Investment Strategy

Contemplating the catalysts: 5 market movers

Jan 26, 2024

From policy and earnings to geopolitics, here’s what could move markets in the year ahead.

The S&P 500 has hit five new all-time highs in the last five trading days. That’s only happened 10 other times since the turn of the millennium.

Many worry if they’ve “missed” their chances to get invested. Bears worry about what feels like a long list of risks—from geopolitics to elections. Bulls question how much more valuations can expand and how strong earnings can be.

Below, we contemplate five catalysts for the year ahead and telegraph why we’re still constructive.

1. The economy is strong—how much will the Federal Reserve really move?

What recession? Yesterday’s Q4 GDP print showed the U.S. economy grew at a 3.3% annualized pace, more than every economist across the Street expected. Consumers brought the power, despite many fearing cracks would deepen under the weight of higher interest rates, higher costs and student debt payments. More notable is that the strength came as inflation continued its dramatic decline. The Fed’s preferred inflation gauge—core PCE—printed at a 2.9% year-over-year pace in December, not too far off its 2% target for price stability.

Growth has remained resilient, with big thanks to the consumer

Sources: Bureau of Economic Analysis, Bloomberg. Data as of December 31, 2023.
In 1Q 2021, the quarter-over-quarter GDP growth annualized was 5.24% made up by 5.70% from consumption, -0.46% from investment, 1.04% from government spending and -1.04% from net exports. In 2Q 2021, the quarter-over-quarter GDP growth annualized was 6.22% made up by 8.73% from consumption, -0.84% from investment, -0.80% from government spending and -0.87% from net exports. In 3Q 2021, the quarter-over-quarter GDP growth annualized was 3.31% made up by 1.89% from consumption, 2.71% from investment, -0.26% from government spending and -1.03% from net exports. In 4Q 2021, the quarter-over-quarter GDP growth annualized was 6.96% made up by 2.71% from consumption, 4.63% from investment, -0.04% from government spending and -0.34% from net exports. In 1Q 2022, the quarter-over-quarter GDP growth annualized was -1.98% made up by -0.03% from consumption, 1.16% from investment, -0.52% from government spending and -2.59% from net exports. In 2Q 2022, the quarter-over-quarter GDP growth annualized was -0.56% made up by 1.32% from consumption, -2.10% from investment, -0.34% from government spending and 0.56% from net exports. In 3Q 2022, the quarter-over-quarter GDP growth annualized was 2.67% made up by 1.05% from consumption, -1.45% from investment, 0.49% from government spending and 2.58% from net exports. In 4Q 2022, the quarter-over-quarter GDP growth annualized was 2.57% made up by 0.79% from consumption, 0.62% from investment, 0.90% from government spending and 0.26% from net exports. In 1Q 2023, the quarter-over-quarter GDP growth annualized was 2.25% made up by 2.54% from consumption, -1.69% from investment, 0.82% from government spending and 0.58% from net exports. In 2Q 2023, the quarter-over-quarter GDP growth annualized was 2.06% made up by 0.55% from consumption, 0.90% from investment, 0.57% from government spending and 0.04% from net exports. In 3Q 2023, the quarter-over-quarter GDP growth annualized was 4.87% made up by 2.11% from consumption, 1.74% from investment, 0.99% from government spending and 0.03% from net exports. In 4Q 2023, the quarter-over-quarter GDP growth annualized was 3.28% made up by 1.91% from consumption, 0.38% from investment, 0.56% from government spending and 0.43% from net exports.

Over the last few weeks, the market has fervently debated how many cuts should be in the cards if the Fed manages to softly land the economy. Initial enthusiasm for the pivot party prompted investors to price in as many as 170 basis points (bps) worth of cuts for 2024 at one point. This would have implied a cut of 25 bps at seven out of the Fed’s eight policy meetings this year—moves that would have been more consistent with a meaningful economic slowdown. As the first data reads of the year have trickled in, investors have pared back their expectations to a more reasonable 140 bps.

Over the year, we expect markets and the Fed’s own forecasts (which only pencil in about 75 bps worth of cuts) to keep growing closer together. How that tension evolves, and how the data responds to cuts once they happen, will be crucial to watch.

Markets have pared back expectations for cuts this year

Source: Bloomberg Finance L.P. Data as of January 26, 2024. Note: Market-implied rate refers to Fed funds futures.
The chart shows the market-implied Federal Reserve rate cuts today at -141 bps versus two weeks ago at -168 bps.

2. Corporates are back in action—but how big is the turnaround?

The last couple of years have been pretty weak for corporate activity—whether you look at earnings, M&A activity or new IPOs coming to market. Now, with less economic uncertainty and (potentially) lower interest rates, the tides seem to be turning. The Q4 2023 earnings season is still in early days, but as the reports ramp up, we think we’ll end up seeing profit growth for the quarter.

For instance, while financials were the first to report and marked a well-telegraphed slowdown last quarter, consumer and tech names are showing strength. The latter’s return to profitability especially underpins our conviction that earnings will deliver this year. The sector accounts for ~30% of the index—and that’s not even including tech-enabled names that sit within communication services and consumer discretionary. If AI turns into real revenue growth sooner rather than later, the boost could be even bigger.

We also expect more sectors to join in as the year marches on, with 10 out of 11 S&P 500 sectors seeing earnings growth for all of 2024. Why it matters: While changing sentiment can send stocks swinging in the short term, earnings tend to drive returns in the long term. When you buy a stock, you’re ultimately paying for access to that company’s future profits.

Earnings are a big driver of stock returns in the long term

Source: FactSet. Earnings expectations represent FactSet consensus EPS estimates for the next 12 months. Data as of January 19, 2024. Past performance is no guarantee of future results. It is not possible to invest directly in an index.
On January 16, 2004, the price level was 1,141.55 and the earnings expectations were 64.5. On January 23, 2004, the price level was 1,131.13 and the earnings expectations were 64.8. On January 30, 2004, the price level was 1,142.76 and the earnings expectations were 65.1. On February 6, 2004, the price level was 1,145.81 and the earnings expectations were 65.3. On February 13, 2004, the price level was 1,144.11 and the earnings expectations were 65.5. On February 20, 2004, the price level was 1,144.94 and the earnings expectations were 65.8. On February 27, 2004, the price level was 1,156.86 and the earnings expectations were 66.1. On March 5, 2004, the price level was 1,120.57 and the earnings expectations were 66.4. On August 6, 2004, the price level was 1,064.8 and the earnings expectations were 72.4. On May 9, 2008, the price level was 1,425.35 and the earnings expectations were 102.5. On May 16, 2008, the price level was 1,375.93 and the earnings expectations were 102.7. On May 23, 2008, the price level was 1,400.38 and the earnings expectations were 103.0. On January 11, 2013, the price level was 1,485.98 and the earnings expectations were 115.7. On January 18, 2013, the price level was 1,502.96 and the earnings expectations were 115.4. On January 25, 2013, the price level was 1,513.17 and the earnings expectations were 115.4. On February 1, 2013, the price level was 1,517.93 and the earnings expectations were 115.6. On February 8, 2013, the price level was 1,519.79 and the earnings expectations were 115.8. On February 15, 2013, the price level was 1,515.6 and the earnings expectations were 116.0. On February 22, 2013, the price level was 1,518.2 and the earnings expectations were 116.2. On March 1, 2013, the price level was 1,551.18 and the earnings expectations were 116.4. On March 8, 2013, the price level was 1,560.7 and the earnings expectations were 116.6. On March 15, 2013, the price level was 1,556.89 and the earnings expectations were 116.8. On March 22, 2013, the price level was 1,569.19 and the earnings expectations were 117.0. On March 28, 2013, the price level was 1,553.28 and the earnings expectations were 117.1. On April 5, 2013, the price level was 1,588.85 and the earnings expectations were 117.4. On April 12, 2013, the price level was 1,555.25 and the earnings expectations were 117.4. On April 19, 2013, the price level was 1,582.24 and the earnings expectations were 117.1. On May 15, 2015, the price level was 2,126.06 and the earnings expectations were 127.5. On June 15, 2018, the price level was 2,754.88 and the earnings expectations were 168.6. On June 22, 2018, the price level was 2,718.37 and the earnings expectations were 169.0. On June 29, 2018, the price level was 2,759.82 and the earnings expectations were 169.3. On July 6, 2018, the price level was 2,801.31 and the earnings expectations were 169.7. On July 13, 2018, the price level was 2,801.83 and the earnings expectations were 170.4. On July 20, 2018, the price level was 2,818.82 and the earnings expectations were 171.0. On July 27, 2018, the price level was 2,840.35 and the earnings expectations were 171.7. On August 3, 2018, the price level was 2,833.28 and the earnings expectations were 172.0. On August 10, 2018, the price level was 2,850.13 and the earnings expectations were 172.3. On August 17, 2018, the price level was 2,874.69 and the earnings expectations were 172.6. On August 24, 2018, the price level was 2,901.52 and the earnings expectations were 172.9. On August 31, 2018, the price level was 2,871.68 and the earnings expectations were 173.4. On September 7, 2018, the price level was 2,904.98 and the earnings expectations were 173.7. On September 14, 2018, the price level was 2,929.67 and the earnings expectations were 173.9. On September 21, 2018, the price level was 2,913.98 and the earnings expectations were 173.9. On September 28, 2018, the price level was 2,885.57 and the earnings expectations were 174.4. On October 5, 2018, the price level was 2,767.13 and the earnings expectations were 174.6. On October 12, 2018, the price level was 2,767.78 and the earnings expectations were 175.0. On October 19, 2018, the price level was 2,658.69 and the earnings expectations were 175.4. On October 26, 2018, the price level was 2,723.06 and the earnings expectations were 175.1. On November 4, 2022, the price level was 3,992.93 and the earnings expectations were 230.8. On November 11, 2022, the price level was 3,965.34 and the earnings expectations were 231.0. On November 18, 2022, the price level was 4,026.12 and the earnings expectations were 231.4. On November 25, 2022, the price level was 4,071.7 and the earnings expectations were 231.4. On December 2, 2022, the price level was 3,934.38 and the earnings expectations were 231.1. On December 9, 2022, the price level was 3,852.36 and the earnings expectations were 231.0. On December 16, 2022, the price level was 3,844.82 and the earnings expectations were 230.6. On October 27, 2023, the price level was 4,358.34 and the earnings expectations were 242.0. On November 3, 2023, the price level was 4,415.24 and the earnings expectations were 242.2. On November 10, 2023, the price level was 4,514.02 and the earnings expectations were 242.5. On November 17, 2023, the price level was 4,559.34 and the earnings expectations were 243.6. On November 24, 2023, the price level was 4,594.63 and the earnings expectations were 244.2. On December 1, 2023, the price level was 4,604.37 and the earnings expectations were 244.6. On December 8, 2023, the price level was 4,719.19 and the earnings expectations were 244.3. On December 15, 2023, the price level was 4,754.63 and the earnings expectations were 244.0. On December 22, 2023, the price level was 4,769.83 and the earnings expectations were 244.3. On December 29, 2023, the price level was 4,697.24 and the earnings expectations were 244.6. On January 5, 2024, the price level was 4,783.83 and the earnings expectations were 244.7. On January 12, 2024, the price level was 4,839.81 and the earnings expectations were 245.1.

3. While U.S. stocks notch highs, China’s are at decade lows—is there a turning point ahead?

In the last few days, China has announced a number of measures to support its economy and markets—ranging from a stabilization fund that would invest in its slumping stock market to a surprise cut to its reserve requirement ratio. Some now wonder if there could be an inflection point, given all the bad news priced in: Hong Kong’s Hang Seng Index has been hovering around GFC-era levels as of late, and India also just topped Hong Kong as the world’s fourth-largest stock market.

This hasn’t been without reason: Economic weakness (led by the property sector), geopolitical tension, regulatory hurdles and questions around market-friendly policies have all contributed to the weakness. Foreign direct investment in China fell negative for the first time in decades last year.

Global investors have been steering away from China

Sources: State Administration of Foreign Exchange of China, Bloomberg Finance L.P. Data as of Q3 2023.
On December 31, 2000, the quarterly net direct investments in China in billions of dollars was 13,163. On December 31, 2005, the quarterly net direct investments in China in billions of dollars was 32,545. On December 31, 2008, the quarterly net direct investments in China in billions of dollars was 44,495. On December 31, 2010, the quarterly net direct investments in China in billions of dollars was 74,954. On December 31, 2012, the quarterly net direct investments in China in billions of dollars was 79,233. On December 31, 2014, the quarterly net direct investments in China in billions of dollars was 88,866. On December 31, 2018, the quarterly net direct investments in China in billions of dollars was 57,482. On December 31, 2021, the quarterly net direct investments in China in billions of dollars was 92,988. On September 30, 2023, the quarterly net direct investments in China in billions of dollars was -11,753.

We’re cautious on calling for a turnaround just yet. Taking cues from similar actions in the past, these kinds of state interventions have only tended to offer brief reprieves. We think more forceful stimulus measures, or a comprehensive plan to rescue the property sector, is needed to get more optimistic.

4. 2024 is the year of elections—what does a Trump vs. Biden rematch mean?

Former President Trump has now claimed victory in both the Iowa caucus and the New Hampshire primary—by a wide margin. According to the Associate Press, that makes him the first Republican presidential candidate to win open races in both states since they started leading the election calendar in 1976. All’s to say, it looks like we’re racing towards a Biden v. Trump rematch.

We await more details on what both candidates’ policy platforms will look like as the campaign trail heats up: Will they hold onto proposals of the past, and if so, how will they evolve? These are fair questions for the outlook, but it is also worth stressing the uniqueness of having this much information this early in the election cycle. This means there may be less possible outcomes for markets to make sense of and calibrate for. That’s potentially good news for uncertainty and valuations.

5. Geopolitical flashpoints—what’s the spillover?

After most gauges of supply chains normalized from unprecedented COVID-era disruption, the situation in the Red Sea has complicated the picture. Some question if that brings renewed inflation risks, as hundreds of giant container ships are forced to take a lengthier detour—by about a week—going around the Cape of Good Hope in Africa instead. Shipping costs for a 40-foot container have now risen for seven straight weeks, nearly tripling from the lows.

Such geopolitical tensions are concerning and warrant monitoring, but so far it looks like the disruptions in the Red Sea just make trade more difficult—far from a complete stop as during the pandemic. So while it’s true that shipping costs have ballooned, they’re still more than 60% below their COVID-era highs. Escalation could change this, but so far the disruption seems manageable for global trade.

Shipping costs have spiked, but are well off pandemic-era highs

Sources: Drewry, Bloomberg Finance L.P., JP Morgan Asset Management. Data as of January 25, 2024.
On December 29, 2011, the World Container Index level was 1,215. On December 27, 2012, the World Container Index level was 2,055. On December 19, 2013, the World Container Index level was 2,124. On January 8, 2015, the World Container Index level was 2,013. On January 7, 2016, the World Container Index level was 1,556. On January 5, 2017, the World Container Index level was 1,820. On January 4, 2018, the World Container Index level was 1,410. On December 27, 2018, the World Container Index level was 1,571. On January 9, 2020, the World Container Index level was 1,781. On December 31, 2020, the World Container Index level was 4,359. On December 23, 2021, the World Container Index level was 9,304. On December 22, 2022, the World Container Index level was 2,120. On January 26, 2023, the World Container Index level was 2,047.

Where we stand

In any given year, there are good things and bad things that can impact the economy and markets. Volatility around each of these catalysts as we move through 2024 is likely.

Even so, we tend to see the glass half full when we examine the current slate of opportunities and risks. Disinflation has more room to run. Soft landings tend to signal pretty strong returns for both stocks and bonds. Earnings growth is just getting going. And, so far, geopolitical and election risks seem like things investors can prepare for.

For long-term investors, time in the market and diversification can help reduce uncertainty. Your J.P. Morgan team is here to discuss what this means for you and your portfolio.

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Morgan SE Brussels Branch is also supervised by the National Bank of Belgium (NBB) and the Financial Services and Markets Authority (FSMA) in Belgium; registered with the NBB under registration number 0715.622.844. In Greece, this material is distributed by J.P. Morgan SE—Athens Branch, with its registered office at 3 Haritos Street, Athens, 10675, Greece, authorized by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB); J.P. Morgan SE—Athens Branch is also supervised by Bank of Greece; registered with Bank of Greece as a branch of J.P. Morgan SE under code 124; Athens Chamber of Commerce Registered Number 158683760001; VAT Number 99676577. In France, this material is distributed by J.P. Morgan SE – Paris Branch, with its registered office at 14, Place Vendôme 75001 Paris, France, authorized by the Bundesanstaltfür Finanzdienstleistungsaufsicht (BaFin) and jointly supervised by the BaFin, the German Central Bank (Deutsche Bundesbank) and the European Central Bank (ECB) under code 842 422 972; J.P. Morgan SE – Paris Branch is also supervised by the French banking authorities the  Autorité de Contrôle Prudentiel et de Résolution (ACPR) and the Autorité des Marchés Financiers (AMF). In Switzerland, this material is distributed by J.P. Morgan (Suisse) SA, with registered address at rue du Rhône, 35, 1204, Geneva, Switzerland, which is authorized and supervised by the Swiss Financial Market Supervisory Authority (FINMA) as a bank and a securities dealer in Switzerland.

This communication is an advertisement for the purposes of the Markets in Financial Instruments Directive (MIFID II) and the Swiss Financial Services Act (FINSA). Investors should not subscribe for or purchase any financial instruments referred to in this advertisement except on the basis of information contained in any applicable legal documentation, which is or shall be made available in the relevant jurisdictions (as required).

In Hong Kong, this material is distributed by JPMCB, Hong Kong branch. JPMCB, Hong Kong branch is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission of Hong Kong. In Hong Kong, we will cease to use your personal data for our marketing purposes without charge if you so request. In Singapore, this material is distributed by JPMCB, Singapore branch. JPMCB, Singapore branch is regulated by the Monetary Authority of Singapore. Dealing and advisory services and discretionary investment management services are provided to you by JPMCB, Hong Kong/Singapore branch (as notified to you). Banking and custody services are provided to you by JPMCB Singapore Branch. The contents of this document have not been reviewed by any regulatory authority in Hong Kong, Singapore or any other jurisdictions. You are advised to exercise caution in relation to this document. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. For materials which constitute product advertisement under the Securities and Futures Act and the Financial Advisers Act, this advertisement has not been reviewed by the Monetary Authority of Singapore. JPMorgan Chase Bank, N.A., a national banking association chartered under the laws of the United States, and as a body corporate, its shareholder’s liability is limited.

With respect to countries in Latin America, the distribution of this material may be restricted in certain jurisdictions. We may offer and/or sell to you securities or other financial instruments which may not be registered under, and are not the subject of a public offering under, the securities or other financial regulatory laws of your home country. Such securities or instruments are offered and/or sold to you on a private basis only. Any communication by us to you regarding such securities or instruments, including without limitation the delivery of a prospectus, term sheet or other offering document, is not intended by us as an offer to sell or a solicitation of an offer to buy any securities or instruments in any jurisdiction in which such an offer or a solicitation is unlawful. Furthermore, such securities or instruments may be subject to certain regulatory and/or contractual restrictions on subsequent transfer by you, and you are solely responsible for ascertaining and complying with such restrictions. To the extent this content makes reference to a fund, the Fund may not be publicly offered in any Latin American country, without previous registration of such fund’s securities in compliance with the laws of the corresponding jurisdiction.

JPMorgan Chase Bank, N.A. (JPMCBNA) (ABN 43 074 112 011/AFS Licence No: 238367) is regulated by the Australian Securities and Investment Commission and the Australian Prudential Regulation Authority. Material provided by JPMCBNA in Australia is to “wholesale clients” only. For the purposes of this paragraph the term “wholesale client” has the meaning given in section 761G of the Corporations Act 2001 (Cth). Please inform us if you are not a Wholesale Client now or if you cease to be a Wholesale Client at any time in the future.

JPMS is a registered foreign company (overseas) (ARBN 109293610) incorporated in Delaware, U.S.A. Under Australian financial services licensing requirements, carrying on a financial services business in Australia requires a financial service provider, such as J.P. Morgan Securities LLC (JPMS), to hold an Australian Financial Services Licence (AFSL), unless an exemption applies. JPMS is exempt from the requirement to hold an AFSL under the Corporations Act 2001 (Cth) (Act) in respect of financial services it provides to you, and is regulated by the SEC, FINRA and CFTC under U.S. laws, which differ from Australian laws. Material provided by JPMS in Australia is to “wholesale clients” only. The information provided in this material is not intended to be, and must not be, distributed or passed on, directly or indirectly, to any other class of persons in Australia. For the purposes of this paragraph the term “wholesale client” has the meaning given in section 761G of the Act. Please inform us immediately if you are not a Wholesale Client now or if you cease to be a Wholesale Client at any time in the future.

This material has not been prepared specifically for Australian investors. It:

  • May contain references to dollar amounts which are not Australian dollars;
  • May contain financial information which is not prepared in accordance with Australian law or practices;
  • May not address risks associated with investment in foreign currency denominated investments; and
  • Does not address Australian tax issues.

References to “J.P. Morgan” are to JPM, its subsidiaries and affiliates worldwide. “J.P. Morgan Private Bank” is the brand name for the private banking business conducted by JPM. This material is intended for your personal use and should not be circulated to or used by any other person, or duplicated for non-personal use, without our permission. If you have any questions or no longer wish to receive these communications, please contact your J.P. Morgan team.

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JPMorgan Chase Bank, N.A. and its affiliates (collectively "JPMCB") offer investment products, which may include bank-managed accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC ("JPMS"), a member of FINRA and SIPC. Insurance products are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. JPMCB, JPMS and CIA are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states. Please read the Legal Disclaimer in conjunction with these pages.

INVESTMENT AND INSURANCE PRODUCTS ARE: • NOT FDIC INSURED • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY • NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, JPMORGAN CHASE BANK, N.A. OR ANY OF ITS AFFILIATES • SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED

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