Growth
The U.S. economy expanded at a solid 2.8% saar, notching a second consecutive quarter of above trend growth. Consumer spending continued to power the economy forward, rising 3.7%, while government spending also looked strong. Business spending grew by a modest 0.3% with residential investment being a notable drag. With businesses likely rushing to build up inventory ahead of the port workers strikes in late September, imports jumped 11.9% and weighed on growth. Overall, despite concerns about the labor market and the manufacturing sector, economic momentum in the U.S. remains solid.
Jobs
The October Jobs report showed the U.S. economy added an underwhelming 12,000 jobs last month, although hurricanes and strikes likely muddled the data. In fact, survey response rates were below average, an above average 512K people reported being out of work due to bad weather and BLS estimates suggest 44K workers were on strike during the survey week. Downward revisions were also gloomy, removing 112K jobs from the prior two months. Other details looked promising. The unemployment rate held steady at 4.1% while wages, likely biased higher by weather, rose by a solid 0.4% m/m. While weaker than expected, this report was distorted, and overall data show that the labor market, while cooling, still looks solid.
Profits
The 3Q24 earnings season is wrapping up with more than 80% of market cap having reported. Analysts are currently expecting pro forma earnings per share (EPS) of $59.57, representing growth of 4.2% y/y and 1.4% q/q. Growth sectors like information technology and communication services are likely to deliver another quarter of double digit earnings growth. Elsewhere, cyclical value sectors are projected to see earnings fall. Moving forward, lower rates and regulatory uncertainty should provide a boost to manufacturing-tied sectors along with financials as management teams ramp up investment. This means less focus on returning capital to shareholders, so sales growth will be an increasingly important driver of future earnings.
Inflation
The September CPI report came in a touch hotter than expected, although inflation remained on its steady downward path. Headline inflation rose 0.2% m/m and 2.4% y/y, marking the slowest annual increase since early 2021, while core inflation rose 0.3% m/m and 3.3% y/y. In the details, food prices (+0.4% m/m) rose at their fastest pace since early 2023. This was partially offset by lower energy prices, reflecting sharp declines in gasoline and fuel oils. Core goods ended a 6-month streak of deflation, driven by strength in apparel prices but remained benign. Elsewhere, shelter inflation came in below expectations, easing to 0.2% m/m. Excluding shelter, higher auto insurance prices (+1.2%) and airfares (+3.2%) caused core services inflation to accelerate. Overall, while inflation could see some fits and starts, it remains on a well-paved, predictable path downward.
Rates
At its November meeting, the FOMC unanimously voted to lower the federal funds rate by 25bps to a range of 4.50% to 4.75%. During the press conference, Chair Powell said that progress on disinflation and employment data led the decision, although the change in the statement language suggests the Fed acknowledges that disinflationary progress has somewhat plateaued above 2%. He didn’t provide too much forward guidance given the high level of uncertainty, causing markets to be less certain about the pace and destination of future cuts.
Risks
- Geopolitical tensions and policy uncertainty may heighten market volatility.
- A slow-moving economy is more vulnerable to any kind of shock.
- Moderating economic growth could weigh on earnings, leaving markets vulnerable at stretched valuations.
Investment Themes
- Fixed income offers attractive levels of income and protection against an economic downturn.
- Broadening profit growth should continue to support a more inclusive stock market rally.
- Powerful structural and cyclical tailwinds should support select international markets.
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.
