This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.

Economic Update: Jan. 11, 2021

By:

Chief Global Strategist for J.P. Morgan Funds

This weekly update provides a snapshot of changes in the economy and markets and their implications for investors.

Growth

3Q20 real GDP was revised slightly higher to 33.4% q/q seasonally adjusted annual rate. Increases in consumption, private inventories, business fixed investment, housing and exports were partially offset by decreases in government spending and increases in imports. Despite a solid bounce back, economic output is still about 3.5% below its 4Q19 level. Strong October readings suggest considerable momentum entering 4Q20, possibly resulting in better than 5% real GDP growth. However, the surging pandemic could mean slower growth at the end of the quarter and into 1Q21. Retail sales fell 1.1% m/m in November, with broad declines in most categories. However, industrial production rose 0.4% m/m with stronger manufacturing production than expected in motor vehicles and parts.

Jobs

Nonfarm payrolls decreased by 140,000 in December, the first decline since April 2020. Job losses were concentrated in leisure and hospitality, although manufacturing and construction partially offset this, reflecting the stronger recovery in goods over services. The unemployment rate remained at 6.7%. Wages grew 0.8% m/m for all workers and for production and non-supervisory workers, up 5.1% and 5.2% y/y, respectively, partly a compositional effect reflecting the loss of lower-wage jobs. Although the labor market is likely to struggle this winter due to the pandemic, the broader distribution of vaccines should lead to a sharp rebound in employment in late 2021.

Profits

The 3Q20 earnings season wound down with 464 companies having reported (91.8% of market cap). Our current estimate for 3Q20 earnings is $37.42 with EPS declining 6.0% y/y. Thus far, 83% of companies have beaten on EPS estimates, and 73% have beaten on revenue estimates, both well above long-term averages, reflecting overly bearish initial estimates thus far. Sectors under pressure in the third quarter were energy and industrials, while consumer staples, technology, and health care had positive earnings growth.

Inflation

Headline and core CPI rose 0.2% m/m in November, rising 1.2% and 1.6% y/y, respectively. November headline and core PCE were both essentially flat, rising 1.1% and 1.4% y/y, respectively. While low energy prices and slack in the economy continue to put downward pressure on inflation, price pressures appear stronger than what would have been expected in the wake of a downturn as severe as the 2020 recession.

Rates

The FOMC maintained the federal funds target rate in a range of 0.00%–0.25%. The committee will also maintain its current pace of asset purchases of at least $80bn in Treasuries and $40bn in agency mortgage-backed securities per month until the committee feels “substantial further progress” has been made toward its inflation and employment goals. In its quarterly economic projections, its forecasts for growth, inflation and employment were all revised higher. While the “dot plot” of future rate projections implies no rate changes through 2023, a solid economic recovery in 2H21 and 2022 could result in tapering asset purchases well before rates are adjusted.

Risks

  • The U.S. recession and recovery could be at a slower pace than markets are anticipating.
  • Political headlines could foment market volatility.
  • Inflation could spike in the medium term.

Investment Themes

  • Quality with a dash of cyclicality should be a focus for U.S. equity investors.
  • Fixed income investors should move up in quality, and look to core bonds for portfolio ballast.
  • Long-term growth prospects and cheap absolute and relative valuations support international equities.

Data are as of January 11, 2021

Past performance does not guarantee future results.

Diversification does not guarantee investment returns and does not eliminate the risk of loss.

The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. This world-renowned index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 Index focuses on the large-cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an ideal proxy for the total market. An investor cannot invest directly in an index. Indexes are unmanaged.

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 views expressed are those of J.P. Morgan Asset Management. They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm.

JPMorgan Distribution Services, Inc., member of FINRA.

Disclosure: J.P. Morgan

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 Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight 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 and is being posted with permission from J.P. Morgan. The views expressed in this material are solely those of the author and/or J.P. Morgan and IBKR 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 sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. 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.

In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.

Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

trading top