LABJ Stock Index: February 13

The Bulls Are Running, but Will it Last?

While the campaign against inflation isn’t over, the tone has changed. The Federal Reserve Board seemed disinterested in the market rally so far this year – a notable shift from communication last fall that was designed at least in part to raise credit spreads and lower equity prices. The inflation emergency is over, while the latent risks to growth remain.

Markets rallied the week ending Feb. 3. Bond yields fell across the curve. Two-year Treasury yields dropped to their lowest levels since October. Markets are still implying another 25 basis point hike at the Fed meeting in March. Core bonds have returned close to 4% already. The S&P 500 gained over 2%, and the VIX closed at one of its lowest levels of the last year. 

The January employment report released Feb. 3 crushed economist expectations,
showing that the U.S. economy gained 500,000 jobs, while the unemployment rate fell to 3.4%. While there could be some seasonal quirks that overstate the strength, this reduces near term recession risk. The JOLTS Job Openings released earlier that week signaled a surge in labor demand from companies, despite headlines about layoffs from the tech sector.

The January employment report released Feb. 3 crushed economist expectations, showing that the U.S. economy gained 500,000 jobs.

In our outlook, we wrote that markets were presenting investors with potentially one of the best entry points for a balanced portfolio of stocks and bonds in a decade. Even though markets have started the year off stronger than most could have imagined, those building a long-term portfolio should still feel confident about putting their capital to work. 

The major headwinds of 2022 (inflation, hawkish central banks and a collapse in housing activity) are receding, while Europe and China prospects are improving. The U.S. economy is not out of the woods, but the rally that we have seen to start the year signals that expectations are still low. Most importantly, investors have compelling options across asset classes, geographies and investment styles, at least for now.

Rick Barragan is the Managing Director, Los Angeles Market Manager, for J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles