Growth
4Q22 real GDP showed the economy grew by a 2.7% annualized rate and 0.9% for the calendar year, even with the economy contracting for two consecutive quarters in the first half. While the overall print looked solid, the underlying details still point to a weakening economy. More than half of the GDP gain came from an increase in inventory accumulation (a trend that will inevitably be reversed), real consumer spending was softer than expected and residential investment plunged further. Looking ahead, boosts in real personal income, pent-up demand for autos and a very tight labor market should keep growth afloat, but very modest, in the year ahead.
Jobs
The March Jobs report highlighted a labor market that remains tight but is losing momentum. Nonfarm payroll employment rose by 236K, a sharp deceleration compared to last month, while the unemployment rate slipped below consensus to 3.5%. Average hourly earnings grew by 0.3% m/m and 4.2% y/y, signaling easing inflationary pressures. Overall, this report confirms that the economy, while gradually losing momentum, was not in a recession in the first quarter. However, the question remains whether or not the labor market is cooling as fast as the Fed would like.
Profits
The 4Q22 earnings season highlighted the challenges that higher rates and input costs, combined with lower consumer spending and a strong dollar, impose on all companies. However, it also revealed important distinctions among companies in weathering these headwinds. 4Q22 EPS declined by 11.4% y/y and 0.2% q/q. In total, 62% of companies beat earnings expectations, while 55% beat revenue expectations. Management commentary across sectors highlighted that higher input costs and a stronger dollar negatively impacted results. Notably, margin contraction was the largest detractor in earnings while revenue grew modestly.
Inflation
The February CPI report saw headline CPI rise by 0.4% m/m and 6.0% y/y, marking an eighth consecutive monthly decline for the year-over-year measure, while core CPI rose by 0.5% m/m and 5.5% y/y. Shelter inflation remained strong, although continues to reflect lagged rent inflation. That said, other measures of services saw disinflation. Headline and core PCE inflation both rose by 0.3% m/m, a deceleration compared to last month for both indices. While not falling as fast as the Fed would like, inflation is gradually falling and continued moderation in wage growth increases our confidence that year-over-year headline CPI will fall to 4% or lower by June of this year.
Rates
At its March meeting, the FOMC hiked rates by 0.25% to a range of 4.75%-5.00%. The statement language and press conference were somewhat dovish, acknowledging the potential implications of banking turmoil on the economic outlook but also the need for further progress on inflation. The Fed notably downshifted the phrase “ongoing increases in the target range…” to “some additional policy firming may be appropriate,” signaling a near end to tightening. The median rate expectation for year-end was unchanged at 5.1%. Updates to the Fed’s economic projections reflected a more dovish picture of slower growth, lower unemployment and slightly higher inflation.
Risks
- Banking sector turmoil could result in tighter lending standards, posing a drag on economic growth.
- An overly aggressive Fed could push the economy into recession.
- Markets may remain depressed and volatile until investors receive clarity on the pathway for inflation and the Fed.
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 April 10, 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.