JPMorgan's Gabriela Santos on Policy as a Chronic Market Issue and Investment Opportunities

Policy Evolving from Acute to Chronic Issue

• 📌 Gabriela Santos views policy as having transitioned from an acute, headline-driven market factor to a chronic issue influencing specific stock and asset class performance.
• 💡 This shift means policy is less about day-to-day reactions and more about underlying trends affecting market dynamics.

Macroeconomic Outlook and Market Recovery

• 📊 The overall macro economy is seen as stable, with reduced recession risk, below-potential growth, slightly higher inflation, and elevated rates, which is a fine environment for earnings growth.
• 📈 Despite the positive macro outlook, the market has recovered almost 100% of its equity sell-off and 80% of its corporate credit sell-off, making a wholesale bullish overweight view difficult.

Investment Opportunities Beyond the Index

• 🌍 Santos highlights opportunities in asset classes that have lagged, such as Asia (Japan and India), which have strong underlying stories despite underperformance this year.
• 🏦 In the US, areas like financials are attractive due to the potential for a steepening yield curve and the positive impact of more business-friendly regulations.

Impact of Tariffs and Deregulation

• 🔍 Markets have largely priced in the current average tariff rate of 15%, which is five times higher than at the start of the year.
• ⚙️ Deregulation, such as the lowering of the supplementary leverage ratio, is viewed as a hugely positive development that can free up lending and reduce capital burdens for financial institutions.
• ⚠️ While the current tariff environment is understood, a significant escalation of trade wars could reintroduce acute risks and raise recession concerns.