From: US GIO To: Undisclosed recipients:; Subject: J.P. Morgan US Equity Strategy FLASH : Sell-Off Post Election Shows More Hoped for a Romney Win; Reasons for Selling Improves Equity Risk/Reward; 30 Ideas Date: Thu, 08 Nov 2012 13:16:38 +0000 Attachments: USEquityStrategyFLASH.pdf Inline-Images: JPM_Iogo.gif; spacer.gif; image001.png; image002.png J.P.Moraan Headline: US Equity Strategy FLASH : Sell-Off Post Election Shows More Hoped for a Romney Win; Reasons for Selling Improves Equity Risk/Reward• 30 Ideas Author(s): Thomas J Lee CFA, Katherine C Khor Abstract: • Equity markets sold off sharply today (S&P 500 down 34 pts). more than reversing the 11- pt gain yesterday. We spent a lot of time on the phone with PMs and found most investors trying to understand the catalyst behind such a large sell-off and it seems there is disappointment, owing to a combination of: (i) an election outcome without a mandate (poor voter turnout, Obama and Romney gamered fewer votes than in 2008); (ii) shift to focus on the fiscal cliff, (iii) concerns about higher taxes, particularly capital gains taxes, with an Obama regime; (iv) some hoped for a Romney surprise. • We see the sell-off more due to disappointment with outcome (more Romney hopefuls than we realized) vs. fiscal cliff. Why? Investment Grade and High Yield markets should be selling off if this is a -fiscal cliff" issue, similar to 2011's weakness. The fiscal cliff (fiscal drag) is large enough to potentially push the US into a recession, which would have negative consequences for both IG and liY bonds. But notice the contrast in those markets. In 2011, HY and HG spreads widened sharply as investors worried about the fiscal cliff. In 2012, HY and HG spreads have rallied since October. And liquidity (issuance) remains strong. These markets do not seem as concemed with the fiscal cliff as the US equity markets. • Where do we go from here? So let's say this weakness is indeed due to a knee-jerk