Here’s a Bullish Call: JPM Says We’re Entering ‘Market Nirvana’

JP Morgan is taking a page from George Gershwin’s classic 1937 tune, “Things Are Looking Up,” which debuted amid a brightening in the Great Depression.

Due to Joe Biden’s presidential victory, an apparently split Congress, an accommodative Federal Reserve, and hopeful vaccine news, the firm says we are heading into “market nirvana.” In the annals of bullish calls, this one is a lollapalooza.

JPM’s outlook for stocks “is significantly clearing up,” according to a note to clients penned by Dubravko Lakos-Bujas and his team of strategists. With a Democratic House and (depending on two Senate runoff contests in Georgia) a Republican Senate, there is a “goldilocks” situation where Biden can’t impose higher corporate taxes, by the firm’s estimation.

But he can, without congressional approval, mute President Donald Trump’s trade war, which has weighed on US commerce, the note mentioned.

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Amid a raft of third-quarter earnings reports that beat estimates, JPM boosted its earnings per share expectations for this year and next. What’s more, the bank significantly lifted its market projection. It previously had the S&P 500 topping out at 3,600 this year. After Monday’s increase, the index now is 3,550, within hailing distance of the estimate. That’s a nice improvement of late. It closed out a stinko October at 3,269.

Now, JPM projects that the S&P 500 will reach 4,000 by early next year, which would mean a 12.6% advance from Monday’s close, and perhaps hit 4,500 at year-end 2021.

Goosing yesterday’s results was word that Pfizer had produced a coronavirus vaccine that, in trials, was more than 90% effective in preventing COVID-19. Should those findings hold up—other seeming breakthroughs have disappointed in the past—then the world could look forward to an end to the pandemic.

The strategists allowed that “some short-term risk” was inherent in the assumption that the Senate would stay in Republican control. The two George runoffs, for seats that the GOP has controlled, likely will result in at least one Republican victory, the note declared. The risk, however, is “overstated,” the report contended.

At the same time, it went on, the Democrat’s House majority is shrinking somewhat, which means a move toward the center. And that, the note pointed out, “is generally positive for risky assets.”

Meanwhile, JPM applauded the Fed’s willingness to continue with near-zero short-term interest rates and bond buying, along with similar efforts from central banks elsewhere.

One caveat: After the Gershwin song appeared in 1937, the nation’s economy took another downward movement.

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Tags: Earnings, Federal Reserve, Joe Biden, JPMorgan Chase & Co., S&P 500, split Congress, Stock Market, taxes, Trade War

The funded ratio of the 100 largest US corporate pension plans rose to 85.1% from 84.4% in October thanks to a third straight monthly increase in the discount rate, which helped boost the funded status of the plans by $21 billion, according to actuarial and consulting firm Milliman.

The aggregate deficit of the plans, as tracked by the Milliman 100 Pension Funding Index (PFI), fell to $285 billion, which is its lowest level since March when it was $243 billion. The decrease was partially offset by a 0.93% investment loss, which caused the market value of the plans’ assets to decline by $20 billion to $1.629 trillion at the end of October. This is compared with a monthly median expected investment return of 0.53% during 2019.

“All eyes are on the presidential election this month, and what the results might mean for interest rates and investment returns going into year-end,” Zorast Wadia, author of the Milliman 100 PFI, said in a statement. “As discount rates tick back up for the third consecutive month, executives should be paying close attention to market movements coming out of this election cycle.”

Milliman also reported that the projected benefit obligation of the plans declined $41 billion during October to $1.915 trillion, which was attributed to a 14 basis point (bp) increase in the monthly discount rate to 2.71% from 2.57% at the end of September.

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The cumulative asset return for the plans over the previous 12 months through the end of October was 5.75%, during which time their funded status deficit widened by $42 billion and their funded ratio fell to 85.1% from 86.8%. The increase in deficit was attributed to an overall decline in the discount rate over the past 12 months from 3.08% to 2.71%.

Milliman projected that if the plans earn the expected 6.5% median asset return per its 2020 pension funding study, and if the current discount rate held steady through 2021, the funded status of the plans would rise to 85.6% by year-end and to 89.3% by the end of 2021. This is based on assumed aggregate annual contributions for 2020 and 20201 of $40 billion and $50 billion, respectively.

The firm also said that under an optimistic forecast that assumes robust annual returns of 10.5% combined with interest rates rising to 2.81% by the end of 2020 and 3.41% by the end of 2021, the funded ratio would surge to 87% by the end of 2020 and 103% by the end of 2021. However, under a pessimistic forecast that assumes meager annual returns of 2.5%, with discount rates falling to 2.61% at the end of 2020 and 2.01% by the end of 2021, the funded ratio would fall to 84% by the end of 2020 and 77% by the end of 2021.