The JPMorgan Equity Premium Income ETF (JEPI) stock has had a strong performance this year as it jumped to a record high of $60.52. Its total return this year stood at 15%, underperforming the S&P 500 index, which has risen by about 27.3% this year.
JEPI has risen by 15.9% in the last twelve months, while the S&P 500 has jumped by almost 30% this year.
Why the JEPI ETF has risen
The JPMorgan Equity Premium Income ETF has risen by over 15% this year as American stocks have rebounded. The S&P 500 index has roared to a record high, continuing a trend that has been going on for years.
The fund has jumped because of how it is structured. This fund uses a covered call strategy, where the fund has invested in popular companies in the S&P 500 index. In this, it has invested in 132 companies like Amazon, ServiceNow, Meta Platforms, Mastercard, Microsoft, Visa, and NVIDIA.
On top of this, the fund has used the options market to generate returns. It does this by by selling call options tied to the S&P 500 index. A call option gives users the right, but not the obligation to sell an asset at a certain strike price.
JEPI receives a call option premium, which it uses to pay its investors in the form of dividends every month. This explains why the fund has a dividend yield of about 7%.
Therefore, JEPI benefits when American stocks are in an uptrend because of the 132 blue-chip companies it has invested in.
The options trade on the S&P 500 works like this: if the index falls, the trade becomes worthless since the fund can buy it at a cheaper price. If the index rises, the fund benefits by having the option to buy it at a cheaper price.
The challenge, however, comes up when the S&P 500 index is in a strong rally. When this happens, the fund misses an opportunity, especially when the index rises above the strike price.
JPMorgan Equity Premium Income ETF outlook for 2025
The JEPI ETF has done fairly well since its inception. Its total return in the last three years stood at over 23%, which coincided with the stock market rally.
2025 could be a challenging year for the market now that stocks and most assets have become highly overvalued.
Also, the upcoming Donald Trump administration has pledged to impose tariffs and do mass deportations in the country. These actions are highly inflationary, which could see the Fed slam its brakes on the easing process.
The other potential risk for the JEPI ETF and other US stocks is that the market will start getting worried about the rising US debt. Data shows that the debt load has jumped to over $36.3 trillion, and will likely hit $40 trillion in 2025 or 2026.
There is a risk that the US could go through a Lizz Truss crisis, especially if Trump attempts to pass unfunded tax cuts. At the time, UK stocks and bonds crashed, making her the shortest-serving UK prime minister.
Therefore, a combination of a major trade war, higher inflation, and unfunded tax cuts, could make 2025 a more difficult year for the market. Worse, as shown in the chart below, the JEPI ETF has formed a rising wedge pattern, a popular bearish sign in the market.
Therefore, there is a risk that it may drop to $53.35, its lowest point in August, which is about 10% below the current level. Read more: JEPI ETF forecast: here’s why the stock could reverse soon
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