JPMorgan Co-President warns of 40% correction in stocks – is he too pessimistic, or bearish?

by | 9 Mar, 2018

 

JPMorgan Chase Co-President Daniel Pinto thinks the stock market is set for a 40 percent fall in the next 2-3 years, a move down which would end up wiping out the last 2 year’s of gains in the market rally stateside.

Speaking to Bloomberg Television, Pinto said: “We know there will be a correction at some point”. He added: “We are at an interesting time. We are 2-3 years probably until the end of the cycle and markets are going to be nervous. Nervous to anything that relates to inflation, nervous to anything that relates to growth. And I think tariffs – if they go a lot beyond what has been announced – it is something that will concern markets about future growth.”

These are big ‘ifs’ though. Trump wont necessarily escalate trade action at a more rapid rate. Indeed, as you can read in the final paragraph of this article, the administration has left the door open for other countries to adjust their own trade practices in return for tariffs being modified or removed completely. If other nations including China stop flooding the market with so much cheap steel, helping the U.S. to address its colossal trade deficit, Trump may be willing to soften more, and this would be another major boon for the markets, which are already starting to benefit from the Republican tax reform package passed in December last year.

So much depends on whether trade relations deterioriate further, and whether other leaders including China’s Xi Jinping are willing to concede to a more aggressive U.S. trade policy, or fight back even harder. Given how much both countries depend on eachother economically, its more likely that both leaders will be pragmatic over the issue, but if they aren’t, then Pinto’s forecast could come true.

For now though, even despite worries concerning inflation, the speed of Federal Reserve interest rate rises, the withdrawal of monetary easing and the prospect of another major correction in the markets like the one we saw in late January / early February, stock prices keep rising and indices keep moving upwards. The chart below shows how quickly the benchmark S&P500 index is recovering after that sharp fall earlier this year, even with all the noise in the press about chaos in the White House and warning signs in the economy. 

Robust financial results for American companies through the first quarter of the year show us that the underlying fundamentals of the U.S. economy are strong, which is why investors keep buying back in. By February 8th this year, 322 S&P500 companies had reported quarterly results during the latest earnings season, and 78 percent of them beat Wall Street estimates. According to Thomson Reuters data, that was the best rate of above-estimate earnings since Q3 2009!

Besides this, the latest labour market data released today showed the U.S. economy added 313,000 new jobs in February, the biggest gain since mid-2016 and a reflection of the strongest labor market in two decades. 

Then there’s the North Korea breakthrough – whereby Trump is set to meet Kim Jong Un in May, the first ever meeting between a sitting U.S. President and sitting DPRK leader in history. If relations between the 2 were normalised, this would be a huge relief to Asian stock markets and those in the U.S. boosting investor sentiment even more. 

Overall, one could argue Pinto’s case looks a little bit too bearish considering the latest news, but anything could happen in the next year or 2.

Find out what Invstr CEO Kerim Derhalli thinks about the future for the markets in this article

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ALL RIGHTS RESERVED © INVSTR LTD. 2018

Risk Disclosure:
Invstr is a technology platform, not a registered broker-dealer or investment adviser. Invstr does not offer its own recommendations of any security or provide its own research to any user regarding any security transaction or order.
Please note, investing involves risk and investments may lose value. Past performance does not guarantee future results.
Brokerage services are provided by the following:
US-traded securities, including fractional trading, are provided to Invstr users by DriveWealth LLC, a regulated member of FINRA/SIPC. DriveWealth may not establish investment accounts to residents of certain jurisdictions. For more information, including disclaimers, risk and transaction fees click here.
India account traded securities are provided by SIC Stocks & Services PVT Ltd. SIC does not make any personal recommendations to buy, sell or otherwise deal in investments. Investors make their own investment decisions. The services and securities provided by SIC may not be suitable for all customers and, if you have any doubts, you should seek advice from an independent financial adviser. For more information and disclaimers, click here.

 

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