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Weekly Market Recap: Oct. 25, 2021

Weekly Market Recap: Oct. 25, 2021

Posted October 25, 2021 at 11:45 am

J.P. Morgan Asset Management

The week in review

  • Markit flash svc. PMI at 58.2, +2.7 m/m
  • Markit flash mfg. PMI at 59.2, -1.3 m/m

The week ahead

  • 3Q GDP
  • 3Q Earnings

Thought of the week

Third-quarter GDP is due out this Thursday and should show a marked deceleration from the first half of the year. While consensus still anticipates modest growth, our models forecast a slight outright decline. GDP growth has been particularly tricky to forecast through the pandemic, but regardless of the exact number, a slowdown should not come as surprise. Both supply shortages and a pause in the reopening of services, due to the Delta variant, weighed on growth last quarter, leading us to revise down our forecast to -0.1% q/q annualized and 4.3% y/y.

For the past year, but particularly over the summer, supply shortages have led to both higher prices and lower real consumer spending. Indeed, we believe that real consumer spending likely grew by less than 2% q/q in 3Q, compared to +12.0% q/q in 2Q. Beneath the hood, the third quarter saw a 21% drop in light vehicle sales – this alone cut our estimates of third-quarter growth by almost three full percentage points. Beyond consumer spending, inventories likely continued to decline, albeit at a slower pace than last quarter. Additionally, dips in business investment (-2.6% q/q) and residential construction (-1.2% q/q) likely further limited GDP’s strength last quarter.

On a more positive note, the slowdown in GDP is likely to be short-lived, as production and consumer spending should ramp up in the months ahead. Consequently, GDP growth could bounce strongly to as high as 8.0% q/q in the fourth quarter and round out 2021 at a very healthy +5.2% y/y. As U.S. growth reaccelerates, investors should expect a boost to cyclical, energy and value stocks.

Short lived dip in 3Q GDP likely before a strong 4Q

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©JPMorgan Chase & Co., October 2021.

Unless otherwise stated, all data is as of October 25, 2021 or as of most recently available.

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.

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