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Hello and welcome to Notes in the Week Ahead, a JP Morgan Asset Management podcast that provides insights on the markets and the economy to help you stay informed in the week ahead. Hello, this is David Kelly. I'm Chief strategist here at JP Morgan Asset Management. Today is April 13, 2026. Evening newspapers like vinyl records and rotary phones are fading relics, all victims of the smartphones into which humanity is gradually burying its consciousness. But once they were a vibrant part of daily life. Growing up in Dublin in the 1970s and 1980s, there were two evening papers, the Evening Herald and the Evening Press. Sold at every street corner, they would distract commuters from the damp and discomfort of the tight quartered smoke filled upstairs of double decker buses. The headlines were urgent and gripping, but they had a short shelf life. The ink had barely dried on the tabloids before they were reused as wrappers for chips from the local takeout. I can still taste the salt, vinegar and newsprint flavour of the steaming hot chips I consumed as the rain dripped down on the glittering social life of my teenage years. Despite the demise of evening papers, the public has retained a fascination with the latest news. And in the case of investing, such an obsession is quite logical. Yesterday's news should already be priced in, but today's news, particularly if it affects the outlook in more subtle ways, may still provide some useful information. The latest news in American consumers is mixed. On the positive side, light vehicle sales in March were relatively strong at 16.3 million units annualized. In addition, spending on upper end services proxied by the volume of airline travel and restaurant bookings remains robust. All of this is being supported by the strong stock market gains of recent years. On the negative side, the boost from income tax refunds is a good deal lower so far than we anticipated entering the income tax filing season. As of last week, with over 60% of returns processed, the average refund is up just $350 from a year ago despite numerous backdated tax breaks in the obbba. While this number should rise in the weeks ahead, many families likely feel that what they're gaining from higher refunds, they're paying out in higher gas prices. Also, while the President's so called tariff rebate checks are still possible, they are made less likely by the Supreme Court striking down of IPA tariffs and the additional budget expense of funding the Iran war. Consumer sentiment has also fallen further to a record low, according to the University of Michigan's advance report from last Friday. That being said, a fall in consumer sentiment has never been a reliable predictor of actual consumer behaviour and we expect real consumer spending to continue to grow, albeit slowly, rising by 0.8% over the course of this year and 1.7% over the course of 2027. Turning to housing Government data continue to lag badly with the latest numbers on housing starts and new home sales describing January activity. However, existing home sales as compiled by the national association of Realtors and the Housing Market Index as published by the national association of Home Builders are more recent and both show a relatively stagnant market. Weak demographics are contributing to rising rental vacancy rates, while still high prices and sticky mortgage rates continue to make home buying very unaffordable for younger buyers. It should be noted that flat home prices combined with slow but steady increases in per capita income are gradually alleviating the affordability problem. However, this is a very slow process and we don't expect home building to be a significant driver of economic growth either this year or next. Capital spending, conversely, should continue to be a source of growth. Commercial construction outside of data centers looked weak going into this year. However, energy infrastructure spending will likely increase in response to the higher oil prices caused by the Iran conflict. Meanwhile, hyperscaler spending on AI infrastructure should continue at a fevered pace. Mega cap tech companies continue to see AI both as an existential opportunity if they win the AI race and existential threat if they don't. Further evidence of this was provided by last Friday's February Manufacturing Orders report which showed that the nominal value of shipments of non defence capital goods rose at a 9 or is rising at a 9% annualized pace so far this quarter. It should be noted however that that fast rising capital goods prices make this number less impressive in real terms. Inventory accumulation could add to GDP volatility over the next year reflecting the supply side disruptions of tariffs in the Iran war. However, more generally, the increased cost of buying inventories due to tariffs and of holding them with the more normal interest rates following years of super low rates should cause inventories to be a slight drag on growth going forward. International trade is unlikely to impact growth in a meaningful way over the next two years after a modest decline in the trade deficit in 2025, while cutbacks in federal non defence spending will likely be offset by increased military spending to rebuild munitions stockpiles. All told, it looks like real economic growth could average between 1.5% and 2% in both 2026 and 2027. The March jobs report released 10 days ago showed a stronger than expected payroll gain of 178,000 and decline the unemployment rate from 4.4% to 4.3%. However, the rest of the numbers confirmed a picture of very little job growth or inflation pressures emanating from the labour market. The payroll survey included a downward revision of 7,000 of the prior two months combined. In addition, the strongest parts of the report reflected either good weather with construction employment rising by 26,000 in March, or a lack of strike activity with no major strikes in March compared to 32,000 people being involved in major strikes during the February survey week wage growth was weak with just a 2.10of a percent month over month gain in average hourly earnings, cutting the year over year increase from 3.8% to 3.5%, the lowest year over year gain since March 2021. Meanwhile, the fall in the unemployment rate only occurred because of a 396,000 monthly decline in labor force, which overwhelmed a 69,000 monthly decline in employment as measured by the household survey. The labour force participation rate fell from 62.05% in February to 61.88% in March, its lowest level since October 2021. This partly reflects a 318,000 year over year decline in the foreign born workforce. On a year over year basis, total jobs are up by just 0.16% according to the payroll survey, while the total number of workers as measured by the Household survey has actually fallen by 0.4%. Other indicators in the start of the month paint a similar picture with month over month declines in job openings, hiring and quits according to the Joel survey and weeks readings on jobs plentiful versus jobs hard to get in the Conference Board survey, weekly unemployment claims continue to run at low levels. Although the Joel survey showed an increase in layoffs in February and Challenger layoff announcements rose in March with more mentions of AI as a cause. But overall this still looks like a very low hire low far labour market and while good workers are hard to find, dispirited workers are not demanding wage increases, limiting any risk of an inflation impulse emanating from the labour market. Speaking of inflation, last Friday's CPI report from March showed a very significant 9.10percent spike in consumer prices overall, led by a 10.9% jump in energy prices. This boosted the year over year CPI inflation rate to 3.3% from 2.4% in February. The latest news from the Middle east is not good with talks between the US and Iran breaking down over the weekend and the President threatening to blockade the Strait of Hormuz. This will presumably extend the shortage of oil exiting the Persian Gulf, leading to further energy price increases Even at current oil price levels, we expect CPI inflation to rise to close to 4% year over year by this summer. However, thereafter inflation should begin to fade. The most important reason for this is just the strategic reality of the Iran conflict. The endgame in the Persian Gulf is likely to be one in which Iran and the United States engage in further long negotiations about their nuclear program. But the Strait of Hormuz has reopened under some agreement by which oil from both Iran and other Gulf nations is able to go through the strait. Every day that the strait is closed increases the economic damage to the global and US Economies, and the US Administration will be under tremendous pressure to find a way to reopen it. In addition, the inflation impact of tariffs is receding. Customs duties collected fell by 20% between January and March, reflecting the striking down of the IIPA tariffs in late February and their only partial replacement by blanket 10% tariffs. These 10% tariffs, which the administration said would be raised to 15% but currently remain at 10%, can last a maximum of 150 days, and the administration has vowed to replace them with tariffs that will raise as much revenue as the IIPA tariffs. However, given the potential political consequences of higher inflation, it is likely the administration will settle for milder tariffs, thereby reducing inflation pressures. Finally, a third of CPI is comprised of actual rents and owner's equivalent rent, both of which are calculated from a smooth and lagged series of rents paid by renters. As of March, measured rental costs were up 2.6% year over year, while owner's equivalent rent was up 3.1%. However, we know from industry surveys that rents on new leases are rising much more slowly than either of these numbers, and with rising rental vacancy rates, this trend should continue into 2027. As a result, we expect a year over year CPI inflation to fall back below 2% by March of next year and stay close to 2% for the rest of 2027. In other news, the earnings season starts in earnest this week, with 28 of the S&P 500 companies reporting their first quarter numbers. Analyst estimates compiled by FactSet point to a 12.6% year over year gain in operating EPS, a number that's almost certain to improve in the weeks ahead. While Information Technology Materials will lead the pack in earnings gains, it is remarkable how US Companies in general have been able to expand their margins even as consumers remain deeply pessimistic and workers hesitate to ask for wage increases. Various Fed officials will be speaking this week, but they are unlikely to indicate any change in monetary policy at the next FOMC meeting on April 29. Broadly, we expect the Fed to continue to defend its independence aggressively and only ease when it perceives that the economy is threatened by recession or that inflation is trending below 2%. This suggests no rate cut until the end of this year, although further rate cuts could be forthcoming in 2027 if both growth and inflation fall below 2%. The Iran war is clearly a negative for the global economy, with the global composite PMI falling sharply from 53.3 in February to 51.0 in March. The war is also adding to global inflation. Common sense suggests that global central banks should look through this and not hike rates in an environment of sluggish demand. However, over the next year, the Federal Reserve still looks more likely to cut rates than the bank of England, the European Central bank or the bank of Japan, and this, combined with sluggish U.S. growth, could lead to a resumption of the dollar slide. For investors, this remains a complicated environment dominated by uncertainty emanating from Washington and the Middle East. So far, the US Economy continues to appear capable of producing strong profit growth and low inflation, giving a green light to continued investment in US Stocks and bonds, while cheaper valuations overseas in the prospects of a weaker dollar boasts the case for increased international equity allocations. However, markets remain vulnerable to geopolitical shocks, underscoring the importance of diversification and underweighting the frothiest parts of global financial markets. Well, that's it for this week. Please tune in again next week, and if you have any questions in the meantime, please reach out to your J.P. morgan representative.