EFTA00720386.pdf

From: "Pit, Anton C" <ifitterrepii@jr To: Undisclosed recipients:; Subject: GIO Market Alert Date: Thu, 11 Aug 2011 15:08:08 +0000 In the midst of this market turmoil, we are seeing a lot of momentum and psychology driving markets often with little regard to some key fundamental themes. Below are some of our quick thoughts on where we see fundamentals. Earnings We are nearly done with earnings season in the US with over 90% of the S&P 500 having reported second quarter results and similar to previous quarters, results were better than expectations: 70% beat on the bottom line and 64% beat street revenue estimates. Consensus estimates for 2012 on the S&P 500 are currently around $105 which implies the market is trading at 10.8x forward earnings, near the P/E of the last market bottom in March 2009. Economics Despite some recent softening, economic indictators are still pointing towards growth, not a recession. In the face of negative investor sentiment, economic indicators such as the ISM remain at expansionary levels. Recent employment numbers are improving whether you're looking at payrolls, which rebounded in July, or initial jobless claims, which have been declining. Even the US housing sector has seen some lift recently with starts and housing prices coming in a little better than expected. Outside the US, despite all of the concerns in Europe, Eurozone industrial production and PMI's continue to suggest economic growth, Japan is recovering faster than expected from the earthquake in March, and China remains on track for 9% GDP growth this year. Sovereign Ratings Counterintuitively (for some) the US downgrade by S&P has resulted in a large rally in US Treasuries. Despite many European sovereign debt concerns, we haven't seen any ratings action on the top rated European sovereigns. Extrapolations in banking sector liquidity implications from 2008 may not be relevant yet in an environment with unlimited liquidity and credit facilities at Central Banks. Conclusion Psychology continues to drive the market but we believe that current stock valuations are providing interesting entry points. While we recognize that volatility is high and will mostly likely remain high through the summer, we believe strategic investors should take this opportunity to add to their equity positions. Anton Pil GIO IMPORTANT INFORMATION This presentation and the material contained herein is not a product of the J.P. Morgan Research Department and is not a research report, although it may refer to a research report or research analyst. This presentation should be reviewed in conjunction with U.S. research published by J.P. Morgan Securities, LLC to the extent that such research exists. The opinions and ideas expressed herein do not take into account individual client circumstances. objectives and needs. Transactions in any securities that may be referenced herein may not be suitable for all investors. This presentation has been prepared for information purposes only. Nothing in this material is intended to be a solicitation for any product or service offered by J.P. Morgan's Private Bank or any of its affiliates. Information contained herein has been obtained from sources believed to be reliable but we do not guarantee Its accuracy or completeness and accept no responsibility for any direct or consequential losses arising from its use. The views and strategies described herein may not be suitable for all Investors. Past performance Is no guarantee of future results. Investment Products: Not FDIC Insured Value - No Bank Guarantee - May Lose EFTA00720386 This email is confidential and subject to important disclaimers and conditions including on offers for the purchase or sale of securities, accuracy and completeness of information, viruses, confidentiality, legal privilege, and legal entity disclaimers, available at http://wwwjpmorgan.corn/pages/disclosures/email. EFTA00720387