Long-term Strategy21 February 2024J P M O R G A Nwww.jpmorganmarkets.comLong-term StrategyJan Loeys AC(1-917) 602-9440jan.loeys@jpmorgan.comAlexander Wise(1-212) 622-6205alexander.c.wise@jpmchase.comJ.P. Morgan Securities LLC•US households and non-profits have quadrupled their equity allocation over the past 40 years to a near-record high 41% this year. This did not happen in the rest of the world.•This US love affair with stocks helped US equity multiples gain ~20 points versus the rest of the world over this period, making up half of the 5.1% pa US equity outperformance since 1987.•Any decision on whether to strategically stay at today�s US market weight of 64% of world equity outstandings, or to be higher or lower, requires as one input a view on whether US investors� much greater attachment to equities will continue to strengthen or will fade. •Over the next five to 10 years, we see on balance a fading of the forces that propelled the US love affair with equities, supporting our current IRR based forecast of only ~6% on SPX 10 years out.•A secular rise in US profit margins since the 90s boosted equity returns, optimism, higher allocations, higher multiples, and in turn greater return bullishness. The Great Moderation reduced macroeconomic uncertainty that turned investors even more confident about owning stocks. The success of Jeremy Siegel�s Stocks for the Long Run then solidified the conviction that long-run investors should be primarily in stocks. Greater competition among asset managers and the innovation of mutual funds, ETFs, passive trackers, and electronic trading made it easier and cheaper to hold and trade equities. •Over the next five to 10 years, US aging, the sudden dominance of target-date funds, the emergence of a competitive return on bonds, the flattening out of any further drop in the cost of holding and trading US equities, the risk of higher macro volatility, and thus renewed risk aversion, and a slow weakening of double-digit return expectations will in our mind slowly erode, though not destroy, the US love affair with equities and make it turn toward a more balanced allocation with fixed income. •This move is not imminent and not a tactical call on our part but should be an important factor in deciding whether to stay fully allocated to US equities versus the rest of the world. From a strategic point of view, this team remains neutral.See page 9 for analyst certification and important disclosures.The Long-term StrategistWill Americans continue to love equities?2Jan Loeys AC (1-917) 602-9440jan.loeys@jpmorgan.comJ.P. Morgan Securities LLCAlexander Wise (1-212) 622-6205alexander.c.wise@jpmchase.comLong-term StrategyThe Long-term Strategist21 February 2024J P M O R G A NUS end investors have been steadily allocating more and more to equities in their financial assets over the past 40 years. By now, US h...
