Hello,

This is David Kelly.

I’m Chief Strategist here at J.P. Morgan Asset Management and I head the team that produces the Guide to the Markets. Welcome to the Economic and Market Update for the fourth quarter of 2024.

The U.S. economy appears to have maintained a solid growth pace over the summer, fueled by resilient consumer spending. At the same time, inflation continued on a path back toward the Federal Reserve’s 2% target, while a rising unemployment rate sparked fears the labor market is cooling too quickly. Moving forward, resilient consumer spending should support trend-like economic growth into 2025, and, with few excesses building across the cyclical sectors of the economy, a near-term recession seems unlikely.

Meanwhile, cooling inflation has allowed the Federal Reserve to put more focus on the labor market, prompting it to join other global central banks in easing policy and deliver a 50-basis point rate cut in September. While the Fed’s updated economic projections forecast two more rate cuts this year, the pace of cuts will depend heavily on the incoming data. It does appear, however, that rates will settle at a structurally higher level relative to the past decade barring any economic shocks.

For markets, this summer was anything but calm. Equity market volatility spiked in August due to lackluster guidance from the Magnificent 7, weaker economic data and policy action from the Bank of Japan. However, market jitters have faded in recent weeks, with broadening earnings growth and rate cut bets pushing markets higher and leaving valuations elevated. Expectations for dovish policy action have helped bonds rally too, and yields are lower now than at the start of the year. With the U.S. election quickly approaching, geopolitical tensions still elevated and the Federal Reserve keen on normalizing policy without sending gloomy signals, risks remain that could keep markets volatile and tip the U.S. into recession. Against this backdrop, investors may want to lean into active managers to access attractive opportunities in an environment of rich-index level valuations, while diversifying across global stocks, bonds and alternatives.

The Guide to the Markets, now in its 20th year, is built to illustrate economic fundamentals and investment opportunities and risks. However, it is important to do this concisely. There are over 60 pages in the Guide, but that is far too many for any conversation about the markets.

So, what we do here is boil it down to just 10 slides. In particular, we assess the recent performance of the markets and economy, considering trends in growth, jobs and inflation in the U.S, and how these trends are shaping the outlook for monetary policy. This is followed by comments on growth from around the globe, and finally, a discussion of the global opportunity set across stocks, bonds and alternative assets.