Happy Friday eve, team. I'm Phil Rosen. A big part of my job entails keeping an ear to Wall Street, and then telling you about what I learn here in this newsletter.
Fair warning: Much of Wall Street sounds pretty downbeat right now.
In a Wednesday note to clients, JPMorgan analysts broke down their economic forecast for 2023. The TL;DR of it was that the US is on a collision course with a recession, and the Fed will have a hard time driving the economy toward anything else.
But before we get to that, I've got a couple more tidbits to put on your radar for today:
- UK inflation just hit the highest mark since 1981
- Authorities are in talks to bring in FTX's Sam Bankman-Fried for questioning
- Private equity firms are set to capitalize on an economic downturn
Okay, shall we?
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1. JPMorgan's not betting that the Fed can avoid a recession, as they expect policymakers' rate hikes to continue into next year and further squeeze the economy.
The FOMC still has 100 basis points more of rate hikes to go, in the bank's view. December will bring a 50 basis-point hike, and then investors should expect 25 basis-point hikes in February and March.
"The almost 500bp of expected cumulative hikes is already delivering a commensurate tightening of financial conditions," JPMorgan analysts noted. "[W]hich we believe will tip the economy into mild recession later next year."
The Fed's aggression won't let up because inflation has proved stubborn. The most recent CPI report showed signs of easing, as the reading came in below expectations.
Nonetheless, prices remain 7.7% higher year-over-year.
The labor market is one key variable that policymakers will surely be watching. Remember, more people working and earning means more money being pumped into the economy, which means prices will stay elevated.
To cool down the economy, then, the Fed will likely look to tame hourly wage growth and push the unemployment rate higher, JPMorgan said.
"By most measures hourly wage growth is currently running around 5%," the analysts wrote. "That likely needs to run closer to 3.5% before policymakers can feel more comfortable about returning to 2% inflation. And that sort of wage growth deceleration will likely require an unemployment rate between 4% and 5%, depending on how entrenched wage growth expectations have become."
The Fed's tightening efforts, ultimately, will tip the economy into a recession, JPMorgan analysts said.
But since it's not a secret or unexpected, the recession could be mild.
"If we do have a downturn next year, it will be the most well-telegraphed recession in modern memory. That fact alone should change the nature of the slowdown."
Thoughts or feedback? Let me know on Twitter (@philrosenn) or email me (prosen@insider.com).
In other news:
2. US stock futures fall early Thursday, as investors brace for a big budget announcement in the UK. Meanwhile, Americans are paying their biggest-ever premium for diesel at the pump. Here are the latest market moves.
3. Earnings on deck: Alibaba, Applied Materials, and Burberry plc, all reporting.
4. Buy these extremely undervalued stocks with strong dividend growth right now. An investing strategist from Morningstar pointed out ten companies to snap up as recession fears continue to linger — including one that could have a 37% upside.
5. Mortgage rates dropped below 7% for the largest weekly drop since July. The average interest rate on America's most popular home loan fell from 7.14% to 6.9%, the Mortgage Bankers Association said, in what marks the latest sign of a cooling economy.
6. The hacker that looted FTX is sitting on a pile of ether worth about $288 million. The thief swapped pilfered stablecoins for ether, making them the 35th largest holder of the token in the world. Get the full details here.
7. Cathie Wood just bought shares in Grayscale's bitcoin trust for the first time in 16 months. Her purchase comes at a deep discount. At current prices, buying into the trust is comparable to buying bitcoin at about $11,000, versus the roughly $16,000 the actual token is trading for now.
8. This real-estate investor has 541 units and thinks it's still a good time to buy properties even with the high mortgage rates. Quenti D'Souza recommends prospective investors to keep trying to snap up properties — and he shared the three strategies that are best suited to the current environment.
9. Two top fund managers shared why risky junk bonds can actually be treasury and not trash. Experts from Buffalo High Yield Fund have crushed the market this year, even as a recession looms. They explained how to secure income from higher-risk junk bonds despite a shaky economic landscape.
10. Shares of Target fell roughly 13% on Wednesday. The retailer fell short of third-quarter earnings expectations, and said that customers were cutting back on spending ahead of the holiday season. Higher interest rates continue to weigh on consumers as they navigate higher borrowing costs and uncertainty about the state of the economy.
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Curated by Phil Rosen in New York. Feedback or tips? Tweet @philrosenn or email prosen@insider.com
Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.