J.P. Morgan

EOTM: Special Edition

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5 EYE ON THE MARKET • J.P. MORGAN E y e o n t h e M a r k e t J . P . M O R G A N When looking at the timing of catastrophic loss rates by sector, a few are similar to the overall market: Consumer Discretionary, Materials, Health Care and Industrials. Some sectors experience loss rates that are consistently above (Technology) or below (Staples and Utilities) market levels. Loss rates in Energy, Telecommunications and Financials tell the story of their respective points of distress. For Energy, the oil price collapse of the early 1980's and natural gas price collapse of 2008- 2011 were catalysts for rising business failures and falling stock prices, while the energy price rally of the mid 2000's reduced loss rates. In the case of Telecommunications, loss rates were lower than the broad market in the 1980's and early 1990's. After the passage of the 1996 Telecommunications Act, loss rates rose in a deregulated environment (see pages 26-27 for more details in our case study section). And finally, the last chart shows the spike in Financial sector distress beginning in 2008, and also during the 1991 recession; outside of these periods, Financial sector distress was lower. 0% 10% 20% 30% 40% 50% 1980 1985 1990 1995 2000 2005 2010 Inf ormation Technology Russell 3000 Source: FactSet. J.P. Morgan Asset Management. Companies in the process of suffering a catastrophic, unrecovered loss Information Technology: loss rates higher than the R3000 0% 10% 20% 30% 1980 1985 1990 1995 2000 2005 2010 Consumer Staples Utilities Russell 3000 Source: FactSet. J.P. Morgan Asset Management. Cons. Staples & Utilities: loss rates lower than the R3000 Companies in the process of suffering a catastrophic, unrecovered loss 0% 10% 20% 30% 40% 50% 1980 1985 1990 1995 2000 2005 2010 Energy Russell 3000 Source: FactSet. J.P. Morgan Asset Management. Companies in the process of suffering a catastrophic, unrecovered loss Energy: catastrophic loss rates vs. the Russell 3000 0% 10% 20% 30% 40% 50% 1980 1985 1990 1995 2000 2005 2010 Telecommunication Services Russell 3000 Source: FactSet. J.P. Morgan Asset Management. Companies in the process of suffering a catastrophic, unrecovered loss Telecom: catastrophic loss rates vs. the Russell 3000 0% 10% 20% 30% 1980 1985 1990 1995 2000 2005 2010 Financials Russell 3000 Source: FactSet. J.P. Morgan Asset Management. Companies in the process of suffering a catastrophic, unrecovered loss Financials: catastrophic loss rates vs. the Russell 3000 A meaningful number of companies are always in the process of suffering sharp, unrecovered price declines at any given time, even during an economic expansion. 5

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