Annualized Returns by Asset Class (1994 2013)e m na e r s o oss. o om n exesused are as follows: REITS: NAREITEquity REIT Index, EAFE: MSCI EAFE,Oil: WTI Index, Bonds: Barclays CapitalU.S. Aggregate Index, Homes: mediansale price of existing single-familyhomes, Gold: USD/troy oz, Inflation:CPI. Average asset allocation investorreturn is based on an analysis by

    10.3% 10.2%9.2%10%

    12%

    Dalbar Inc., which utilizes the net ofaggregate mutual fund sales,redemptions and exchanges eachmonth as a measure of investorbehavior. Returns are annualized (andtotal return where applicable) andrepresent the 20-year period ending12/31/13 to match Dalbars most recent s

    e t C l a s s

    6.1% 5.8% 5.7%

    3.1%2.5% 2.4%

    4%

    6%

    8%

    65

    . . .Data are as of 12/31/14. A

    s

    0%

    2%

    REITs Oil S&P 500 EAFE Gold Bonds Homes AverageInvestor

    Inflation

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    Cash Accounts

    $ BillionsWeight in

    MoneySupply

    Money SupplyComponent

    $10,000Annual Income Generated by $100,000 Investment in a 6-mo. CD

    M2-M1 8,710 78.1%

    Retail MMMFs 628 5.6%$4,000

    $6,000

    ,

    2014:

    2006: $5,240

    Savings deposits 7,558 67.8%'90 '95 '00 '05 '10 '15

    $0

    $2,000

    M2 Money Supply as a % of Nominal GDP

    $130

    .

    Institutiona l MMMFs 1,788 16.0%

    55%

    60%

    65%

    70%3Q14: 65.0%

    652 5.8%

    Total 11,149 100.0%

    acc