Market Update

Heading into the weekend, equities are higher while bond yields are mixed.

The S&P 500 (+1.3%), Nasdaq 100 (+1.7%), and small caps (Solactive 2000 +2.7%) all posted gains.

95% of S&P 500 companies have reported their third quarter earnings including the largest, Nvidia, who reported earlier this week. The largest companies in the U.S. grew their earnings 5.8% year-over-year, beating Street expectations of roughly 3.5% prior to earnings season. The technology sector continues to perform, accounting for 30% of the index’s earnings growth.

In fixed income, yields movement was muted. The 2-year rose two basis points while the 10-year was lower by one basis point.

In commodities, gold (+4.2%, on track for its best week since April) and oil (+4%) both rose as geopolitical tensions increase. Reports this week confirmed that Ukraine fired U.S. and British supplied missiles into Russia for the first time as the conflict passes the 1,000 day mark. That, likely in combination with deficit concerns and the hopes of less regulation, pushed Bitcoin (+7%) to new all-time highs. The digital asset is less than 2% from $100,000 per coin.

This coming week in the U.S. will feature lots of turkey, football and for some families, a Thursday morning 5k. But, this time of year also kicks off outlook season on Wall Street. Just this week, we released our 2025 Outlook: Building on Strength.

To get in the spirit, we wanted to reflect on what’s happened, what’s here and what might be to come.

What’s happened, what’s here, and what’s to come?

What’s happened? Markets have climbed the wall of worry in 2024. Investors were worried about recession, inflation, the U.S. election and geopolitics all year. Where do we stand today? S&P 500 earnings grew +13%, multiples expanded by +11%. U.S. large cap equities gained +25% and a global 60/40 allocation¹ delivered nearly 13% returns. High yield bonds (+8%), private credit (+11%), preferreds (+8%), bitcoin (+125%) and gold (+30%) also delivered. Cash and bonds lagged risk assets.

Portfolios are closing out 2024 in a position of strength.

What’s here? A nascent recovery in dealmaking and a massive buildout of artificial intelligence (AI) infrastructure to support it.

On dealmaking, the new administration is likely to bring significant change that could further support the recovery in dealmaking and capital market liquidity. That could include replacing U.S. government agency leadership with personnel less inclined towards heavy regulation. Under President Joe Biden, increased regulation hindered mergers and acquisitions (M&A). Currently, about 40% of the S&P 500 market cap is under Department of Justice antitrust investigations. Donald Trump’s administration may roll back or halt the expansion of regulations, including on AI, encouraging acquisitions.

Reduced scrutiny could benefit tech companies, and a backlog of deals with increased private lending could boost transactions, benefiting Wall Street banks, private equity, credit firms and private business owners.

On AI and the infrastructure buildout, the market has already taken notice. Nvidia, the maker of chips crucial for training AI models, officially became the world’s most valuable company.

AI models are improving at a rapid rate. In 2021, large language models (LLMs, a type of AI) could answer less than 10% of competition-level math questions accurately. That share increased to 90% in 2024. The models are also becoming less expensive: The price per token for both OpenAI’s higher-performing GPT-4o mini model and Anthropic’s Claude 3.5 Haiku model are 90% to 98% less expensive than their predecessors.

While the hyperscalers (Amazon, Meta, Alphabet and Microsoft) are set to spend $200 billion in capex (more than two times what the U.S. government spends on education annually) this year developing new technologies – there is still room to increase AI spending.

It’s not just the AI modelers who could benefit, but also the suppliers of power. Today, about 70% of the transmission lines in the grid are at least 25 years old. Despite this aging infrastructure, the grid has been able to keep up given U.S. electricity demand has been relatively stable. However, electricity demand is set to increase from here, given the data center buildout and the power demand they necessitate.

Large data centers can require about 100 mega-watt hours of electricity (that’s roughly the same power it takes to power a city of about 100,000 households). Currently, data centers account for roughly 4.5% of the total U.S. energy consumption. However, some estimates suggest that data centers should drive roughly 250 trillion-watt hours of new electricity demand through 2030, leading data center power demand to increase to 8% of total U.S. power demand over the same period.

We believe the buildout for AI, including the energy needed to power the technology, is a long-term theme.

What’s to come? 2024 was the year of elections. Globally incumbents lost power and anti-establishment candidates and parties gained vote share. This implies a demand for change.

In the U.S., President Trump and the Republican Party’s decisive victory sets the stage for “Trump 2.0,” which could have important implications for markets and the economy. In 2025, we think the debate over taxes and government efficiency will be top of mind.

On taxes, negotiations to extend the provisions of the Tax Cuts and Jobs Act (TCJA) will take place in the second half of 2025 with the economic impacts likely to be felt in 2026. If Congress does nothing, individual tax rates will revert to 2017 levels, the alternative minimum tax will impact many more high-income individuals, the 20% deduction for pass-through business income will end (affecting many partnerships, S corporations and sole proprietorships) and the lifetime estate, gift and generation-skipping transfer tax exemption will be cut in half (from around USD 28 million to USD 14 million for a married couple). Importantly, the 21% corporate tax rate included in the TCJA was a permanent change.

We expect most, if not all, of the temporary provisions affecting individuals to be extended for some time. That said, given the tight margins in the House and the Senate, it may require some compromise around areas such as the state and local tax deduction cap.

On government efficiency, President-elect Trump is expected to pursue an agenda which advocates for less red tape, part of which includes a new Department of Government Efficiency (DOGE). We think the Elon Musk-led department, which aims to cut wasteful government spending, will have a difficult time doing so.

Why? The bottom line is that Congress controls government spending and DOGE sits outside of Congress. The department can make all the suggestions they want, but ultimately, it’s the typical 60 vote majority in Congress that makes legislative changes. A key question for investors in 2025 is what parts of the Trump 2.0 agenda are emphasized and which ones fade.

As we look towards the new year and what’s to come, your J.P. Morgan advisor is here to help.

All market and economic data as of 11/22/2024 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

DISCLOSURES

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

Private investments are subject to special risks. Individuals must meet specific suitability standards before investing. This information does not constitute an offer to sell or a solicitation of an offer to buy. As a reminder, hedge funds (or funds of hedge funds), private equity funds, real estate 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

Investing in fixed income products is subject to certain risks, including interest rate, credit, inflation, call, prepayment, and reinvestment risk.

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.

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.

Private Equity is typically composed of Venture Capital, Leveraged Buyouts, Distressed Investments and Mezzanine Financing, which are all generally considered to be high risk, illiquid investments designed to deliver larger expected returns than publicly traded securities as compensation for their greater risk. As a result, investing in Private Equity is not suitable for all investors.​

Index definitions:

The Russell 3000 Index is a capitalization-weighted stock market index that seeks to be a benchmark of the entire U.S. stock market. It measures the performance of the largest 3,000 U.S. companies representing approximately 96% of the investable U.S. equity market.

The S&P 500 Equal Weight 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 of the index total at each quarterly rebalance.

The Bloomberg U.S. Aggregate Bond 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 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.

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.
• When investing in mutual funds or exchange-traded and index funds, please consider the investment objectives, risks, charges, and expenses associated with the funds before investing. You may obtain a fund’s prospectus by contacting your investment professional. The prospectus contains information, which should be carefully read before investing.
• 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.
• Structured products involve derivatives and risks that may not be suitable for all investors. The most common risks include, but are not limited to, risk of adverse or unanticipated market developments, issuer credit quality risk, risk of lack of uniform standard pricing, risk of adverse events involving any underlying reference obligations, risk of high volatility, risk of illiquidity/little to no secondary market, and conflicts of interest. Before investing in a structured product, investors should review the accompanying offering document, prospectus or prospectus supplement to understand the actual terms and key risks associated with the each individual structured product. Any payments on a structured product are subject to the credit risk of the issuer and/or guarantor. Investors may lose their entire investment, i.e., incur an unlimited loss. The risks listed above are not complete. For a more comprehensive list of the risks involved with this particular product, please speak to your J.P. Morgan team.
• 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.