Economic & Market Update

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FOR THE WEEK OF january 8, 2024

2024 Business Leaders Outlook (BLO) survey
We recently conducted our 2024 Business Leaders Outlook survey. Over 800 midsize business executives across a range of industries shared their perspectives on the economic environment, business outlook, and challenges. Our top takeaways include:

• Midsize business leaders are less pessimistic on the national economic outlook than a year ago. Views are nearly evenly split between optimism, pessimism, and neutrality.
• Forty percent of business leaders expect a recession this year or believe we are already in one. This is down from nearly two-thirds expecting a recession at the start of 2023.
• Inflation and labor constraints remain the top business challenges, with uncertain economic conditions and higher interest rates also cited as headwinds.
• Closer to home – their own businesses - leaders continue to express optimism. A majority expect revenue and profit growth in the year ahead.
• With the rise of AI and machine learning, nearly half of midsize business leaders are using or considering using AI tools – an 8%-point increase from our midyear survey

For more survey findings and details around the methodology, please visit: 2024 Business Leaders Outlook

Macro update
After one of the steepest hiking cycles in history, we expect the Fed could begin to slowly normalize policy rates around the midpoint of this year. The Fed Funds rate is 525bp higher than the beginning of 2022 and 100bp above the start of 2023. At the FOMC meeting in December, Chairman Powell signaled there has been enough progress on the inflation front to suggest the significant past monetary tightening is likely sufficient, absent any unforeseen developments in the first half of this year. We expect 25bp cuts at each FOMC meeting beginning in June, bringing the Fed Funds target range to 4.0%-4.25% by the end of 2024.
 
Regarding trends in inflation, the November report showed little change from October. Headline CPI came in at 3.1% on a year ago basis, while core CPI remained steady at 4.0%. Within core inflation, goods inflation has now tracked close to 0% for the fourth consecutive month. Core services inflation on the other hand, which includes the sticky shelter category, remained at an elevated 5.5% in November 2023 after peaking at 7.3% in February 2023. 
 
Labor market trends are indicative of a gradual slowing in momentum. While December’s headline payroll gain of 214,000 was above expectations, its notable that nearly a quarter of the increase was driven by the government sector. Within the private sector’s 162,000 payroll additions in December, a large majority was driven by healthcare (74,000) followed by leisure and hospitality (40,000), suggesting minimal hiring activity in most other industry sectors. The unemployment rate held steady at 3.7%. December was the first month since June that no sector reported material payroll reductions.

Markets update
Equities took a slight breather the first week of 2024, following a strong rally in the final two months of 2023, where the Nasdaq gained 17% and the S&P 500 gained 14%. For the full year of 2023, the Nasdaq rose 43% and the S&P 500 rose 24%. Both indices remain within a few percent their 52-week and all-time highs.
 
Oil prices gained modestly over the past week, but are still toward the low end of the one-year range. WTI and Brent’s past one-year ranges are $67-94/barrel and $72-97/barrel, respectively. 
 
Credit spreads for both high grade and high yield widened slightly in the first week of 2024, retracing a small portion of the tightening over the last two months of 2023.

After dropping approximately 100bp in the November-December time frame, 2- and 10-year treasury yields rose modestly in early January on benign economic data – in particular the December jobs report - that tempered market expectations for near term rate cuts. 

Issuance / M&A volumes
Capital markets activity was mixed in 2023, as issuers navigated a multitude of headwinds from higher rates, valuation gaps, banking sector disruption, and geopolitical volatility. With the Fed’s pivot to a more dovish tone at the December meeting, the likelihood for lower rates and rate stabilization, could pave the way for increased activity this year as it is a key consideration for both issuers and investors. 

In case you missed it – select thought leadership from J. P. Morgan

• Eye on the Market Outlook 2024: Pillow Talk;  Michael Cembalest, Chairman of Market and Investment Strategy for J.P. Morgan Asset & Wealth Management
• Guide to the Market; Dr. David Kelly, Chief Global Strategist at J.P. Morgan Asset Management
• Corporate Compass: Navigating the Year Ahead; Corporate Finance Advisory
• 2024 economic outlook: 10 considerations for the US economy; J.P. Morgan Commercial Banking Research

Business resources  

• Managing Corporate Market Risk; Learn how J.P. Morgan’s corporate risk management capabilities spanning foreign exchange (FX), interest rates, commodities and equities can support your business.
• Foreign Exchange Budgeting can be an important aspect of a broader risk management strategy.

Chart of the week
Business Leaders Outlook 2024 – Economic Outlook and Expectations

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