This week has been a tale of two halves.

The start of the week was dominated by Tuesday’s hotter-than-expected U.S. Core Price Index (CPI) print that sent both stocks and bonds reeling. But after some softer data that quelled those worries, the S&P 500 was back to making new highs.

Since releasing our Outlook 2024, our strategists have hit the road across the globe to bring our views to investors. Today, we share the top questions we’re hearing – and our answers.

1) How can you be so sure the inflation problem is over? The economy seems pretty strong

This week’s U.S. CPI print reminded investors that the path back to 2% inflation probably isn’t a straight line. The reality check may have been needed: heading into the year, markets had been betting on an arguably overexuberant path for rate cuts (at one point calling for about 170 basis points worth of cuts in 2024).

Expectations seem more reasonable today, and looking at the bigger picture, inflation is still trending in the right direction. That’s good news given that Federal Reserve Chair Jerome Powell was clear that we just need to see a continuation rather than an improvement of current inflation trends to get comfortable with rate cuts this year. Each of the three key drivers of inflation – the labor market, shelter and supply chains – are still showing promising signs.

But why would the Fed cut rates at all if the economy is so strong? At today’s levels, policy rates are restrictive. Consider that the real policy rate has actually risen as inflation has decelerated, even though the Fed has stopped hiking. That means that as inflation continues to move lower, central banks need to cut just in order to maintain the same level of restrictiveness. Policymakers are thus tasked with balancing both the risks of inflation reaccelerating and the risk of overtightening. We think 125 basis points worth of rate cuts this year seems reasonable.

2) What do geopolitical tensions in the Middle East mean for inflation?

We’ve already seen shipping costs spike, and some companies have been citing supply chain worries in their earnings calls.

However, context is important. Disruptions in the Red Sea just make trade more difficult, with container ships circumnavigating around Africa rather than through the Suez Canal – far from a complete stop like during the pandemic. That’s meant that while shipping costs have spiked, they remain more than 60% below their 2020 highs.

The pressure we are feeling also may abate soon. Consider what we heard this week from shipping giant Maersk, often viewed as a barometer for global trade. While it acknowledged the uncertainty around the situation, it also noted that more new vessels were on their way to market than needed to send ships around Africa instead, cushioning the impact of longer expected journey times and higher freight rates.

Finally, we anticipate little impact on inflation as it is. Goods account for just about one-third of U.S. PCE (the Fed’s preferred gauge of inflation) – and only about one-third of that can also be traced to imports. Moreover, only 4% of the cargo through the Suez Canal is traveling to America, compared to about 40% for Europe and about 30% for Asia.

3) Stocks have already rallied a lot. Should I just wait to invest?

U.S. stocks have rallied over 20% in just a matter of months. Questions abound over whether sitting on the sidelines means you’ve “missed it.”

History tells us that investing when the market is at an all-time high often spells for solid future returns. Over the last 50-odd years (going back to 1970), if you invested in the S&P 500 at all all-time highs, your investment would have been higher a year later 70% of the time, with an average return of 9.4% – versus the 9.0% on average when investing at any time.

We also think that today’s backdrop is a good one for stocks. Some inflation (i.e. headline CPI within a 2%–3% range) tends to be good for corporate earnings. Indeed, this Q4 earnings season stands to mark a second straight quarter of growth after almost a year of contraction. Stellar results from big tech have shown those companies as worthy of their rallies. Nvidia overtook both Alphabet and Amazon this week to become the third largest company in the world. Meanwhile, other sectors are also joining in. Since late October, the equally-weighted S&P 500 has kept pace with the market cap-weighted index, and small caps have actually outperformed.

4) If [insert Trump or Biden here] wins the U.S. election, what does that mean for markets?

The U.S. election came up in virtually every event. To start, it’s worth remembering that returns in election years and non-election years haven’t been all that different, with both producing solid returns.

As we get closer to November, we’re starting to piece together what potential Trump and Biden policy proposals might mean for our outlook. Trump has already proposed a new round of tariffs on imports from foreign countries, an extension of the 2017 Tax Cuts and Jobs Act (TCJA), more defense spending and de-regulation. On net, our initial sense is that such a scenario could lift bond yields, support small- and mid-cap stocks and push the dollar higher. On the other hand, Biden may keep some parts of the TCJA but make shifts towards Democrats’ preferences, signal tighter regulation (we’ve already seen a rise in big tech antirust cases) protect and build on the Affordable Care Act and focus on multilateralism and the energy transition.

In the end, long-term investors have a good track record when it comes to dealing with elections. After all, they happen every four years. Historically, macro factors tend to matter most for broad markets, with policy shifts most impactful at the industry and asset class level. Based on the economic backdrop we see today, we think that either candidate’s potential administrations will have solid earnings momentum on their side to support markets.

5) The U.S. debt situation is worrying. Is this a problem and what's the potential impact?

Alongside election chatter, we also heard lingering concerns over mounting U.S. debt. While that might lead to some tough battles ahead over taxes and government spending, we don’t foresee a U.S. fiscal crisis.

For those looking to manage the risks, tax-efficient investing should be a priority. From there, currency markets have historically shouldered most of the burden of a sovereign fiscal crisis. We don’t think the dollar looks at a risk of losing its reserve status any time soon, especially given its dominant position within global trade and other transactions, but it might be prudent to diversify exposure across other global currencies. Furthermore, real assets can play an important role as a potential portfolio diversifier and income source to hedge against the long-term risk.

6) Why bother with active management? It doesn’t feel worth the cost

The concentration of last year’s rally in big tech created a challenging backdrop for active managers. And while we still think those names will keep pushing higher this year, our constructive view on equities is also predicated on more sectors joining in. However, not all sectors are created equal and experiencing solid profit growth. Dispersion is wide.

That creates an environment in which alpha is the driver of returns rather than beta. With that in mind, we believe it’s not a matter of finding the right time for active management. Rather, the key is where to consider using it in your portfolio. We think segments of the market with high return dispersion, low index concentration and relatively low levels of analyst coverage tend to offer some of the best potential opportunity to generate excess returns.

We are here to help you make informed investment decisions that keep you on track to achieve your goals. Whether it’s reviewing your existing investment portfolio or seeking new investment opportunities, we can help you decide if an active or passive strategy is right for you. Contact your J.P. Morgan advisor to learn more.

All market and economic data as of 02/16/2024 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

DISCLOSURES

Index definitions: 

Holders of foreign securities can be subject to foreign exchange risk, exchange-rate risk and currency risk, as exchange rates fluctuate between an investment’s foreign currency and the investment holder’s domestic currency. Conversely, it is possible to benefit from favorable foreign exchange fluctuations.​

Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments involve greater risks than traditional investments and should not be deemed a complete investment program. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain. The value of the investment may fall as well as rise and investors may get back less than they invested.​

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

Alpha and beta are two different parts of an equation used to explain the performance of stocks and investment funds. Beta is a measure of volatility relative to a benchmark, such as the S&P 500. Alpha is the excess return on an investment after adjusting for market-related volatility and random fluctuations. It is generally understood as a measure of excess returns.

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.

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

The S&P 500® 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.

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.
• Investment in alternative 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.
• 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, 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.
• 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.