Investment Strategy
3 things we (and the markets) are grateful for this season
2024 has been a year for the books. As we close in on its final weeks, your J.P. Morgan team thought it would be timely to practice some Thanksgiving gratitude and reflect upon the past 11 months in the markets.
So before we get to the celebrations and, most importantly, the food, let’s dig into the three things we (and the markets) are grateful for this holiday season.
3 things we (and the markets) are grateful for this season
1. Answers to some of 2024’s biggest questions. While navigating uncertainty comes with the territory of being an investor, we acknowledge that both embracing it and forging ahead can be a tall order. Luckily, we are heading into year-end with some of 2024’s biggest questions already answered. We think this is definitely something to be grateful for:
- Could the Federal Reserve achieve a soft landing? Concerns about “too little, too late” swirled this summer as investors worried that labor market heartburn was a result of too aggressive tightening from the Fed. At the end of the day, it appears that despite some turbulence on the way, a soft landing may soon be a reality for the Fed. The core measure of PCE inflation, which excludes food and energy, has fallen by three percentage points since its peak in 2022. This is quite the feat: Outside of wartime, the United States has never seen such a significant decline in inflation occur without a recession. This has so far all taken place without cracking the labor market. While there is work to be done as policy rates continue to normalize, the direction of travel appears to be positive.
- Were global central banks actually ready to cut policy rates? Central bankers across the globe spent much of the past two years running historic tightening campaigns against excessively high inflation. This year was all about determining if they had in fact succeeded at their job (with added bonus points for doing so without causing cracks in the broad economy). Fast forward to today, inflation across the globe has fallen meaningfully toward policy targets. This gave the majority of policymakers the go-ahead to make the long-awaited pivot to ease. Of the 37 global central banks we track, 27 are cutting policy rates, including every major central bank besides Japan. We think this gradual and coordinated global effort is set to continue and will ultimately drive growth forward from here.
Inflation has returned to target
Headline inflation, year-over-year % change
Sources: Bank for International Settlements, Australian Bureau of Statistics, Bureau of Economic Analysis, China National Bureau of Statistics, Haver Analytics. Data as of September 30, 2024.
- Who would win the 2024 U.S. presidential election? We spent much of the first 11 months of 2024 (and before) talking about the election: from what history could tell us about market volatility leading up to and following elections to analyses of proposed policies from each candidate. Now that the dust has settled and Donald Trump is officially President-elect, we have more clarity about what may be on the road ahead. While policies are yet to be confirmed, we are expecting the incoming administration to deliver trademark Republican pro-growth policies. Markets seem to agree; we have seen a sharp rally in both U.S. large-cap and small-cap stocks. Looking ahead, post-election clarity has historically been a powerful force for markets: Since 1984, there’s only been one election year when the market was lower 12 months after the election—in 2000, during the tech bubble.
2. Cooling inflation and a sturdy labor market. One of the biggest surprises this year has been how much inflation has continued to cool against a fairly solid economic backdrop. As mentioned above, inflation is still not fully back to the Fed’s sweet spot, but it’s darn close. As prices continue to normalize, it means your Thanksgiving grocery bill and travel plans may be cheaper than last year. Compared to just a year ago, gasoline, car rentals, turkey, potatoes, cranberries and gravy prices are down meaningfully, while airfares and pies are still more expensive. As the progress continues, we are especially thankful for a sturdy labor market. Over the last year, real wages have grown by 2%, which is strong and the fastest pace achieved since 2015. This has given consumers a bit of relief when it comes to keeping up with price pains.
The Thanksgiving inflation basket
U.S. Consumer Price Index components, year-over-year % change
Sources: Bureau of Labor Statistics, Haver Analytics. Data as of October 31, 2024. Components are represented by the following CPI subcategories: "Airfares" by airline fares, "car rentals" by car & truck rentals, "gasoline" by gasoline, "potatoes" by potatoes, "pie" by frozen & refrigerated bakery products, "cranberries" by canned fruits, "turkey" by uncooked poultry, and "gravy" by sauces & gravies.
3. Over 50 all-time highs for the S&P 500. The S&P 500 has had a stellar year so far, up over 25% despite election jitters, inflation uncertainty, geopolitical tensions and elevated rates. After gaining 24% in 2023, the index is on pace for the first back-to-back years of 20%+ gains since the late 1990s. The good news is that we think the momentum can continue for a couple of key reasons:
- Earnings should continue to be supportive. This year, companies were able to produce profits in the face of historically restrictive rates. Looking ahead to next year, every sector in the S&P 500 is expected to post positive earnings growth. This has not happened since 2018, and lower rates are the cherry on top.
- History looks to be on our side when it comes to the bull market. The median bull market total return is 110%. The current bull market total return is only 62% as of the end of October. In other words, if this run is merely in line with history, there looks to be upside from here.
All-time highs tend to beget more all-time highs
S&P 500 Index level with all-time highs, log scale, 1970 - present
Sources: Bloomberg Finance L.P., J.P. Morgan. Data as of October 31, 2024.
We know there are a lot of reasons beyond what we mentioned to be thankful for this Thanksgiving. That said, we are particularly optimistic about the opportunity that may lie ahead. As outlined in our 2025 Outlook, we think markets are well positioned to build on 2024’s strength in years to come.
Above all, though, we’re grateful for the trust you place in all of us at J.P. Morgan, and for following markets along with us throughout the year by reading Top Market Takeaways.
Cheers, and a Happy Thanksgiving to you and yours.
All market and economic data as of November 2024 and sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.
We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.
RISK CONSIDERATIONS
- Past performance is not indicative of future results. You may not invest directly in an index.
- The prices and rates of return are indicative, as they may vary over time based on market conditions.
- Additional risk considerations exist for all strategies.
- The information provided herein is not intended as a recommendation of or an offer or solicitation to purchase or sell any investment product or service.
- Opinions expressed herein may differ from the opinions expressed by other areas of J.P. Morgan. This material should not be regarded as investment research or a J.P. Morgan investment research report.
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Sarah Stillpass
Global Investment Strategist
Published Nov 27, 2024
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