NOT To Sell in May

North America Equity Research
02 May 2013
US Equity Strategy FLASH

New cycle lows in HY spreads another reason NOT to sell in May; Contrarian to stay Cyclical in 2Q; 17 ideas
There are really two storylines supporting a constructive thesis on equity markets: (i) falling equity risk premia (ERP) driving a re-rate and/or (ii) reflation/cyclical lift driving earnings. On the former, investors are primarily leveraging this by seeking spread compression equities, or bond-like equities, and re-rating those higher hence, dividend stocks (although ironically, in past regimes of falling ERP, Cyclicals usually have led). And naturally, in a reflationary world, capital spending rises (incentives created), driving top-line/EPS acceleration and, thus, Cyclicals lead. Neither is mutually exclusive, but the falling ERP remains the more credible base case in investors consensus. Balance of 2Q: what storyline leads? Referring to some axioms relied upon as former sector analyst. In 2013, the cadence of the economic data, alternating between cyclical lift and softness, has tilted towards soft-side readings recently resulting in falling inflation expectations (TIPS, commodities, etc.) and, thus, providing more support for an ERP thesis than cyclical lift/reflation. In any case, the key question for the investor is what storyline gains credibility over the balance of the 2Q (8 weeks). To answer this, we refer to axioms relied on during 15 years (1993-2007) as former equity sector analyst covering Wireless Services (prior to taking the mantle as Equity Strategist at J.P. Morgan). Rule #1: The credit market (high-yield) is right (usually)High-Yield spreads at new lows point to continued new highs for equities, or no sell in May. Foremost, we learned in the early 1990s (and heard repeated many times from HY counterparts), high-yield markets lead equities. This was particularly true covering the capital-consuming wireless sector which relied on access to debt markets for viability. What is it telling us at the moment? Take a look at Figure 3; HY spreads recently fell to new tights (lows) for this cycle, at 484bp STW (below previous tights of 503bp on 3/13). As we have noted many times in the past 4 years, new HY tights point to new highs in equity levels, providing a supportive backdrop for stocks to continue to build upon recent highs. The flip-side of this is the positive backdrop for HY is negated if spreads widen by 25bp, or rise above 514bp STW. Rule #2: Crowd is usually wrongthus, no sell in May. In The Wisdom of Crowds, James Surowiecki argued that the judgment of the crowd is usually right unless judgments are not derived independently (contrasting how many gumballs in a jar vs. stock markets). We found this particularly pertinent when consensus is grounded on intuitive arguments. Take the current consensus of sell in May many guideposts argue for this: (i) treasury yields and commodities have plunged; (ii) downside reads in economic data; and (iii) this has held up in 2010, 2011 and 2012, so why should 2013 be any different.
Portfolio Strategy Thomas J Lee, CFA
AC
(1-212) 622-6505 thomas.lee@jpmorgan.com
Katherine C Khor
(1-212) 622-0934 katherine.khor@jpmorgan.com J.P. Morgan Securities LLC
Performance:
S&P500 (LHS) Defensives (RHS) Defensives (RHS) 5/2/13 117 S&P500 (LHS) 5/2/13 1,598 Cyclicals (RHS), 5/2/13, 109 2/13 4/13 6/13 8/13 10/13 Cyclicals (RHS)
1,650 1,600 1,550 1,500 1,450 1,400 12/12
120 118 116 112 110 108 106 104 102 100 12/13
2Q12 3Q12 4Q12 1Q13 QTD YTD S&P500 Cycl (Mat, IT, Disc, Ind) Near- Cycl (Ener, Fin) Def (Stpl, HC, Tel, Util) (3%) 6% (5%) 5% (7%) 8% 5% 3% -1% 10% 2% 12% 0% 8% 1% 9% 1% 10% 1% 11% -3% 12% 4% 17%
Valuation: S&P500 Level EPS P/E (current) Div Yield 2013E 1598 $110 14.5x 2.2% 2014E $117 13.7x 2.4%
S&P500 Year-End Targets: Price P/E Sector Ratings: Overweight Materials Industrials Discretionary Technology Financials Energy HealthCare 1580 13.2x 13.5x
Neutral Telecom Underweight Staples Utilities
See page 21 for analyst certification and important disclosures.
Source: J.P. Morgan, FactSet, Bloomberg.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.jpmorganmarkets.com
100=start of year
114
Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com
North America Equity Research 02 May 2013
We want to take the other side of this trade for multiple reasons, but the three most notable: (i) client positioning is diametrically opposite of that in the last 3 yearsHF beta, for instance, rather than registering the highs of the year in April (as was the case in 2010, 2011 and 2012) today is at the lowest levels since 8/12 (see Figure 6); (ii) we believe the early downturn in gasoline (and other commodities) will act as stimulus in coming weeks by as much as 50bp lift to GDP (q/q)in past 3 years, gasoline surged in 2Q and thus was a headwind; (iii) the message from continued improvement in jobless claims (new cycle lows this week at 324k) and the rally in HY market in the face of mixed economic data argues the seasonal weakness in the economy is not likely to play out in 2Q as in past years. Rule #3: Give ideas time to workCyclicals (make that High FCF Yield Cyclicals) should lead in 2Q. Being non-consensus also means feeling off-sides away from the safety of the crowd. Thus, it is tempting to consider cutting losses and moving to consensus. In our view, the continued outperformance of Defensives into 2Q is consensusafter all, if one were to position for a sell in May, why look to buy a Cyclical? And as noted above, the HF beta at new lows argues for investors expecting a sell-off. We continue to support OW Cyclicals through 2Q, albeit, high-FCF yielding. History supports this as we have noted in recent notes: (i) 1Q laggards have led in 2Q in 11 of 13 years (exceptions 2002 and 2008, US Equity Strategy FLASH: 1Q Laggards to Outperform 2Q dated 4/4/13); (ii) the recent material underperformance of Cyclicals by 821bp is the 8th worst since 1973, and in the 10 worst Cyclical underperformance periods they outperformed in the following quarter 9 of 10 times (see US Equity Strategy FLASH: Europe Feedback Part II dated 4/26/13); and (iii) while valuations are not necessarily the reason to create turning points, Cyclicals trade at the largest discount to Defensives (30%) since 1990 (see Figure 7). Obviously, improvements in economic data or policy backdrop will be key. Visibility in the US housing recovery remains impressive and this is still a multi-year story. There is also room for policy surprise in Europe whether from the ECB or potentially from an easing of austerity measures. And we continue to see the continued improvement in US jobless claims as pointing to an economy sustaining momentum despite concerns about seasonal weakness and sequester cuts. What could go wrong? Consensus continues to be right in avoiding Cyclicals. The risk to this view is that the consensus is right, more so on the favoring of Defensives. Therefore, we would see the following as undermining our views: (i) evidence emerges the price weakness in commodities is DUE TO DEMAND, thus, no 2Q lift; (ii) US sequester is more severe than anticipated leading to further misswe will have some sense looking at the April payrolls report; and (iii) the divergences last longer than expected and Cyclicals extend their underperformance another quarter. MARKET STRATEGY: 17 Ideas Our base case for the next two months, therefore, sees equities higher through end of 2Q and Cyclicals outperforming during that period. But as noted in past reports, we would rather buy high-FCF yield equities (over dividends), inclusive of Cyclicals and other areas of the market. We have identified 17 stocks using the following criteria: i) High FCF Yield (in the highest quartile of FCF yield, translating to FCF Yield 5.5%); ii) OW rated by J.P. Morgan analysts; iii) High Dividend Yield (above 2%); and iv) Positive upside to J.P. Morgan price targets. The tickers are: UFS, TEVA, CA, AAPL, CMTL, STJ, CG, PRU, BBY, WFC, TWC, BA, SPLS, KEY, CBL, CTL and GD (see Figure 8).
Figure 1: Summary Statistics S&P 500

Relevant Sector ET Fs Negative Beta Double DU G SMN SIJ SCC SZK RXD SKF REW SDP SDS Sectors E nergy M aterials Industrials Discretionary S taples H ealth C are Financials Technology Telecom U tilities S&P 500 Positive Beta Single Double XLE XLB XLI XLY XLP XLV XLF XLK IYZ XLU SPY DIG UYM U XI UCC UGE RXL UYG ROM UPW SSO
Related ETF GICS # Index S&P 500 Index Russell 2000 Current ETF Current P/E Buzz-o- Delta vs. Index Ticker Price (NTM) Meter Wk Ago 1,583 SPY $158.28 15.1x 236 18 947 IWM $91.82 15.6x 201 12 245 430 355 483 569 249 422 543 166 208 XLB XLY XLI XLK XLE XLF XLP XLV IYZ XLU $38.85 15.0x $54.32 15.5x $40.91 14.5x $30.53 14.6x $77.05 12.9x $18.49 12.4x $40.90 17.5x $46.83 14.8x $26.45 17.9x $41.02 17.0x 184 249 226 216 229 268 250 235 197 236 48 24 25 9 6 23 31 30 (5) 4 % change -- Mkt Cap Weight 1 week 1 month YTD 0.2 0.9 11.0 1.9 (0.4) 11.6 1.0 0.6 0.6 2.8 0.8 0.4 (1.4) (2.8) (1.7) 0.5 (1.2) 2.4 (2.0) 0.0 (2.5) 1.6 2.7 1.8 5.0 4.9 2.9 14.5 7.9 4.2 6.8 12.7 16.9 17.3 13.6 17.3 Equal YTD 12.5 8.4 1.4 15.7 7.9 10.2 7.7 14.9 19.0 14.3 10.5 17.6 Recommended Weighting Delta -- Neutral + ++
Cyclicals 15 Materials 25 Discretionary 20 45 10 40 Industrials Technology Energy Financials
-3% -3%
| | | | 0% | | 0% 0% |
1% 1% 1% 1% 2% -
Near-Cyclicals
**Single beta ETFs based on SP500, Double Beta & Tele com on DJ Indicies. Source: Factset
Defensives 30 Staples 35 Health Care 50 Telecom 55 Utilities
Source: J.P. Morgan, FactSet and Bloomberg.
Figure 2: Potential Catalysts

Monday
5/6 Economics/Policy
2:00pm Senior loan officer survey (2Q, tentative)
Tuesday
10:00am JOLTS (Mar) 3:00pm C onsumer credit (Mar)
Wednesday
Thursday
8:30am Initial claims (w/e prior Sat) 10:00am Wholesale trade (Mar)
Friday
2:00pm Federal budget (Apr)
Corporate
Earnings: APC, AMTG, AVID, BPI, DPM, EOG, FTR, GDP, GWAY, HOLX, ORBK, PAA, PL, PSB, QLYS, RPAI, SMG, STAG, SHO, SYY, TLLP, SSP, TSN, VNO, WLK
Corporate
Earnings: ARAY, AER, ARC, ARB, ARCC, ARIA, CAR, BMC, CHRW, CA, CHTR, C HSP, XEC, CNK, GSJK, DVA, DNDN, DTV, DISCA, DISH, DIS, DEI, DRQ, EMR, ENDP, EXEL, GTY, GSM, LOPE, HCN, HTA, HSIC, HFC, HUSKF, IFF, KGC, LPX, LUFK, MAKO, MRO, MCK, MODN, TAP, MDLZ, MYGN, OAK, OMX, ONXX, PLT, QLTY, RAX, RLOC, REG, RBCN, RHP, SD, BOX, SGEN, SLRC, SYMC, TRNX, TW, TRIP, UU U CN, VVUS, WFM, WMB, WPZ, WYNN
Corporate
Earnings: AMRN, APO, BR, CSTE, CRZO, CTL, CLVS, CTSH, CLR, C UZ, TRAK, DTSI, ETP, FSC, FOSL, GNMK, GEI CT, GLP, GRPN, HL, HII, INFI, LAMR, MWE, MDVN, MBLX, NWSA, NICE, OILT, PVA, PNNT, PRGO, PPO, KWK, RGP, SLH, WEN, TC, THI, TDG, VSI, WPRT
Corporate
Earnings: AGU, AL, AMCX, APEI, APA, BVMF3 BZ, BBD/B, CVC, CFN, CF, CDE, CTB, CPA, CPNO, DF, ESE, EVEP, ET, FXCM , GXP, PODD, LPI, LPR, MNKD, MPEL, MNST, NVDA, OREX, PC LN, PSA, SVNT, SODA, GEVA, TSLA, C G, THS, VRTU , VC, WR, WIN
Corporate
Earnings: ARX, FOLD, BTE, BECN, CCXI, DDS, IAG SM, MGA, MCP, NCLH, QRE, RNDY, SGNT, SLW, SIRO
J.P. Morgan Events

Asia Rising Dragons Forum (Kuala Lumpur)
J.P. Morgan Events

Asia Rising Dragons Forum (Singapore)
J.P. Morgan Events

Asia Rising Dragons Forum (Singapore)
J.P. Morgan Events

Asia Rising Dragons Forum (Hong Kong)
J.P. Morgan Events

Asia Rising Dragons Forum (Hong Kong)
Source: J.P. Morgan and FactSet.
Credit markets are right (usually) and HY sees equity markets continuing to rally...
Equities, as the junior piece of the capital structure, will generally take their cues from corporate bonds, as long as valuations in corporate bonds are not extremely over-valued. For most of the last 30 years, equities were most closely linked to high-grade but since 2009 the most correlated market has been high-yield. Take a look at Figure 3; HY spreads recently fell to new tights (lows) for this cycle, at 484 bp STW (below previous tights of 503bp on 3/13). As we have noted many times in the past 4 years, new HY tights point to new highs in equity levels, providing a supportive backdrop for stocks to continue to build upon recent highs. The flip-side of this is the positive backdrop for HY is negated if spreads widen by 25bp, or rise above 514bp STW.
Figure 3: JPM Global HY Spreads
Bloomberg CSSWHYI Index
S&P500 Peak, 4/23/10, 1217 S&P500 Peak, 4/29/11, 1364 S&P500 Peak, 4/02/12, 1419
2/12/10 710.0
6/9/10 737.0
6/5/12 745.0
4/26/10 574.0 4/8/11 499.0
6/25/11 605.0
3/14/12 624.0
5/1/13 484.0
400 1/10 5/10 9/10 1/11 5/11 9/11 1/12 5/12 9/12 1/13 5/13 9/13
Source: J.P. Morgan and Bloomberg.
How much can equities ultimately re-rate? High-Yield indicates 18x P/E ratio, High-Grade says 29.5xwell above todays 13.9x
The question is, naturally, how high can the equity P/E re-rate? Take a look at Figure 5 below. The divergence between the equity market P/E and those of credit continues to widen. To illustrate the differences in valuation, we inverted the yield of the HG and HY markets. For instance, in 2009, equities traded at only a 4.6x discount to HG bonds and were actually at PREMIUM to HY by 3.1x. Today, the difference has widened sharply. The discount to high-grade bonds is now 15.6x (HG trades at a 29.5x P/E) and equities are now at a discount to HY bonds (4.1x turn discount). - 15.6x discount to HG
Figure 4: S&P 500 Forward P/E
Since 2009
16.0x 15.0x 14.0x 13.0x 12.0x 11.0x 10.0x 1/1/09
Figure 5: Forward P/E of S&P 500, High Yield and High Grade
NTM P/E and inverted yield for high-grade and high-yield.
S&P 500 35.0x JPMorgan High Yield Index
- 4.1x DISCOUNT to HY
- 4.6x discount to High-Grade + 3.1x PREMIUM to HY

30.0x
JULI Index
28.7x
29.5x
S&P 500 NTM P/E
5/1/13 13.8x
NTM P/E
25.0x
20.9x
23.2x 18.6x 15.8x 14.0x 10.9x
20.0x 15.0x 10.0x
18.0x 13.9x
13.1x 12.9x
12.3x 11.6x
13.2x
7/1/09
1/1/10
7/1/10
1/1/11
7/1/11
1/1/12
7/1/12
1/1/13
7/1/13
2009
2010
2011
2012
5/1/2013
Source: J.P. Morgan and Bloomberg.
Source: J.P. Morgan, Bloomberg, Thomson Reuters. Note: Year reflects P/E as of 12/31 of respective year, i.e. 2009 reflects 12/31/2009.
The market is positioned for a sell-offmost notable is that HF Beta is NEGATIVE

The consensus of sell in May is built on multiple arguments but the most prominent seem to be: (i) treasury yields and commodities have plunged; (ii) downside reads in economic data; and (iii) this has held up in 2010, 2011 and 2012, so why should 2013 be any different. We want to take the other side of this trade for multiple reasons, but the three most notable: (i) client positioning is diametrically opposite of that in the last 3 yearsHF beta, for instance, rather than registering the highs of the year in April (as was the case in 2010, 2011 and 2012) is at the lowest levels since 8/12 (see Figure 6); (ii) we believe the early downturn in gasoline (and other commodities) will act as stimulus in coming weeks by as much as 50bp lift to GDP (q/q)in past 3 years, gasoline surged in 2Q and thus was a headwind; (iii) the message from continued improvement in jobless claims (new cycle lows this week at 324k) and the rally in HY market in the face of mixed economic data argues the seasonal weakness in the economy is not likely to play out in 2Q as in past years.
Figure 6: Hedge Fund Beta
Rolling 21-day beta of macro and equity long/short hedge-fund returns to the S&P 500
S&P500 Peak, 4/23/10, 1217 S&P500 Peak, 4/29/11, 1364 S&P500 Peak, 4/02/12, 1419
Hedge-fund RISK-ON (Contrarian Sell)
0.90 0.70 0.50 0.30 0.10 (0.10)

5/1/13 (0.034) 3/30/10 0.369 5/10/11 0.569 3/20/12 0.404
Contrarian Sell Signal
Contrarian Buy Signal

(0.30) (0.50) 1/10 5/10 9/10 1/11 5/11 9/11 1/12 5/12 9/12 1/13 5/13 9/13
1/27/12 (0.258) 7/12/12 (0.260)
Hedge-fund RISK-OFF (Contrarian Buy)
Source: J.P. Morgan Asset Allocation Group, Bloomberg and DataStream. Note: Based on correlation of HFRX to S&P 500, as calculated by Nikolaos Panigirtzoglou.
Cyclicals should lead in 2Qultimately

We continue to support OW Cyclicals through 2Q, albeit, high-FCF yielding. History supports this as we noted in recent notes: (i) 1Q laggards have led in 2Q in 11 of 13 years (exceptions 2002 and 2008 see US Equity Strategy FLASH: 1Q Laggards to Outperform 2Q dated 4/4/13); (ii) The recent material underperformance of Cyclicals by 821bp is the 8th worst since 1973, and in the 10 worst Cyclical underperformance periods, they outperformed in the following quarter 9 of 10 times (see US Equity Strategy FLASH: Europe Feedback Part II dated 4/26/13); and (iii) While valuations are not necessarily the reason to create turning points, Cyclicals trade at the largest discount to Defensives (30%) since 1990 (see Figure 7).
Figure 7: Cyclicals vs Defensives P/E
Since 1973
Cyclicals less Defensives (1-yr return) (right-axis) 190% Cyclicals/Defensives (L TM PE) (left-axis) 70%
170%
50%
Cyclicals vs. Defensives (1-yr forward)
Cyclicals / Defensives (LTM PE)
150% 30% 130% 10% 110% -10% 90% -30%
70%
50% 1/73 1/75 1/77 1/79 1/81 1/83 1/85 1/87 1/89 1/91 1/93 1/95 1/97 1/99 1/01 1/03 1/05 1/07 1/09 1/11 1/13
-50%
Source: J.P. Morgan, Bloomberg and Datastream. 7
MARKET STRATEGY
Our base case for the next two months, therefore, sees equities higher through end of 2Q and Cyclicals outperforming during that period. But as we have noted in past reports, we would rather buy high-FCF yield equities (over dividends), inclusive of Cyclicals and other areas of the market. We have identified 17 stocks, listed in Figure 8, based on the following criteria: High FCF Yield (in the highest quartile of FCF Yield, translating to FCF Yield 5.5%); OW rated by J.P. Morgan analysts; High Dividend Yield (above 2%); and Positive upside to J.P. Morgan price targets. These 17 names (see Figure 8) have an average upside potential to target prices of 15%, as well as an average 2013E P/E of 11.0x and a 1.42x P/B. On average, they have 18% FCF Yield and 3% Dividend Yield. The tickers are: UFS, TEVA, CA, AAPL, CMTL, STJ, CG, PRU, BBY, WFC, TWC, BA, SPLS, KEY, CBL, CTL and GD.
Figure 8: 17 Ideas, priced as of 5/1/13

JPM Coverage Name Sub-Industry Ticker Domtar Corp. Paper Products U FS Teva Pharmaceutical Industries Pharmaceuticals Ltd. ADS TEVA CA Inc. Systems Software CA Apple Inc. C omputer Hardware AAPL Comtech Telecommunications C ommunications Corp. Equipment CMTL St. Jude Medical Inc. H ealth Care Equipment STJ Carlyle Group LP Asset Management & Custody Banks CG Prudential Financial Inc. Life & Health Insurance PRU Best Buy Co. Inc. C omputer & Electronics Retail BBY Wells Fargo & Co. Diversified Banks WFC Time Warner Cable Inc. C able & Satellite TWC Boeing Co. Aerospace & Defense BA Staples Inc. Specialty Stores SPLS KeyCorp Regional Banks KEY CBL & Associates Properties Retail Inc. REITs C BL CenturyLink Inc. Integrated Telecommunication Services C TL General Dynamics Corp. Aerospace & Defense GD Average
Source: J.P. Morgan and Bloomberg
Screen Metrics (2 of 2) High FCF Yield High Div (>=5.5%) Yield (>2%) 11.0% 2.3% 7.9% 2.6% 8.9% 4.0% 9.1% 2.4% 5.5% 4.5% 6.1% 2.3% 98.3% 2.1% 73.4% 2.7% 13.7% 3.1% 26.5% 2.6% 5.9% 2.3% 5.8% 2.1% 6.6% 3.3% 11.0% 2.0% 8.0% 3.7% 5.8% 8.3% 6.2% 2.9% 18% 3%
EPS and Valuation 2013E EPS $5.47 $5.05 $2.53 $39.76 $0.82 $3.70 $3.12 $7.86 $2.19 $3.71 $6.43 $6.46 $1.33 $0.88 $0.62 $2.66 $6.75 P/E ('13E) 12.4x 7.5x 10.6x 11.0x 28.9x 11.0x 10.2x 7.5x 11.8x 10.1x 14.7x 14.1x 9.9x 11.2x 38.0x 14.0x 10.9x 11.0x P/B 0.83x 1.43x 2.23x 3.05x 0.97x 3.14x 1.29x 0.71x 2.86x 1.32x 3.98x 9.27x 1.43x 0.91x 2.87x 1.21x 2.25x 1.43x
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Current Price $67.96 $38.10 $26.80 $439.29 $23.84 $40.70 $31.83 $59.28 $25.90 $37.46 $94.37 $91.18 $13.08 $9.88 $23.57 $37.19 $73.78
Market JPM Target Implied Cap Rtg JPM Analy st Price Upside $2,314 OW Phil Gresh, CFA $95.00 40% $35,952 OW C hris Schott, CFA $50.00 31% $12,219 OW John DiFucci $34.00 27% $412,339 OW Mark Moskowitz $545.00 24% $401 OW Joseph B. Nadol III $29.00 22% $11,522 OW Michael Weinstein $49.00 20% $1,376 OW Kenneth B. Worthington, CFA $37.50 18% $27,583 OW Jimmy S. Bhullar, CFA $69.00 16% $8,774 OW C hristopher Horvers, CFA $29.00 12% $198,118 OW Viv ek Juneja $41.00 9% $27,458 OW Philip Cusick, CFA $103.00 9% $69,177 OW Joseph B. Nadol III $98.00 7% $8,744 OW C hristopher Horvers, CFA $14.00 7% $9,115 OW Steven Alexopoulos, CFA $10.50 6% $3,851 OW Michael W. Mueller, CFA $25.00 6% $22,857 OW Philip Cusick, CFA $38.00 2% $26,058 OW Joseph B. Nadol III $75.00 2% 15%
US Equity Strategy Recent Publications

US Strategy
Europe Feedback Part II: Too Consensus to Be UW Cyclicals and to Sell in May. 11 Ideas. 4/26/13 S&P 500 1Q EPS: Doubts emerging about global growth: But we see 1Q at $26.75, $107 annualized. Investors cautious like 2Q12/4Q12. 20 Ideas. 4/19/13 Capitulating on "correction call". Case for FCF yield in 2Q. 25 ideas. 4/11/13 1Q Laggards to Outperform 2Q: Technology and Materials. More than Seasonals. 20 Ideas. 4/4/13 Still see mixed risk/reward but performance anxiety and buybacks strong support. Focus on 1Q laggards for 2Q. 13 ideas. 3/7/13 Stepping Aside Short-Term; Fade Strength and Look for Better Entry Point Around 1400-1450; Big Picture Constructive. 2/22/13 The Big Picture Remains Positive, Even as Rally Is Maturing Short-Term; 42 Ideas. 2/14/13 Advocating shift to high-quality. Lower risk short-term. Still see further gains prior to a sell-off in 1H. 19 ideas. 1/31/13 P/E converging with CCC-bonds? ST constructive even as we reach 1H target of 1500. 36 ideas. 1/24/13 4Q12EPS Preview: Bar not high: investors more cautious than in front of 3Q3Q was trough in growth. 26 ideas. 1/17/13 Stay constructive as active manager performance, low HF beta, and strong HY point to further gains. 20 ideas. 1/10/13 A very solid start for 2013. Favor Materials, Energy and Technology 1/3/13 Final thoughts on 2012. While Cliff fears weigh, Cyclicals outperform since mid-Dec 12/31/12 Focus on Broken Stocks Like Late 2011; Raising YE Target to 1450 (from 1440); 20 Ideas 12/20/12
Special Reports
MARKETING DECK: Better Bull than we expected; S&P 500 1580 by YE. Seems Low 4/10/13 SMid-Cap Perspective: Still small up-cycle. Adding NAV, CMTL and OPEN to the JPM SMid Fresh Money List 3/21/13 SMid-Cap Perspective: Small-cap outperformance cycle underway. Raising Russell 2000 YE13 Target to 990 from 875. 3 new ideas. 2/8/13 SLIDES: 2013 Equity Outlook 12/12/12 2013 SMid-Cap Outlook: 2013 YE Target of 875; Value Outperforms Growth 12/6/12 MARKETING DECK: We See a Melt-Up Into Election Day: S&P 500 to EXCEED 1495 Short-TermMarkets Base Case is Obama Victory 9/20/12 SLIDES: Housing Food Chain IV: 10 Reasons We Are Early in Housing Up-Cycle, 18 ideas 8/29/12
3PointsTV Video
(Click the links below for 3PointsTV and to view the required video, click on the PLAYLIST option in the video screen.) Key takeaway from Europe, investors too defensive 4/26/13 1Q laggards outperform in 2Q 11 of last 13 years. 4/5/13 Still like small-caps and small-cap value. 3 new ideas. 3/22/13 Buybacks + perf anxiety support stocks. Favor laggards. 3/8/13 An upcycle in small-caps is underway thru 2014 2/8/13 Stay constructive but advocate switch to high quality. 2/1/13 Stay constructive even as we reach 1500 1H target. 1/25/13 4Q results should be supportive of equities. 1/18/13 Stay constructive given surge in HY and low client beta. 1/11/13 Raising S&P 500 target incrementally to 1450 from 1440. 12/21/12
10
Ownership vs. Valuation Matrices

Figure 9: Comparative Risk Reward of Industries Ownership vs. Valuation Matrix
X-axis is relative valuation; Y-axis is institutional ownership
Underowned Rank of Insti. Ownership Weighting vs. Total Mkt 40 35 30 25 20 15 10 5 0 0 Expensive
Source: J.P. Morgan and FactSet., as of 4/26/13
Figure 10: Comparative Risk Reward of Styles Ownership vs. Valuation Matrix
X-axis is relative valuation; Y-axis is institutional ownership
Overowned
Oil Gas & Consumable Better Risk Fuels Telecom Svcs Reward Pharm Industrial Conglomerates Utilities Computers & HH & Personal Peripherals Dvrsfd Financial Svcs Food Products Beverage & RestaurantsTobacco Insurance Autos/Components Hotels, Resorts & Other Transports Cruise Lines Casinos & Gaming Airlines Building Products Internet & Catalog Paper & Forest Retail Products Comm Equip Metals & Mining Software Semiconductors Commercial Svcs/Supp Machinery Life Scnces Tools & Svcs Banks Multiline Retail Unattractive Risk Food & Staples Retail Reward Energy Equip & Svcs Capital Markets Consumer Durables & Apparel Chemicals Consumer Finance Specialty Retail Aerospace & Defense Media Biotech Real Estate HealthCare Equip/Svcs
Underowned Rank of Insti. Ownership Weighting vs. Total Mkt
25
High Div Yield
Large Cap Low Beta Low Short Interest S&P High Quality
Better Risk Reward
20 Low FCF Yield High Price
Low P/E Low Momentum
Low EV/EBITDA Low Price Low Leverage High FCF Yield High Beta
15
High Leverage 10
Least Liked
Small Cap S&P Low Quality
Pure Value High EV/EBITDA
Overowned
5 Unattractive Risk Reward 0 0 5 Expensive Most Liked Low Div Yield 10 15 20 Rank of Relative P/E delta vs. 10yr Avg
Pure Growth High Momentum High Short Interest High P/E 25 Cheap
10
15
20
25
30
35
40 Cheap
Rank of Relative P/E delta vs. 10yr Avg
Source: J.P. Morgan and FactSet. as of 4/26/13
11
Macro at a Glance
Economic Highlights
Case-Shiller house price index increased 1.2% samr in February The housing recovery continues to expand throughout the United States. In February, the Case-Shiller 20-city composite index increased 1.2% samr (+9.3% oya). Geographically, the prices are up in all 20 metropolitan areas over the most recent 1, 3, 6 and 12 months (SA). Despite the weakening of other economic indicators, recent housing dataprice rise above expectations for February according to J.P. Morgan Economistshighlights the strength of the housing market. (See US: Case-Shiller dated 4/30/13.) Initial claims down 18k during the week ending April 27 Initial claims for the week ending April 7 fell 18k to 324k, the lowest since Jan-08. As claims data is relatively timely compared to most other economic indicators, the recent improvement is a positive for the economy, contrasting many of the recent signs of slowing economic growth of late. J.P. Morgan Economists believe that growth has slowed between 1Q and 2Q; however, it appears that growth is limited as labor market will be relatively modest. (See US: Claims... dated 5/2/13.)
Figure 11: Case-Shiller Monthly Home Price Indices Figure 12: Initial Jobless Claims
Source: J.P. Morgan and Standard&Poors.
Source: J.P. Morgan Economics and U.S. Department of Labor and Employment.
12
Industry Roadmap
Figure 13: INDUSTRY ROADMAP Trailing-Three-Month Relative Performance
T railing 3-month Relative Performance 6/1/12 Cyclicals Materials Capital Goods Commercial & Prof Svcs Transportation Autos & Components Consumer Svcs Media Retailing Software & Svcs Tech Hardware & Equip Semiconductors & Equip Near Cyclicals Energy Banks Dvrsfed Financials Insurance Real Estate Defensives Food & Staples Retailing Food Beverage & Tobacco HH & Personal Products Health Care Equip & Svcs Telecom Services Utilities S&P 500
Source: J.P. Morgan and FactSet. 13
7/1/12 -1.5% -2.2% -0.1% 4.9% -15.0% -11.0% -3.2% 7.8% 2.0% -0.6% -6.4% -6.4%
8/1/12 -3.4% -2.0% 0.8% 1.0% -18.2% -11.7% -10.8% 8.0% -3.6% -1.6% -2.4% -7.3%
9/1/12 -2.4% -1.5% -1.7% -4.4% -15.6% -3.6% -9.7% 6.7% 0.4% 1.4% 4.4% -4.9%
10/1/12 -1.3% -0.3% -5.0% -11.8% -4.5% 4.4% -5.2% 4.9% 0.9% 2.2% 3.5% -14.3%
11/1/12 1.7% 1.7% -0.1% -4.3% 11.8% 10.5% -0.4% 4.5% 2.3% 1.1% -5.3% -10.9%
12/1/12 2.0% 2.4% 2.6% -2.6% 11.7% 4.7% 0.3% 4.2% 3.6% -1.1% -8.9% -12.9%
1/1/13 3.0% 3.2% 7.8% 5.0% 21.3% 6.4% -0.1% 2.7% 0.7% -1.4% -9.8% 0.0%
2/1/13 1.5% 2.6% 3.0% 3.1% 9.8% -1.8% 3.1% 2.7% 1.8% 1.6% -13.3% -0.9%
3/1/13 -2.2% 2.0% 2.7% 6.2% 5.2% -1.5% -0.3% 3.6% -2.2% 1.7% -16.6% 4.4%
4/1/13 -6.4% -1.7% 1.6% 3.2% -4.8% -1.2% 0.3% 4.7% 1.0% -0.5% -14.8% -2.4%
5/1/13 -6.6% -4.4% -0.7% -0.8% 0.8% 6.1% 0.3% 6.5% 1.3% -1.4% -6.8% 3.3%
-4.6% -3.0% -2.8% 1.4% -9.5% 0.8% 3.8% 7.2% -1.0% -0.3% -5.7%
Consumer Durables & Apparel -4.1%
-10.1% 3.1% -9.6% -0.8% 5.9%
-3.2% 1.0% -11.8% -0.2% 6.5%
-0.5% 0.1% -10.4% -2.2% 4.4%
4.3% 2.4% 3.8% 0.6% 0.3%
4.1% -0.1% 4.1% 1.2% -6.3%
-0.6% -1.7% 16.2% 5.8% -5.6%
-1.3% -3.8% 9.2% 3.6% -2.6%
-2.6% -2.0% 12.3% 3.7% 4.7%
0.6% -1.8% 7.1% 3.7% -0.2%
0.7% 0.7% 9.0% 4.5% 0.1%
0.0% -1.4% 1.4% 4.2% -3.9%
-6.2% -1.3% -0.9% 2.0% 3.9%
8.3% 8.7% 2.6% 2.6% 13.0% 9.0% -7.0%
9.2% 6.4% -0.9% 1.0% 6.2% 15.9% 8.8% -3.3%
13.1% 4.6% 3.5% -3.0% 7.9% 15.5% 7.2% -2.2%
0.0% -4.6% -1.2% -4.0% 0.9% -0.1% -8.4% 10.1%
0.7% -5.4% 3.8% -3.1% 1.7% 0.5% -8.0% 6.0%
-2.1% -7.0% 1.5% 4.3% 0.0% -6.5% -6.9% 3.8%
0.6% -0.2% 2.2% 1.0% 3.9% -3.1% -3.5% 0.7%
-0.9% -2.4% -1.4% 0.4% 0.1% -5.6% -2.2% -1.3%
-1.1% -1.7% 2.1% 0.1% 1.7% -5.1% -5.4% 6.0%
-1.6% -1.7% 2.4% 1.1% 2.0% -3.2% -0.8% 7.2%
3.0% 4.3% 5.2% 1.6% 8.2% -0.5% 2.1% 9.5%
6.5% 6.6% 0.6% -1.0% 6.4% 4.5% 7.2% 4.6%
Pharma Biotech & Life Sciences 5.7%
Index Performance Analysis

Figure 14: Sector Contribution to Five-Day S&P 500 Point Change Figure 15: Sector Contribution to One-Month S&P 500 Point Change
Staples Discretionary Financials HealthCare Utilities Telecom Technology Materials Industrials Energy S&P 500 5.6 4.2 3.9 3.2 2.8 1.9 0.7
While Defensives contributed negative 9.8 points this week, Cyclicals and Near-Cyclicals contributed positive 11.2 and 2.6 points, respectively, to the positive 3.9-point gain in the S&P this week
Technology Financials Energy Industrials Discretionary Materials Utilities Telecom Staples HealthCare S&P 500 (10.0)
(6.3)
(2.9)
(1.0)
1.4 1.2 1.1 0.9 0.6 0.3
8.7
(3.3) (4.8)
(0.8)
Positive change supported by 7 of the 10 sectors
3.9 (5.0) 0.0 5.0 10.0
13.5 (10.0) (5.0) 0.0 5.0 10.0 15.0
Source: FactSet and J.P. Morgan.
Figure 16: Stock Contribution to Five-Day S&P 500 Point Change

Ten Largest Positive Contributors and Ten Largest Negative Contributors
Figure 17: Stock Contribution to One-Month S&P 500 Point Change

Ten Largest Positive Contrbutors and Ten Largest Negative Contributors
Top names were concentrated among Technology (6)
Apple Inc. Microsoft Corp. International Business Machines General Electric Co. Chevron Corp. Occidental Petroleum Corp. Google Inc. Cl A Intel Corp. Philip Morris International Inc. Oracle Corp.
S&P 500 up 3.9 points
1.0 0.8 0.6 0.6 0.5 0.4 0.4 0.4
2.1
3.6
Microsoft Corp. Walt Disney Co. Intel Corp. Wal-Mart Stores Inc. Google Inc. Cl A Verizon Communications Inc. Coca-Cola Co. Johnson & Johnson AbbVie Inc. Occidental Petroleum Corp.
S&P 500 up 13.5 points
1.3 1.3 1.2 1.2 1.1 0.9 0.9 0.9 0.9
3.9
HealthCare saw 5 names among the bottom
Eli Lilly & Co. (0.6) Gilead Sciences Inc. (0.6) QUALCOMM Inc. (0.6) Amgen Inc. (0.7) AT&T Inc. (0.9) Merck & Co Inc (1.0) Amazon.com Inc. (1.1) Exxon Mobil Corp. (1.2) Procter & Gamble Co. (1.7) Pfizer Inc. (1.8) (3.0) (2.0) (1.0) 0.0 1.0 2.0 3.0 4.0
Cognizant Technology Solutions (0.5) Newmont Mining Corp. (0.5) Marathon Petroleum Corp. (0.6) Phillips 66 (0.7) Hewlett-Packard Co. (0.8) QUALCOMM Inc. (0.9) Amazon.com Inc. (0.9) General Electric Co. (1.2) Exxon Mobil Corp. (1.7) International Business Machines (1.9)
Technology led the pack, with 4 in the top ten names this month
(3.0) (2.0) (1.0) 0.0 1.0 2.0 3.0 4.0 5.0

14
Figure 18: Best Two and Worst Two Sectors Relative Performance over the Past Month
Performance Relative to the S&P 500
Figure 19: Best Two and Worst Two Sectors Relative Performance over the Past Three Months
6 5 4 3 2 1 0 -1 -2 -3 -4 -5 4/3 4/7 4/11 4/15 4/19 4/23 4/27
Relative 3mos Performance
Utilities, 3
Telecom, 2 Industrials, -2 Energy, -2 5/1
10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 1/29 2/12 2/26 3/12 3/26 4/9
Utilities, 7 Telecom, 6
Energy, -7 Materials, -7 4/23
Figure 20: Best Two and Worst Two Industries Relative Performance over the Past Month
Figure 21: Best Two and Worst Two Industries Relative Performance over Past Three Months
15 Wireless, 10
30
10 5 0 -5 -10 4/3 4/7 4/11 4/15 4/19 4/23 Construction & Engineering, -7 Communications Equipment, 4/27 5/1 -8 Semiconductors, 7
20 10 0 -10 -20 -30 1/29 2/12 2/26 3/12 3/26 4/9
Biotechnology, 19 Leisure Equipment & Products, 17
Metals & Mining, -22 Construction Materials, -23 4/23
15
Style Roadmap
Below is a Style roadmap that plots the recent relative performances of 10 style components, sorted from best to worst.
Figure 22: STYLE ROADMAP Trailing-Three-Month Relative Performance
Trailing 3-month Relative Performance 5/30/12 Beta Lower Div Yield Higher Least Liked Price Lower FCF Yield Higher S&P High Quality Short Interest - Lower Debt/EBITDA Higher Market Cap Larger Pure Growth P/E cheaper Momentum (high P/200d mavg) Short Interest - Higher Market Cap Smaller EV/EBITDA cheaper FCF Yield Lower Broken (low P/200d mavg) Pure Value Div Yield Lower Most Liked EV/EBITDA more expensive Price Higher P/E more expensive S&P Low Quality Debt/EBITDA Lower Beta Higher S&P 500
Source: J.P. Morgan and FactSet. 16
6/29/12 6.7% 1.7% 0.4% -4.1% -3.5% 1.1% 0.9% 0.9% -0.3% -0.3% -6.2% -1.8% -4.6% -2.1% -5.8% -1.0% -2.2% -5.3% -2.8% -4.0% 0.5% -1.7% 1.2% -2.6% -3.1% -7.7% -3.3%
7/30/12 4.4% 1.8% -0.3% -4.7% -4.3% 0.6% 0.4% 0.5% -0.6% -2.8% -5.7% -2.0% -4.5% -3.8% -3.6% -0.8% -4.3% -4.5% -3.2% -2.5% -1.3% -3.1% -1.3% -3.1% -3.9% -8.2% -0.9%
8/30/12 -1.8% -0.4% 0.2% 1.1% 0.5% -1.6% -0.3% 2.0% -0.3% -1.6% 1.2% -1.0% -0.2% 0.6% 2.4% -0.2% -1.2% 1.7% 1.8% -0.8% -1.2% -2.6% -1.9% 0.4% -1.0% -1.0% 6.6%
9/28/12 -3.7% -1.3% -0.7% 1.2% 0.7% -1.0% -0.7% 1.2% 0.0% -0.8% 2.2% 0.1% 1.3% 1.8% 2.5% 0.1% -0.1% 2.5% 2.0% 1.0% -0.1% -2.4% -2.3% 0.1% -0.7% 0.8% 5.8%
10/26/12 11/30/12 12/28/12 -2.1% 0.0% 1.3% 4.9% 4.8% -0.4% -0.5% 4.1% -0.4% 0.8% 5.5% -0.2% 4.2% 5.5% 2.6% 0.6% 4.1% 6.2% 2.1% 1.3% 0.0% -0.7% -1.5% 2.3% -1.6% 3.6% 1.9% 0.5% -0.5% 0.5% 2.2% 1.9% 1.1% 0.7% 1.9% 0.8% 1.6% 2.3% 1.7% 2.3% 4.0% 0.4% 1.3% 2.1% 3.8% 2.2% 2.3% 1.3% 1.5% 0.3% 1.5% -0.6% 3.2% 1.2% 0.4% 0.4% 3.3% 4.3% 3.6% 1.5% 2.1% 3.4% 1.0% 2.0% 5.2% 1.2% 3.4% 6.3% 2.4% 2.3% 5.6% 6.0% 4.1% 3.5% 1.7% 1.7% 1.5% 3.5% 1.6% 6.4% -2.7%
1/30/13 -1.1% -1.0% 3.9% 6.7% 6.8% 0.4% 2.1% 1.3% 1.3% 2.3% 7.2% 2.8% 5.0% 7.8% 7.5% 2.8% 9.4% 7.5% 8.3% 3.5% 3.0% 2.2% 3.4% 5.9% 5.4% 8.8% 6.4%
2/28/13 -0.3% 1.8% 4.0% 6.7% 5.6% 0.3% 2.3% 2.5% 0.6% 0.2% 5.6% 1.3% 4.6% 6.1% 5.5% 2.4% 3.6% 7.5% 5.1% 1.9% 1.7% 0.6% 1.6% 4.3% 1.5% 5.3% 7.0%
3/28/13 2.5% 3.1% 3.0% 5.5% 4.7% 1.1% 1.3% 1.3% 1.0% 2.0% 4.4% 3.4% 3.9% 4.8% 5.6% 1.3% 0.4% 3.1% 2.9% 1.3% 0.4% -0.7% 0.2% 2.1% -1.2% 1.5% 11.9%
4/30/13 4.1% 3.7% 2.7% 2.1% 1.8% 1.6% 1.6% 1.2% 0.7% 0.6% 0.6% 0.4% 0.0% 0.0% 0.0% -0.1% -0.4% -0.5% -0.6% -1.1% -1.2% -1.2% -1.3% -1.5% -1.9% -2.9% 6.4%
5.3% 1.0% 0.4% -5.1% -3.0% 2.2% 0.6% -0.2% -0.3% 0.4% -7.5% -0.4% -4.3% -3.3% -8.8% -3.2% -3.9% -6.5% -3.2% -4.3% 1.8% -1.5% 1.4% -3.3% -2.6% -8.0% -3.8%
Style Analysis
Figure 23: Best Two and Worst Two Styles Relative Performance over the Past Month
Figure 24: Best Two and Worst Two Styles Relative Performance over the Past Three Months
4.0
8.0
3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 3/27 4/3 4/10 4/17 4/24 Beta Lower, 1.3 More Liked, -1.4 Momentum (high P/200d mavg), -2.1 5/1 High Div Yield, 2.4
6.0 4.0 2.0 0.0 -2.0 -4.0 -6.0 1/30 2/13 2/27 3/13 3/27 4/10
Beta Lower, 4.3 High Div Yield, 3.8 Low Debt/EBITDA, -2.6 Beta Higher, -3.4 4/24
Source: FactSet and J.P. Morgan. Note: Performance is for the top quartile and bottom quartile of stocks in each style.
Figure 25: S&P 500 Style Relative Performance over the Past Month
High Div Yield Beta Lower Less Liked High Debt/EBITDA S&P High Quality Broken (low P/200d mavg) Citigroup Pure Growth Short Interest - Higher Short Interest - Lower Low FCF Yield P/E cheaper Market Cap Larger High FCF Yield Price Lower Low Debt/EBITDA Price Higher Citigroup Pure Value S&P Low Quality P/E more expensive EV/EBITDA more expensive EV/EBITDA cheaper Market Cap Smaller Beta Higher Low Div Yield More Liked Momentum (high P/200d mavg) 1.3% 1.3% 1.1% 0.8% 0.8% 0.5% 0.4% 0.3% 0.0% 2.4%
Figure 26: S&P 500 Style Relative Performance over Past Three Months
Beta Lower High Div Yield Less Liked Price Lower Short Interest - Lower High FCF Yield S&P High Quality High Debt/EBITDA Citigroup Pure Growth Market Cap Larger P/E cheaper Broken (low P/200d mavg) 0.0% Short Interest - Higher -0.2% Momentum (high P/200d mavg) -0.3% Market Cap Smaller -0.4% EV/EBITDA cheaper -0.4% Citigroup Pure Value -0.6% S&P Low Quality -0.8% Low FCF Yield -1.0% EV/EBITDA more expensive -1.2% Low Div Yield -1.2% More Liked -1.4% Price Higher -1.5% P/E more expensive -1.6% Low Debt/EBITDA -2.6% Beta Higher-3.4% -4.0% -2.0% 0.0% 4.3% 3.8%
-2.1% -3.0%
-0.1% -0.1% -0.3% -0.3% -0.5% -0.6% -0.6% -0.7% -0.7% -0.8% -1.2% -1.2% -1.3% -1.3% -1.4% -1.0%
2.6% 1.8% 1.6% 1.5% 1.4% 1.3% 0.6% 0.6% 0.3%
3mos Relative Perf
1mos Relative Perf
-2.0%
0.0%
1.0%
2.0%
3.0%
2.0%
4.0%
6.0%
17
52-Week Highs/Lows
Net 32% of stocks hitting 52-week highs vs. 52-week lows Despite the recent volatility in the markets, 10 of the 10 sectors saw a net positive percentage of stocks hitting 52-week highs vs. 52-week lows in the past week. Overall, a net 32% of S&P 500 stocks have hit 52-week highs vs. 52-week lows. At the sector level, Defensives, particularly Utilities, saw the largest net percentage of stocks hitting net highs, 77%, in the past five days.
Figure 27: 32% of Stocks Hitting 52-Week Highs vs. 52-Week Lows in Past Five Days Sectors
S&P 500 Cyclicals Materials Industrials Discretionary Technology Near-Cyclicals Energy Financials Defensives Staples Health Care Telecom Utilities 0% 20% 40% 60% 15% 25% 77% 80% 100% 48% 9% 42% 13% 33% 34% 26% 32%
Figure 28: Net % of Stocks Hitting 52-Week High vs. 52-Week Low Industries
100% 100% 100% 100% 100% -14% Metals & Mining Health Care Equipment & Supplies -7% Computers & Peripherals Oil Gas & Consumable Fuels Software Containers & Packaging Life Sciences Tools & Services Machinery Biotechnology Health Care Providers & Services Diversified Telecommunications Capital Markets Commercial Banks Semiconductors & Semiconductor Household Durables Air Freight & Logistics Multiline Retail Consumer Finance Household Products Chemicals Pharmaceuticals Media Wireless Telecommunications Electronic Equipment & Instruments Beverages Hotels Restaurants & Leisure Specialty Retail Internet & Catalog Retail Food Products Internet Software & Services Diversified Financial Services Aerospace & Defense Leisure Equipment & Products Trading Companies & Distributors Auto Components Automobiles Textiles & Apparel & Luxury Goods Road & Rail IT Services Insurance Commercial Services & Supplies Food & Staples Retailing Professional Services Real Estate Investment Trusts Electric Utilities Tobacco Multi-Utilities Airlines Gas Utilities Health Care Technology Independent Power Producers & Personal Products 13% 13% 17% 20% 20% 20% 20% 20% 20% 23% 23% 24% 25% 25% 25% 25% 25% 25% 25% 27% 33% 33% 33% 36% 39% 40% 40% 40% 40% 45% 50% 50% 50% 50% 50% 50% 50% 55% 56% 63% 67% 69% 69% 75% 79%
120% 100% 80% 60% 40% 20% 0% -20%
Source: FactSet and J.P. Morgan. Note: Calculated as (# of stocks hitting 52-week high minus # of stocks hitting 52-week low in past five days) divided by total stocks in that industry.
Source: FactSet and J.P. Morgan. Note: Calculated as (# of stocks hitting 52-week high minus # of stocks hitting 52-week low in past five days) divided by total stocks in that sector.
18
Analyst Upgrades/Downgrades
As for the Streets view, downgrades sharply outnumbered upgrades in the past week, with 15 net downgrades overall and 15 industries with net downgrades.
Figure 29: Net Upgrades in the Past Five Days Sectors Figure 30: Net Upgrades in Past Five Days Industries
8 7 3 3 4 4 4 4 7
S&P 500 Cyclicals Materials Industrials Discretionary Technology -21 Near-Cyclicals Energy Financials Defensives Staples Health Care Telecom Utilities -30
-15
6 4 2 2
-5 5 11
2 0 -2 -4 -6 -8 Software -10 -6 -4 -4 -3 -3 -3 -3 -3 -2 -2 -2 -2 -2 -2
Energy Equipment & Services
Semiconductors & Semiconductor Equipment
Diversified Telecommunications Services
Health Care Equipment & Supplies
Health Care Providers & Services
Metals & Mining
Containers & Packaging
Communications Equipment
Air Freight & Logistics
Consumer Finance
Internet Software & Services
Commercial Banks
Specialty Retail
Insurance
Internet & Catalog Retail
Aerospace & Defense
IT Services
Multi-Utilities
Household Products
Multiline Retail
Food Products
11 -2
-8 1 -3 -4 -20 -10 0 10 20
Source: J.P. Morgan and FactSet.
Oil Gas & Consumable Fuels
Beverages
Road & Rail
-9
19
Stock Highlights: Upgrades and Downgrades

We looked at which stocks have been upgraded and downgraded the most in the past five days by looking at net upgrades (upgrades minus downgrades) as a percentage of analysts covering a stock. Financials had five stocks in the list of 10 most upgraded stocks. Financials also saw the largest share (five) of stocks in the list of most downgraded stocks.
Figure 31: Ten Most Upgraded Stocks

Net # of Upgrades as % of Analysts Covering Stock
Prologis Inc. AvalonBay Vornado Realty Trust Ryder System Inc. Boston Properties Inc. J.C. Penney Co. Inc. Sherwin-Williams Co. Chipotle Mexican Grill Cabot Oil & Gas Corp. Assurant Inc. 0%
Figure 32: Ten Most Downgraded Stocks

Net # of Upgrades as % of Analysts Covering Stock
33% 25% 20% 17% 14% 14% 13% 13% 12% Ventas Inc. -29% Microsoft Corp. Equity Residential Intuit Inc. Varian Medical Systems Inc. Apartment Investment & Management Co. NASDAQ OMX Group Inc. SLM Corp. Molex Inc. McCormick & Co. Inc. 20% 30% 40%
-24% -17% -15% -14% -14% -14% -14% -12% -12% -30% -25% -20% -15% -10% -5% 0%
11% 10%
20
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J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients* Overweight (buy) 43% 54% 42% 74% Neutral (hold) 44% 47% 50% 64% Underweight (sell) 13% 38% 9% 57%
*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.
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NOT To Sell in May

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North America Equity Research

US Equity Strategy FLASH

(1-212) 622-6505 thomas.lee@jpmorgan.com

1,650 1,600 1,550 1,500 1,450 1,400 12/12

Neutral Telecom Underweight Staples Utilities

See page 21 for analyst certification and important disclosures.

Source: J.P. Morgan, FactSet, Bloomberg.

Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com

North America Equity Research 02 May 2013

Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com

North America Equity Research 02 May 2013

Figure 1: Summary Statistics S&P 500

Cyclicals 15 Materials 25 Discretionary 20 45 10 40 Industrials Technology Energy Financials

Defensives 30 Staples 35 Health Care 50 Telecom 55 Utilities

Source: J.P. Morgan, FactSet and Bloomberg.

Figure 2: Potential Catalysts

J.P. Morgan Events

J.P. Morgan Events

J.P. Morgan Events

J.P. Morgan Events

J.P. Morgan Events

Source: J.P. Morgan and FactSet.

Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com

North America Equity Research 02 May 2013

4/26/10 574.0 4/8/11 499.0

Source: J.P. Morgan and Bloomberg.

Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com

North America Equity Research 02 May 2013

- 4.6x discount to High-Grade + 3.1x PREMIUM to HY

S&P 500 NTM P/E

23.2x 18.6x 15.8x 14.0x 10.9x

20.0x 15.0x 10.0x

Source: J.P. Morgan and Bloomberg.

Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com

North America Equity Research 02 May 2013

The market is positioned for a sell-offmost notable is that HF Beta is NEGATIVE

Hedge-fund RISK-ON (Contrarian Sell)

0.90 0.70 0.50 0.30 0.10 (0.10)

Contrarian Sell Signal

Contrarian Buy Signal

Hedge-fund RISK-OFF (Contrarian Buy)

Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com

North America Equity Research 02 May 2013

Cyclicals should lead in 2Qultimately

Cyclicals / Defensives (LTM PE)

150% 30% 130% 10% 110% -10% 90% -30%

Source: J.P. Morgan, Bloomberg and Datastream. 7

Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com

North America Equity Research 02 May 2013

Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com

North America Equity Research 02 May 2013

Figure 8: 17 Ideas, priced as of 5/1/13

Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com

North America Equity Research 02 May 2013

US Equity Strategy Recent Publications

Thomas J Lee, CFA (1-212) 622-6505 thomas.lee@jpmorgan.com

North America Equity Research 02 May 2013

Ownership vs. Valuation Matrices

Underowned Rank of Insti. Ownership Weighting vs. Total Mkt

High Div Yield

Better Risk Reward

20 Low FCF Yield High Price

Low P/E Low Momentum