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FOR THE WEEK OF february 5, 2024

 

Macro update
Strength in the January jobs report combined with other recent macro data points
– including an uptick in ISM Manufacturing, consumer confidence and consumer
sentiment – suggests the US economy is starting the year with some momentum. We
recently boosted our 1Q GDP growth estimate to the 1.5-2% range from 1-1.5%.

The number of payrolls added in January came in nearly twice what was expected
at 353k. Roughly 90% of the jobs added last month were in the private sector,
including 100k in healthcare and social assistance, 74k in professional and
business services, 45k in retail trade and 23k in manufacturing. 

Within the labor report, average hourly earnings growth surprised to the upside
at 4.5% year over year, a modest acceleration from the 4.3% pace in the previous
three months. 

While there was likely some noise in the payroll and wage numbers due to
seasonal adjustments and severe weather intra-month, it is clear the state of
the labor markets remains tight overall with unemployment holding at a low 3.7%
and a broader set of sectors adding jobs. 

The jobs report also backed up Powell’s comments after the Fed meeting earlier
in the week that although almost everyone on the FOMC thinks rates should come
down this year, the first rate cut is unlikely to come as soon as March. As
expected, the FOMC removed its tightening bias, but noted it “does not expect it
will be appropriate to reduce the target [Fed Funds] range until it has gained
greater confidence that inflation is moving sustainably towards 2%.” We continue
to look for rates to first be lowered at the June FOMC meeting.

Regarding the Federal Reserve’s balance sheet run off program, otherwise known
as quantitative tightening (QT), Powell indicated that the committee had some
discussions on the topic at the meeting last week, but that they will have more
“in-depth discussions” at the March meeting. We continue to expect an
announcement following the next meeting to include slowing the pace of balance
sheet run-off. Ultimately this means less liquidity will be removed from the
economy than previously expected.



 

Markets update
Equities climbed to new all-time highs, led by large cap technology. While the
S&P 500 and the Nasdaq are both up a solid 4% year to date, its notable the
“Magnificent 7” (Amazon, Apple, Google, Microsoft, Meta, Tesla and Nvidia) are
up 9% year to date. 

Fourth quarter earnings season is underway and roughly 40% of S&P 500 companies
have reported results to date. There has been a wide variance of performance
with commodity sectors, discretionary and healthcare on the softer end of the
range, while technology and communication services have posted stronger results.
Overall, fourth quarter revenue growth for companies in the S&P 500 is tracking
at 4% year over year, while EPS growth is coming in down 1%. 

Oil prices are trading roughly at the midpoint of the past two months range.
Interestingly, oil prices are down roughly 10% since the onset of the
Israel-Hamas war, as there has been little change to underlying global supply
and demand balances. 

The US dollar stands at year-to-date highs as markets more definitively rule out
imminent Fed rate cuts and the stronger January jobs report helps support the
narrative of US exceptionalism. 

 



 

Interest rates were stable to lower last week following the FOMC’s decision to
leave the Fed Funds target range unchanged at 5.25-5.5%. Year to date, yields on
the 2yr and 10yr treasury are up modestly as rate cut expectations have been
pushed out amid better than expected economic momentum and FOMC commentary. 

 



Issuance / M&A volumes
Debt capital markets activity began 2024 in similar fashion to the economy –
stronger than expected. Across the rating spectrum, issuance levels have been
elevated to historical norms. The Investment Grade market priced $194bn of bonds
in January, marking the fifth highest month of supply on record, and 49% above
the prior January 4y average (ex-2020). January was the most active issuance
month for High Yield since November 2021 totaling $32bn; Leveraged Loans gross
issuance totaled a January record of $136bn. 

 



J.P. Morgan content & research highlights

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Business resources
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   commodities and equities can support your business.
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 * Prepare for Rising Health Care Costs and learn about Health Plan Funding
   Options on the market today

 

Chart of the week
Labor markets still holding strong overall with solid job additions in recent
months and low U-rate  

 



 

Ginger Chambless

Head of Research, JPMorgan Chase Commercial Banking

 

 

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