Economic Update - J.P. Morgan Asset Management
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Economic Update

Contributor Dr. David Kelly

Denotes updated information

Growth Icon (Orange)  Growth

2Q20 real GDP fell 31.4% q/q at a seasonally adjusted annual rate, following a 5.0% q/q decline in 1Q20. The second quarter should mark the end of a severe but short recession, with a peak to trough decline of 10.1% in real terms. While 3Q20 could see a more than 30% q/q bounce, the recovery is likely to be more gradual thereafter, and the 4Q19 peak in GDP may not be surpassed until 2Q21. September retail sales increased more than expected, rising 1.9% m/m and 5.4% y/y drive by clothing and department stores, while industrial production fell 0.6% driven by a drop in utilities, down 7.3% y/y overall.

Jobs Icon (Grey)  Jobs

Nonfarm payrolls increased by 661,000 in September and the unemployment rate fell to 7.9%. Leisure and hospitality accounted for nearly half of the job gains, but government jobs declined by 216,000, including 34,000 temporary Census 2020 workers. Wages grew 0.1% m/m for all workers and were flat for production and non-supervisory workers, up 4.7% y/y and 4.6% y/y, respectively. The economy has now regained 52% of the 22 million jobs lost between February and April. Although this jobs report demonstrated solid progress in a gradual recovery, the pace of progress has slowed considerably.

Profits Icon (Orange)  Profits

The 3Q20 earnings season kicked off this week, with 42 companies having reported (11.7% of market cap). Our current estimate for 3Q20 earnings is $33.43 with EPS declining 16.0% y/y. Thus far, 88% of companies have beaten on EPS estimates, and 76% have beaten on revenue estimates, both well above long-term averages, reflecting overly bearish initial estimates thus far. Sectors under pressure in the second quarter, like energy, financials and consumer discretionary, look set to continue to struggle. However, consumer staples, technology, health care and utilities may have positive earnings growth.

Inflation Icon (Orange)  Inflation

Headline and core CPI rose 0.2% m/m in September, rising 1.4% and 1.7% y/y, respectively. August headline and core PCE both rose 0.3% m/m, rising 1.4% and 1.6% 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 Icon (Grey)  Rates

The FOMC maintained the federal funds target rate at a range of 0.00%–0.25%. The Committee will also maintain its current pace of asset purchases of $80 billion per month. It also further clarified conditions for adjusting policy rates relating to its new average inflation targeting framework: 1) inflation would need to run moderately above 2% for a period of time to compensate for periods of low inflation, and 2) longer-term inflation expectations would need to remain anchored at 2%. This means allowing inflation to run above 2% to make up for past short-falls, leaving rates close to zero for even longer than expected.

Risks Icon (Grey)  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 Icon (Grey)  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.
Weekly Economic Update (October 26, 2020)
Important information

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The value of investments and the income from them can fall as well as rise and investors may not get back the full amount invested. Past performance is not a guide to the future.


Data are as of October 19, 2020

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.

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© JPMorgan Chase & Co., October 2020