Volatility Strategies: Navigating Market Fluctuations In Mexico – The market has been pretty distracted, with stocks wobbly and bonds swinging for the last few weeks. While low summer liquidity also plays a role, investors seem to be grasping at any “reason” they can find to question the path forward – including this year’s big debates over inflation and monetary policy, bank stress, government debt and China’s growth retardation all feel tired.

So what are we not talking about much that we should be? Today, we take a quick look at a few dynamics that we think could offer promise, and others that could have the potential to trip investors up.

Volatility Strategies: Navigating Market Fluctuations In Mexico

Volatility Strategies: Navigating Market Fluctuations In Mexico

Consumers start spending a little more on goods and a little less on services. Yesterday’s US CPI report signaled that while inflation continues to cool, sticky services prices are raising eyebrows. Still, this winning season may hint at some progress. With “reopening” now old news (much of the world has been back in the swing of things for nearly two years), consumer appetites to spend on travel and leisure are beginning to wane, while interest in goods is slowly returning .

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Both Paypal and Amazon noted that e-commerce is accelerating, with shifting consumer preferences in mind. Meanwhile, Expedia and some airlines (eg Alaska Air, Frontier, JetBlue, etc.) have signaled cooling domestic travel spending, with hotels also losing some steam. Some of that is starting to show in the official inflation data (for example, airfares have fallen), but with services inflation as a whole still running at a healthy clip, there is more progress to be made. If so, that’s good news for the Federal Reserve.

The chart details the % year-over-year US headline CPI inflation and the contributions of the 4 sub-segments (energy, food, core services, core goods) to the % YoY US headline CPI inflation.

First, for the line describing the % year-on-year US headline CPI inflation, the first data point in January 2021 came in at 1.4%.

For the energy sub-segment’s contribution to the headline CPI (stacked area), the first data point in January 2021 came in at -0.24%.

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For the contribution of the food sub-segment to the headline CPI (stacked area), the first data point in January 2021 came to 0.52%.

For the contribution of the core services sub-segment to the headline CPI (stacked area), the first data point in January 2021 came to 0.77%.

For the contribution of the core goods sub-segment to the headline CPI (stacked area), the first data point in January 2021 came to 0.34%.

Volatility Strategies: Navigating Market Fluctuations In Mexico

In 2022 we saw the lowest amount of money raised for new public companies in at least two decades. There are a myriad of reasons why—from long-term frustration over the complexity and costliness of the process to short-term headwinds like market and business uncertainty. But buzzy debuts from the likes of Mediterranean restaurant chain Cava (which saw its price double on its first day of trading in June) and a handful of planned new listings – from corky shoemaker Birkenstock to grocery delivery guru Instacart – could signal that competition in the IPO market is slowly warming back. Risks always abound with companies going public (the poor performance of 2020-2021 being the case), but with more clarity on the direction of the economy and companies in general still on a healthy footing, the market to be in the beginning stages of reconstruction.

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This bar chart shows the yield of IPO (Initial Public Offering) excluding SPACs (Special Purpose Acquisition Companies) from 2010 to 2023, and the numbers of IPOs each year. The values ​​for each year are:

When an economy is “more productive,” it uses all the resources it has—from all its workers and its capital such as buildings and equipment, to its technological investments—more efficiently than before. This has the potential to transform the way households live and the way companies do business. Measuring productivity can be difficult, but one way is to see how much employees produce per hour. Last quarter, labor productivity rose 1.3% over the last year – while that’s not blockbuster growth, and one data point doesn’t make a trend, that’s above the 1% annual rate of the last decade.

Looking forward, the photo can come into clearer focus. Boosts to productivity like we saw in the 1990s tend to come after big booms in business investment. Already, the intense focus on artificial intelligence (AI) is driving meaningful investments in software to enable its use. To quote our own Michael Feroli, “So far the outlook in this cycle looks promising… [and] if we’re going to see an AI-driven rise in productivity, the business sector is already doing its part.”

The chart describes US private investment by category as a % of GDP. For the line for research and development it started in March 1990 at 1.51%.

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For the software line it started at 0.76% in March 1990. • Soon it went up to 1.55% in March 2001.

Even as inflation soared, many companies managed to protect their profits by passing on price increases to their consumers. Consider luxury goods conglomerate LVMH, which consistently saw strong demand for its brands – so much so that it has become the most valuable company in Europe. Or Netflix, which still saw a huge spike in subscribers after cracking down on password sharing. But with inflation now cooling, some worry that kind of pricing power may be losing strength.

Despite the fear, we would note that this is not actually a new trend. We’ve already seen this kind of weakness in areas that people overbought during the pandemic, such as consumer electronics and housing-related goods. It seems natural for the momentum to begin to decrease in some pockets such as consumer staples or services (to our point earlier). What’s more, expectations for earnings for the future are rising, not falling — this quarter seems to mark the trough in S&P 500 earnings growth, and it’s still shaping up better than expected. All that to say it’s something to watch, but the push-and-pull is likely to come at the sector level.

Volatility Strategies: Navigating Market Fluctuations In Mexico

Workers around the world have gone on strike for better pay. From delivery drivers and hotel workers to actors and writers, there have been more than 170 job stoppages in the US this year, according to the Bloomberg Law database. 2022 also marked the first time since 2005 that the country saw more than 300 strikes. With the labor market as tight as it is (the US unemployment rate is near historic lows at 3.5%) and inflation even higher than is comfortable, more challenges may arise. That can be disruptive for both households and businesses. Still, the recent tentative deal between UPS and the Teamsters shows that compromise can be found, and for what it’s worth, the biggest impact is felt more within the companies in focus, rather than corporate America as a whole.

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The student debt payments come back in gear. After a three-year hiatus, interest payments on federal student loans will resume next month. This also comes at a time when the excess savings for most households have been exhausted, interest costs are higher and things in general are still expensive. When examining households with the largest student debt burdens, the greatest impact will likely be on millennials. That stands to pinch pocketbooks, but if we look across demographics and across the income spectrum – and take into account all the other factors that can affect spending – it does not seem enough to break the back of the general consumer.

Where we stand: In every year there are good things and bad things that affect the economy and markets. And while we tend to see the glass as half full when we examine the current slate of opportunities and risks, we are also reminded that volatility is normal.

A balanced 60/40 portfolio has suffered an average intra-year withdrawal of 10% over the past four decades…and so far this year’s maximum performance has been only about 6% (back in March).

Still, full-year returns have been positive in 32 of those 43 years since 1980 — suggesting that staying invested has paid off over the long term. Unfortunately, investors tend to sell during the dips and miss the recovery – all flows in cash and out of stocks have been meaningful this year. But when investors are scared, that’s often the time to pounce.

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All referenced companies are shown for illustrative purposes only and are not intended as a recommendation or endorsement by J.P. Morgan in this context.

Small capitalization companies typically carry more risk than well-established “blue-chip” companies because smaller companies can bear a higher degree of market volatility than most large-cap and/or blue-chip companies.

International investments may not be suitable for all investors. International investing involves greater risk and increased volatility. Changes in currency exchange rates and differences in accounting and tax policies outside the US may increase or lower returns. Some foreign markets may not be as politically and economically stable as the United States and other nations. Investments in international markets can be faster.

Volatility Strategies: Navigating Market Fluctuations In Mexico

The Standard and Poor’s 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of

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