Growth
The U.S. economy grew at an impressive 5.2% annualized rate in 3Q23, a sharp acceleration compared to last quarter. Many of the underlying details looked strong, as consumption, private inventories, single-family homebuilding and government spending all contributed to growth. On the other hand, weaker equipment spending and a modestly widening trade deficit helped pare back gains. While the continued resilience of the U.S. economy is welcomed, this strength will be difficult to maintain. In the months ahead, a weaker consumer, tighter financial conditions and slower business spending should weigh on growth.
Jobs
The October Jobs report showed welcomed signs of easing in a tight post-pandemic labor market. Nonfarm payrolls rose by 150K, slightly below expectations, with backwards revisions of 101K tempering strong gains from the prior two months. The underlying details also looked soft. Payroll job gains were narrow in scope and most sectors saw hiring momentum slow, with the private sector only adding 99K jobs. In the household survey, an outsized drop in the number of employed people pushed the unemployment rate up to 3.9%, its highest reading since early 2022. Average hourly earnings rose by a modest 0.2% m/m, in-line with the pre-pandemic trend. Overall, with easing pressures from the labor market, inflation looks set to slide toward the Fed’s 2% target, even without further rate hikes.
Profits
The end of the 3Q23 earnings season is in sight. With 98.6% of market cap having reported, our current estimate for operating earnings per share (EPS) is $52.36. If realized, this would represent y/y earnings growth of 4.0% and a q/q decline of 4.5%. Revenue growth has been the largest contributor to earnings, adding 4.0%. Across sectors, energy has been the largest detractor while consumer discretionary has been the largest contributor. Management commentary has been relatively downbeat, painting a picture of a more challenged business environment ahead.
Inflation
The October CPI report was cooler than expected, providing further confirmation that disinflation is well underway. Headline CPI was unchanged on the month and up 3.2% y/y, while Core CPI rose by 0.2% m/m and 4.0% y/y. In the details, energy was a big detractor with gas prices down 5% while shelter continues to account for the majority of overall inflation. Core goods inflation was very soft with new and used car prices falling. Services ex-shelter and energy remains elevated due to outsized increases in car insurance, while medical services will recede as a driver of disinflation in the coming year. Similarly, PCE inflation showed continued progress, with the headline and core measures easing to 3.0% y/y and 3.5% y/y, respectively. Overall, continued disinflation progress should keep the Fed on pause and keep yields off their highs.
Rates
The FOMC voted to leave the federal funds rate unchanged at a range of 5.25% to 5.50% for the second consecutive meeting, showing a willingness to be patient and proceed with caution. The Fed will continue to maintain its data-dependent stance from here, although Fed Chair Powell did acknowledge that risks are now more “two-sided.” That said, he made it clear that economic and labor market conditions will need to ease further to convince them that inflation is heading back to target. Moreover, the committee is not discussing rate cuts, keeping the “higher for longer” mantra intact.
Risks
- Rates may stay higher for longer, presenting challenges to both stocks and bonds.
- A slow-moving economy is highly vulnerable to any kind of shock.
- Elevated valuations in some parts of the market may lead to volatility and market corrections.
Investment Themes
- After 2022’s sell-off, fixed income now offers higher yield and more protection against a market correction or economic downturn.
- Solid profit growth and reasonable valuations will be crucial in determining equity winners in a higher rate environment.
- Long-term growth prospects, a falling dollar and wide valuation discounts support international equities.
—
Originally Posted December 4, 2023 – Economic Update
This website is a general communication being provided for informational purposes only. It is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan feature or other purposes. By receiving this communication you agree with the intended purpose described above. Any examples used in this material are generic, hypothetical and for illustration purposes only. None of J.P. Morgan Asset Management, its affiliates or representatives is suggesting that the recipient or any other person take a specific course of action or any action at all. Communications such as this are not impartial and are provided in connection with the advertising and marketing of products and services. Prior to making any investment or financial decisions, an investor should seek individualized advice from personal financial, legal, tax and other professionals that take into account all of the particular facts and circumstances of an investor’s own situation.
Opinions and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors.
INFORMATION REGARDING MUTUAL FUNDS/ETF: Investors should carefully consider the investment objectives and risks as well as charges and expenses of a mutual fund or ETF before investing. The summary and full prospectuses contain this and other information about the mutual fund or ETF and should be read carefully before investing. To obtain a prospectus for Mutual Funds: Contact JPMorgan Distribution Services, Inc. at 1-800-480-4111 or download it from this site. Exchange Traded Funds: Call 1-844-4JPM-ETF or download it from this site.
J.P. Morgan Funds and J.P. Morgan ETFs are distributed by JPMorgan Distribution Services, Inc., which is an affiliate of JPMorgan Chase & Co. Affiliates of JPMorgan Chase & Co. receive fees for providing various services to the funds. JPMorgan Distribution Services, Inc. is a member of FINRA FINRA’s BrokerCheck
INFORMATION REGARDING COMMINGLED FUNDS: For additional information regarding the Commingled Pension Trust Funds of JPMorgan Chase Bank, N.A., please contact your J.P. Morgan Asset Management representative.
The Commingled Pension Trust Funds of JPMorgan Chase Bank N.A. are collective trust funds established and maintained by JPMorgan Chase Bank, N.A. under a declaration of trust. The funds are not required to file a prospectus or registration statement with the SEC, and accordingly, neither is available. The funds are available only to certain qualified retirement plans and governmental plans and is not offered to the general public. Units of the funds are not bank deposits and are not insured or guaranteed by any bank, government entity, the FDIC or any other type of deposit insurance. You should carefully consider the investment objectives, risk, charges, and expenses of the fund before investing.
INFORMATION FOR ALL SITE USERS: J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.
NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE
Telephone calls and electronic communications may be monitored and/or recorded.
Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our privacy policies at https://www.jpmorgan.com/privacy.
If you are a person with a disability and need additional support in viewing the material, please call us at 1-800-343-1113 for assistance.
Copyright © 2023 JPMorgan Chase & Co., All rights reserved
Disclosure: J.P. Morgan Asset Management
Past performance does not guarantee future results.
Diversification does not guarantee investment returns and does not eliminate the risk of loss.
Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.
The price of equity securities may rise or fall because of changes in the broad market or changes in a company’s financial condition, sometimes rapidly or unpredictably. International investing involves a greater degree of risk and increased volatility. There is no guarantee that companies that can issue dividends will declare, continue to pay, or increase dividends. Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage.
JPMorgan Distribution Services, Inc., member of FINRA.
J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. Those businesses include, but are not limited to, J.P. Morgan Investment Management Inc., Security Capital Research & Management Incorporated and J.P. Morgan Alternative Asset Management, Inc. and JPMorgan Asset Management (Canada) Inc.
Disclosure: Interactive Brokers
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from J.P. Morgan Asset Management and is being posted with its permission. The views expressed in this material are solely those of the author and/or J.P. Morgan Asset Management and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Join The Conversation
If you have a general question, it may already be covered in our FAQs. If you have an account-specific question or concern, please reach out to Client Services.