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Portfolio > Economy & Markets

JPMorgan’s Kelly Sees a Slow Return for Growth

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The news that President Donald Trump and first lady Melania Trump had tested positive for COVID-19 is “one more element of uncertainty in an uncertain environment,” said David Kelly, chief global strategist for J.P. Morgan Global Asset Management, on Friday during the bank’s quarterly outlook call.

But “when dealing with this pandemic, we need to think about the science, the numbers, the probability in order to invest through this,” he said.

Due to Trump’s age, gender and preexisting conditions, “there is fear this could be quite dangerous for the president,” he noted, adding that the diagnosis adds trauma to a “traumatic election season.”

However, he cautioned that “we need to think rationally about this,” saying the most likely scenario was that Trump would recover and that his illness would likely not “in a dramatic way affect the landscape” of the election.

Along with this comment, Kelly went on to postulate what the economy would look like going forward.


“The economy has recovered some” since the pandemic started, he said, noting high-frequency indicators of more people using restaurants, buying houses or making credit card purchases than in April. But those numbers are still down from last year.

“The good news,” he added, is that is after the GDP came crashing down the first two quarters, it should rise in Q3, but he sees an “interrupted V” shaped recovery. He added that there probably will be a “screech to a halt” with the GDP in Q4.


Unemployment numbers paint a more dramatic picture in which the United States lost 22.2 million jobs between February and April, “an astonishing number,” Kelly said.

We’ve regained 11.4 million of those jobs, but “we need another 10.8 million jobs to get back to where we were,” he said. “It’s a lot like jumping off a cliff to a trampoline. The bounce is impressive, but the fall is dramatic.”

He noted there was a “significant deceleration” in jobs, with 240,000 temporary census workers coming off the payrolls, airline workers furloughed, less seasonal hiring of retail workers, restaurants trying to operate through winter and state and local government layoffs because of a lack of a stimulus package and no vaccine. He says we probably won’t see those job gains until “at least 2022.”


The Federal Reserve believes inflation will be 1.2% year over year for 2020, 1.7% in 2021, and 1.8% in 2022, and it won’t get to 2% until 2023. However, Kelly believes “we’ll see more inflation faster.”

He sees more fiscal stimulus happening but not until after the election.

The Fed has added $2 trillion in bond purchases and is effectively “monetizing the debt. [Treasury Secretary] Steve Mnuchin is printing Treasury bonds and [Fed Chair] Jay Powell is buying them up.”

Kelly doesn’t disagree with this in the short run, but says it means debt-to-GDP ratio has gone over 100%, which is “the highest we’ve seen since after WWII,” he said. “This does create the potential for inflation because it creates a drag on economic growth.”


He advises not to bet on the election, but notes that historically, with a Republican or Democratic sweep, or divided government, their research shows in each scenario, there has been positive economic growth and stock market gains.

He added that “come Election Day, it is more likely than not we get a decisive result. Maybe not on election night, but within 24-48 hours, particularly if it is a decisive win,” he said.

However, if there is a sweep of either side, he does believe “you’ll have a stronger fiscal push next year than if divided government. So a sweep would be better for the stock market and worse for the bond market than a divided government,” he said.

“Other than that, people have to take a deep breath. … In six months time the election will be past and hopefully we have a vaccine, and we may have a better sense of where the economy is, and uncertainty ought to go down. And if it goes down, that is usually a good scenario for risk assets to go up.”


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