Economic Update: January 23, 2023

Growth

Following two consecutive quarters of negative GDP growth, 3Q22 real GDP showed the economy grew by a 2.9% annualized rate. Much of the gain came from a large upswing in trade, while beneath the surface the economy is still losing momentum in both growth and inflation. Real consumer spending continued to soften and construction spending was very weak with higher interest rates. However, investment spending is still holding up and the GDP price deflator declined markedly to 4.1% from 9% last quarter. Moreover, with pent-up demand for autos and a still very tight labor market, it’s clear the economy is not yet in recession.

Jobs

The December Jobs report was strong with an above-consensus gain for payroll jobs and a decline in the unemployment rate to 3.5%. Notably, wage growth continued to moderate and was revised lower in the prior two months. With sliding wage growth and headline inflation, it is hard to justify the need for overly aggressive action from the Fed to tame inflation, and this report widens the window for a soft landing. The job market remains the strongest aspect of the economy right now.

Profits

The 4Q22 earnings season is underway, with 52 companies having reported (12.4% of market cap). Our current estimate for 4Q22 earnings per share is $52.61, representing a y/y decline of 7.3% but q/q growth of 4.5%. So far, 52% of companies have beaten earnings expectations while 48% have beaten revenue expectations. Management commentary across sectors highlighted that higher input costs and a stronger dollar continue to negatively impact results. Notably, margin contraction has been the largest detractor in earnings while revenue has grown modestly.

Inflation

The December CPI report confirmed that the inflation surge of 2022 is fading as Headline CPI fell 0.1% m/m and 6.4% y/y while Core CPI rose by 0.3% m/m. Lower energy prices and moderating food prices continued to help lower headline inflation, while CPI ex-food, energy and shelter fell for the third consecutive month due to falling vehicle prices, lower health insurance rates and lower airline fares. Shelter inflation increased 0.8% m/m, partially offsetting the general decline in inflation. Overall, inflation should continue to fall throughout 2023 and reduce the risk of aggressive tightening from the Fed.

Rates

Despite a recent inflation moderation, the Fed has maintained its hawkish messaging on monetary policy. At its December meeting, the FOMC hiked rates at a reduced pace of 0.50% to a range of 4.25%-4.50%. Markets were most surprised by the Fed’s updated Summary of Economic Projections, which showed a picture of higher unemployment, higher inflation and slower growth in 2023 and 2024. The median FOMC member now expects a terminal rate at or above 5% next year. Further cooling in inflation data may allow the Fed to pivot before hiking rates above 5%, but the risk of Fed overtightening and inducing a recession remains elevated.

Risks

  • 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.
  • A disruptive move away from the zero-COVID policy in China could snarl supply chains once again.

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 January 23, 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

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.