JPMorgan Says US Growth Outlook Is a Good Backdrop for Risk Taking

Are you worried that we’re expecting too much from US growth? We are pretty optimistic and constructive as you say, Francine. And yes, thank you. Thank you for having me on. If we are correct this week, we’re going to see the 7th consecutive quarter of above trend growth in the US So when we get that PCE data later this week. And I think two things we’ve realized about the US economy in the last 12 months. One, population growth or immigration has surprised to the top side. We are now seeing immigrants entering the US on the order of 300K per month, whereas the forecasts were less than half of that about 12 months ago. So that’s been a positive boost to the labour market. And the 2nd is the resilience of the consumer. I wouldn’t even call it a robust consumer outlook. And so we’ve been positively surprised on the growth front. And for us that’s a very constructive environment for risk taking. We have a preference for both US equities as well as credit markets given this view that recession risk is pretty low and actually moderating further and growth is very robust. So what does that mean on how you’re constructive on portfolio? I know you’re you’re pretty overweight actually on credits. How long does that remain for well, well, essentially we in this view we have the view that we’re seeing an extension of the US cycle. We prefer carry as you mentioned, high quality parts of high yield, the shorter end of of the credit spectrum. What’s been interesting in the last let’s say three to four months is even though issuance has picked up in this space, we’ve seen very strong demand. And the 2nd is even as default rates rose at the end of last year, spreads continued to tighten. And this is partly A structural point, but also we’re seeing a play out cyclically where the average credit quality, the median credit quality and high yield is now a, a much higher quality than it was previously. So it’s, it’s on average double B instead of single B and that’s now helping that market stay resilient. So, Scott, I know there’s been quite a lot of, you know, thoughts and repricing given what we heard from the feds. I I’ve been spending quite a lot of time trying to find R Plus. And I know you’ve been spending quite a lot of time looking at the mutual rates. What does that suggest in terms of what the Fed does 20 in 2024 this year and then beyond? Yeah, Francine, that definitely is a question in motion at this point. We had previously expected the Fed to be delivering between 2:00 and 3:00 cuts this year, starting in the middle of the year. I’d say that’s now moved to one to two cuts. And I think, as you say, the question is about the timing of when they start easing, but also where do they end up. And our view is that, yes, they could start cutting rates purely as inflation moderates further, but it’s uncertain and the terminal rate has shifted higher. Markets are now pricing the terminal rate 2 years forward around 4%. That was previously around 3 1/2%. So it has moved up in market terms. The Fed’s long term dot at 2.5% still looks too low to us. But it is fair to say that the near term our star measure has has moved higher. Very hard to put a number on it, but this is very positive for us both in terms of growth but also in terms of the equity market or risk market outlook.