JPMorgan Chase & Co. is standing firm in its notably pessimistic stance on the U.S. stock market, despite the S&P 500 reaching new all-time highs in June. Marko Kolanovic, JPMorgan’s chief market strategist and co-head of global research, recently reiterated his bearish outlook on equities, advising investors to maintain an underweight position in stocks.
Kolanovic’s bearish perspective is rooted in several key factors. Firstly, he emphasizes the ongoing risks to the macroeconomic landscape, indicating a high 50% probability of deviation from the soft landing thesis. This deviation could occur due to factors such as a near-term break in the U.S. economy or persistent inflation leading central banks to maintain or raise interest rates, potentially precipitating a hard landing in 2025/2026. Despite this, equities are seemingly pricing in minimal downside risk.
JPMorgan anticipates that the Federal Reserve will likely maintain its current stance in the near term and make adjustments to its projections as needed. The committee’s decision may be influenced by a dovish-leaning chair, potentially leading to two rate cuts this year, with the first expected in November.
Kolanovic points out that equities are disregarding numerous risks, including political and geopolitical uncertainties, market concentration, the surge in meme stock and crypto trading indicating market froth, as well as persistently elevated inflation and interest rates. Despite these risks, equities continue to trade near record highs, with investor sentiment and positioning remaining elevated.
Of significance is JPMorgan’s unchanged S&P 500 forecast for 2024, which was issued in late 2023. Analysts at the investment bank project the S&P 500 to end the year at 4,200 points, implying a substantial 22% decline from current levels. This forecast aligns with historical precedent, as similar or larger drops in the index’s 6-month performance have been rare occurrences, typically associated with significant economic downturns such as the Lehman Brothers crash in 2008.
While JPMorgan’s bearish outlook may seem stark, it underscores the cautious sentiment prevailing in the market amid ongoing economic uncertainties and elevated risk factors. Investors will be closely monitoring developments to assess the potential impact on equity markets and adjust their strategies accordingly.