Our Top Market Takeaways for August 25, 2023

Market update: What’s next? Cues from Wall Street to Main Street

The summertime swings continued this week. With bond yields at Global Financial Crisis-era highs, stocks have struggled to find their footing.

To help give us a sense for what’s next, we surveyed the U.S. economy by four key players: the Fed, Wall Street, Main Street and the C-Suite. Here’s what we learned, and what we think it means.

The Fed: Chair Powell took the mic today at Jackson Hole, the Fed’s annual get-together of central bankers around the world. This year’s address felt pretty different than last year’s – when headline inflation was tracking above a roughly 8% pace, and Powell signalled the Fed would march on with rate hikes…without any suggestion of how many more might come ahead. With fears over what that could mean for the economy, recession obsession was mounting. Consumer sentiment was already battered, and the housing market was feeling acute pain.

Fast forward to this year. While Chair Powell stressed the job isn’t done, it’s promising that inflation has cooled this much while growth has stayed this strong. Fed staff members aren’t pencilling in a recession anymore, and consumers aren’t as worried about the future. That’s meant the policy debate has shifted from “how high” rates should go to “how long” the Fed should hold them there.

But if inflation continues to cool at the same time that the Fed holds rates, it means the real policy rate (the Fed’s nominal policy rate minus inflation) is actually getting even more restrictive. Barring something unexpected that catalyzes inflation to reaccelerate, that could set the stage for the Fed to cut rates down the line (even if Powell didn’t outright say so). Markets are pencilling the first cut in for next summer.

All market data from FactSet and Bloomberg Finance L.P., 8/25/23.

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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.

Diversification does not ensure a profit or protect against loss.

The 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 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 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 MSCI World Index is a broad global developed markets equity benchmark designed to support: Asset allocation: Consistent, broad representation of the performance of developed equity markets worldwide, without home bias.

The Bloomberg Aggregate Bond Index or "the Agg" is a broad-based fixed-income index used by bond traders and the managers of mutual funds and exchange-traded funds (ETFs) as a benchmark to measure their relative performance.

The NYSE FANG+ Index is an equal-dollar weighted index designed to represent a segment of the technology and consumer discretionary sectors consisting of highly-traded growth stocks of technology and tech-enabled companies such as Facebook, Apple, Amazon, Netflix, and Alphabet's Google.

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.

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IMPORTANT INFORMATION

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.

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