Hello, this is David Kelly, Chief Strategist at J.P. Morgan Asset Management, and head of the team responsible for the JPMorgan Guide to the Markets. Welcome to our economic and market update for the first quarter of 2025.
Despite a backdrop of considerable uncertainty shaped by the U.S. election cycle, evolving monetary policy, and escalating geopolitical tensions, 2024 emerged as a remarkably strong year for both the economy and financial markets. The U.S. economy demonstrated significant resilience, primarily fueled by consistent consumer spending. Concurrently, inflation continued its downward trend, although the pace of decline has slowed recently, and the labor market has stabilized at a healthy level. As a new administration prepares to take office in January, investors are keenly awaiting further details on forthcoming policy initiatives and their potential ramifications for the broader economic landscape.
With inflation showing signs of moderation and the labor market returning to a more normalized state, the Federal Reserve has initiated its anticipated rate-cutting cycle. However, the economic outlook for 2025 remains clouded with uncertainty. Policy proposals from the incoming administration, should they introduce inflationary pressures, could lead to a more measured approach to monetary easing or even bring the rate-cutting cycle to a premature halt.
Nevertheless, financial markets have largely absorbed this uncertainty. Equity markets concluded the year with gains exceeding 20%, driven by expanding corporate earnings growth and the positive momentum from advancements in Artificial Intelligence (AI). Bonds experienced a modest recovery following a volatile start to the year, although interest rate volatility has remained elevated since the Federal Reserve’s initial rate cut in September. Currently, with U.S. equities trading at approximately 22 times forward earnings and credit spreads near historic lows, high valuations present an ongoing risk. Yet, a relatively stable economic environment anticipated for 2025 should provide investors with ample opportunities to strategically deploy capital. Investors who adopt an active approach and prioritize diversification within their portfolios are likely to be best positioned to navigate any unforeseen market disruptions.
The JPMorgan Guide to the Markets, now in its 21st edition, is designed to clearly illustrate key economic fundamentals as well as potential investment opportunities and associated risks. Recognizing the need for concise information, the comprehensive Guide, while extensive at over 60 pages, is distilled into a focused 12-slide presentation for efficient market discussions.
Within this update, we will assess recent market and economic performance, analyzing trends in economic growth, employment figures, and inflation rates. We will also consider the potential impact of policies proposed by the incoming administration on the economic trajectory. This analysis will be followed by insights into monetary policy and a review of global investment opportunities across equities, fixed income, and alternative asset classes, all derived from the latest JPMorgan Guide to the Markets.
