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Contributors

Sarah Stillpass

Global Investment Strategist

Alan Wynne

Global Investment Strategist

Summer means warmer weather and longer days, but it also means that Mid-Year Outlook season is here. Before we launch ours next week, we wanted to check in on how the key views contained in our 2024 year ahead edition have unfolded. What worked, what didn’t and what we are excited about for the future.

Let’s start with what has gone our way:

  • We thought inflation would keep trending lower. Indeed, Core Personal Consumption Expenditures inflation has cooled from a 3.2% year-over-year pace when we published the year-ahead outlook to a 2.75% pace today. Despite consternation along the way, the broad trend is still on track. We expect inflation to continue to moderate as evidenced by deceleration in leading wage growth indicators.
  • We thought the Fed would cut in the second half of the year. That still looks likely to be the case. Markets expectations are moving back and forth between rate cuts starting in September or December, but the Federal Reserve is waiting for the inflation data to offer more confidence in making a move. The global easing cycle is already well underway, with the Bank of Canada and European Central Bank both lowering policy rates this week. That means it is time to move out of excess cash and into asset classes that tend to perform better when interest rates are falling.
Line chart showing number of central banks with their last move as a hike versus a cut, from 2004 to 2024.
  • We thought stocks were in a sweet spot. Since our publication in December, global equities have rallied about 15%. We saw stocks entering a sweet spot that positioned them to act as both a driver of long-term growth and an inflation hedge in portfolios. The rally has been driven by strong earnings growth and rapidly strengthening Artificial Intelligence (AI) tailwinds. We continue to see potential double-digit upside for global equities over the next year.

Now, what hasn’t worked:

  • We thought fixed income looked to be more competitive with stocks. With volatility, recession risk and rate cuts in mind, we believed it was time for investors to lock in yields to generate not only income but also add defensiveness in the event of a recession.
  • What actually happened: Yields on 10-year Treasuries have climbed about 50 basis points year-to-date. Growth has surprised to the upside, remaining above trend in the face of higher rates. Inflation has been stickier than anticipated. As a result, rate cutting expectations have been pushed out on the calendar. We continue to have conviction in bonds as a key part of a long-term diversified portfolio. With a clearer macroeconomic picture ahead, we think investors could benefit from having a mix of both longer and shorter term bonds in their fixed income portfolios. Yields remain elevated across the curve and that makes fixed income broadly attractive (even if you are just earning income). A decline in rates, as we’re calling for, could augment total returns in the year ahead.
Bar chart showing the yield of various fixed income instruments, in January 1, 2024, and June 5th, 2024.

What we’re excited about:

Nearly halfway through the year, we continue to see a diverse set of opportunities for investors. While there are many things to be excited about, you can probably guess what takes the cake: AI.

Over the past six months, we’ve seen AI prove that its hype is real. Near-term, the AI revolution has already meaningfully impacted corporate behavior, investment and earnings: 50% of the S&P 500’s market cap has mentioned AI on earnings calls, although less than 5% of U.S. firms are actively using the technology. To us, that means there could be a long runway for adoption ahead.

For now, the first round of winners are closely linked to semiconductor manufacturing and cloud computing: Companies like Nvidia have seen it boost their earnings results above even lofty expectations. We think the theme has staying power and will accelerate in the years to come. We could even see broad economic productivity gains by the end of the decade.

From energy and infrastructure to healthcare, dozens of industries stand to benefit from AI-related innovation.

Bar chart shows the percentage of each S&P 500 sector mentioning AI on earnings calls, for Q1 2023 and Q1 2024.

It’s not just AI that has us excited. We also think we are at a turning point for commercial real estate. Stable vacancy rates, improving (if still tight) credit conditions and rent growth suggest it's a favorable time for investors to potentially add to the asset class. Additionally, municipal yields are now higher than corporate bond yields on a tax equivalent basis for U.S. taxpayers, making it an opportune time to consider adding exposure.

As we reflect on the past six months and look to the road ahead, we are constructive despite the risks posed by fragilities like the U.S. election or geopolitical events.

The Mid-Year Outlook marks a checkpoint on a longer investment journey. While nothing is certain, ensuring that your portfolio is aligned with your long-term plan is likely the best way to prepare for the future.

Your J.P. Morgan advisor is here to help.

All market and economic data as of 06/07/2024 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

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DISCLOSURES

The information presented is not intended to be making value judgments on the preferred outcome of any government decision or political election.

Index definitions:

The Bloomberg EuroAgg Index is a benchmark that measures the investment grade, euro-denominated, fixed-rate bond market, including treasuries, government-related, corporate and securitized issues. Inclusion is based on currency denomination of a bond and not country of risk of the issuer.

The Bloomberg U.S. Municipal Index covers the USD-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and prerefunded bonds. The Bloomberg Pan-European High Yield Index measures the market of non-investment grade, fixed-rate corporate bonds denominated in the following currencies: euro, pounds sterling, Danish krone, Norwegian krone, Swedish krona, and Swiss franc. Inclusion is based on the currency of issue, and not the domicile of the issuer.

The Bloomberg US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Bloomberg EM country definition, are excluded

The ICE Variable Rate Preferred & Hybrid Securities Index (PVAR) is designed to track the performance of floating- and variable-rate investment-grade and below-investment-grade U.S. dollar preferred stock, as well as certain types of hybrid securities determined by the index provider, comparable to preferred stocks, that are issued by corporations in the U.S. market.

The Bloomberg 1-3 Month U.S. Treasury Bill Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed rate and non-convertible.

The Bloomberg USAgg Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).

The S&P 500 Equal Weighted Index is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight – or 0.2% of the index total at each quarterly rebalance.

The Magnificent Seven stocks are a group of influential companies in the U.S. stock market: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla.

The Magnificent 7 Index is an equal-dollar weighted equity benchmark consisting of a fixed basket of 7 widely-traded companies (Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta, Tesla) classified in the United States and representing the Communications, Consumer Discretionary and Technology sectors as defined by Bloomberg Industry Classification System (BICS).

The S&P Midcap 400 Index is a capitalization-weighted index which measures the performance of the mid-range sector of the U.S. stock market.

The S&P 500 index is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

Bonds are subject to interest rate risk, credit, call, liquidity and default risk of the issuer. Bond prices generally fall when interest rates rise.

The price of equity securities may rise or fall due to the changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Equity securities are subject to "stock market risk" meaning that stock prices in general may decline over short or extended periods of time.

Standard and Poor’s 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The index was developed with a base level of 10 for the 1941–43 base period.

The Bloomberg Eco Surprise Index shows the degree to which economic analysts under- or over-estimate the trends in the business cycle. The surprise element is defined as the percentage difference between analyst forecasts and the published value of economic data releases. 

The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance.

The NASDAQ 100 Index is a basket of the 100 largest, most actively traded U.S companies listed on the NASDAQ stock exchange. The index includes companies from various industries except for the financial industry, like commercial and investment banks. These non-financial sectors include retail, biotechnology, industrial, technology, health care, and others.

The Russell 2000 Index measures small company stock market performance. The index does not include fees or expenses.

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.

The views, opinions, estimates and strategies expressed herein constitutes the author's judgment based on current market conditions and are subject to change without notice, and may differ from those expressed by other areas of J.P. Morgan. This information in no way constitutes J.P. Morgan Research and should not be treated as such. You should carefully consider your needs and objectives before making any decisions. For additional guidance on how this information should be applied to your situation, you should consult your advisor.

All companies referenced are shown for illustrative purposes only, and are not intended as a recommendation or endorsement by J.P. Morgan in this context.

JPMorgan Chase & Co., its affiliates, and employees do not provide tax, legal or accounting advice. Information presented on these webpages is not intended to provide, and should not be relied on for tax, legal and accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.

RISK CONSIDERATIONS

  • Past performance is not indicative of future results. You may not invest directly in an index.
  • The price of equity securities may rise or fall due to the changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Equity securities are subject to 'stock market risk' meaning that stock prices in general may decline over short or extended periods of time.
  • Investing in fixed income products is subject to certain risks, including interest rate, credit, inflation, call, prepayment and reinvestment risk. Any fixed income security sold or redeemed prior to maturity may be subject to substantial gain or loss.
  • In general, the bond market is volatile and bond prices rise when interest rates fall and vice versa. Longer term securities are more prone to price fluctuation than shorter term securities. Any fixed income security sold or redeemed prior to maturity may be subject to substantial gain or loss. Dependable income is subject to the credit risk of the issuer of the bond. If an issuer defaults no future income payments will be made.
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  • Investors should understand the potential tax liabilities surrounding a municipal bond purchase. Certain municipal bonds are federally taxed if the holder is subject to alternative minimum tax. Capital gains, if any, are federally taxable. The investor should note that the income from tax-free municipal bond funds may be subject to state and local taxation and the alternative minimum tax (amt).
  • International investments may not be suitable for all investors. International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the u.s. can raise or lower returns. Some overseas markets may not be as politically and economically stable as the united states and other nations. Investments in international markets can be more volatile.
  • Investments in emerging markets may not be suitable for all investors. Emerging markets involve a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the u.s. can raise or lower returns. Some overseas markets may not be as politically and economically stable as the united states and other nations. Investments in emerging markets can be more volatile.
  • Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.
  • Real estate investments trusts may be subject to a high degree of market risk because of concentration in a specific industry, sector or geographical sector. Real estate investments may be subject to risks including, but not limited to, declines in the value of real estate, risks related to general and economic conditions, changes in the value of the underlying property owned by the trust and defaults by borrower.
  • Investment in alternative investment strategies is speculative, often involves a greater degree of risk than traditional investments including limited liquidity and limited transparency, among other factors and should only be considered by sophisticated investors with the financial capability to accept the loss of all or part of the assets devoted to such strategies.
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  • As a reminder, hedge funds (or funds of hedge funds) often engage in leveraging and other speculative investment practices that may increase the risk of investment loss. These investments can be highly illiquid, and are not required to provide periodic pricing or valuation information to investors, and may involve complex tax structures and delays in distributing important tax information. These investments are not subject to the same regulatory requirements as mutual funds; and often charge high fees. Further, any number of conflicts of interest may exist in the context of the management and/or operation of any such fund. For complete information, please refer to the applicable offering memorandum.
  • For informational purposes only -- J.P. Morgan Securities LLC does not endorse, advise on, transmit, sell or transact in any type of virtual currency. Please note: J.P. Morgan Securities LLC does not intermediate, mine, transmit, custody, store, sell, exchange, control, administer, or issue any type of virtual currency, which includes any type of digital unit used as a medium of exchange or a form of digitally stored value.
  • 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.

This material is for information purposes only, and may inform you of certain products and services offered by J.P. Morgan’s wealth management businesses, part of JPMorgan Chase & Co. (“JPM”). The views and strategies described in the material may not be suitable for all investors and are subject to investment risks. Please read all Important Information.

GENERAL RISKS & CONSIDERATIONS. Any views, strategies or products discussed in this material may not be appropriate for all individuals and are subject to risks. Investors may get back less than they invested, and past performance is not a reliable indicator of future results. Asset allocation/diversification does not guarantee a profit or protect against loss. Nothing in this material should be relied upon in isolation for the purpose of making an investment decision. You are urged to consider carefully whether the services, products, asset classes (e.g. equities, fixed income, alternative investments, commodities, etc.) or strategies discussed are suitable to your needs. You must also consider the objectives, risks, charges, and expenses associated with an investment service, product or strategy prior to making an investment decision. For this and more complete information, including discussion of your goals/situation, contact your J.P. Morgan team.

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