Weekly Market Recap: May 15, 2023

The week in review

• Headline/Core CPI, NSA: 4.9%/5.5% y/y
• Initial jobless claims: 264K, up from 242K

The week ahead

• Retail sales

Thought of the Week

Following the Federal Reserve’s (Fed’s) decision to raise the federal funds rate to a range of 5.00%-5.25%, investors scoured April’s CPI report and the 1Q Senior Loan Officer Survey in an attempt to get a sense of the Fed’s next steps.

Although the survey showed only a slight increase in the share of domestic banks reporting tighter lending standards, there is more to this than meets the eye. As shown in the chart of the week, banks had been incrementally tightening lending standards over the past year, and well before stress in the banking system began to emerge. While the share of banks tightening has not eclipsed pandemic levels, demand for commercial loans has fallen below levels seen during the depths of the pandemic. This has been particularly true among the regional banks, which have increased lending costs amidst an uncertain economic outlook and recent deposit flight.

The silver lining, however, is that tighter lending standards weigh on economic growth by depressing credit demand, and typically lead inflation to decelerate with a lag of 4-6 quarters. As such, the full impact of the tighter credit conditions is yet to be felt, but the April CPI report suggested that inflation is cooling, with year-over-year headline CPI moderating for the 10th consecutive month. Furthermore, after stripping out the volatile energy and lagging shelter components, services prices registered an increase of 0.11% on the month; this was the smallest increase since July 2022 and suggests that even some of the sticky components are beginning to turn over.

Looking ahead, further deceleration in inflation seems likely. However, the lagged impact of extremely tight monetary policy will begin to be felt more acutely and has raised the risk of recession later this year. As the growth/inflation mix begins to shift, it seems likely that the Fed’s resolve to keep rates higher for longer will be tested.

—

Originally Posted May 15, 2023 – Weekly Market Recap

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 appropriate 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 Market Insights program provides comprehensive data and commentary on global markets without reference to products. Designed as a tool to help clients understand the markets and support investment decision-making, the program explores the implications of current economic data and changing market conditions.

The J.P. Morgan Asset Management Market Insights and Portfolio Insights programs, as non-independent research, have not been prepared in accordance with legal requirements designed to promote the independence of investment research, nor are they subject to any prohibition on dealing ahead of the dissemination of investment research.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature
or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professional, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment.

Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.

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.

This communication is issued in the United States, by J.P. Morgan Investment Management Inc. or J.P. Morgan Alternative Asset Management, Inc., both regulated by the Securities and Exchange Commission.

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 2022 JPMorgan Chase & Co. All rights reserved.

^©JPMorgan Chase & Co., May 2023.

Unless otherwise stated, all data is as of May 15, 2023 or as of most recently available