Jamie Dimon’s S&P 500 Bear Market: Brutal, Far From Unimaginable

S&P Futures

3,620.25

+21.00(+0.58%)

 

Dow Futures

29,416.00

+150.00(+0.51%)

 

Nasdaq Futures

10,925.25

+80.25(+0.74%)

 

Russell 2000 Futures

1,708.60

+11.70(+0.69%)

 

Crude Oil

89.14

-0.21(-0.24%)

 

Gold

1,676.00

-10.00(-0.59%)

 

Silver

19.18

-0.30(-1.55%)

 

EUR/USD

0.9723

+0.0017(+0.18%)

 

10-Yr Bond

3.9390

0.0000(0.00%)

 

Vix

33.63

+1.18(+3.64%)

 

GBP/USD

1.1002

+0.0026(+0.24%)

 

USD/JPY

146.1960

+0.3970(+0.27%)

 

BTC-USD

19,112.71

+67.67(+0.36%)

 

CMC Crypto 200

434.50

+2.18(+0.50%)

 

FTSE 100

6,885.23

-74.08(-1.06%)

 

Nikkei 225

26,365.45

-35.80(-0.14%)

 

(Bloomberg) — Jamie Dimon says don’t be surprised if the S&P 500 loses another one-fifth of its value. While such a plunge would fray trader nerves and stress retirement accounts, history shows it wouldn’t require any major departures from past precedents to occur.

Most Read from Bloomberg

Here’s How Weird Things Are Getting in the Housing Market

It’s Official: The Fed’s in the Red

This Is What 7% Mortgages Will Do to the Housing Market

The Most Powerful Buyers in Treasuries Are All Bailing at Once

Ukraine Latest: Biden Sees Putin as Both Rational and Irrational

Judged by valuation and its impact on long-term returns, the JPMorgan Chase chief executive officer’s “easy 20%” tumble, mentioned in a CNBC interview yesterday, would result in a bear market that is in many regards normal. A decline roughly to 2,900 on the S&P 500 would leave the gauge 39% below its January high, a notable collapse but one that pales next to both the dot-com crash and global financial crisis.

The price implied in Dimon’s scenario is roughly the index’s peak from 2018, the year when President Donald Trump’s corporate tax cuts took effect and an equity selloff forced the Federal Reserve to end rate hikes. Rolling back the gains since then would leave investors with nothing over four years, a relatively long fallow period. But, given the force of the bull market that raged before then, it would cut annualized gains over the past decade only to about 7%, in line with the long-term average.

Nobody knows where the market is going, Dimon included, and much will depend on the evolution of Federal Reserve policy and whether earnings stand up to its anti-inflationary measures. As an exercise, though, it’s worth noticing that a drawdown of the scope he described isn’t unheard-of, and would strike many Wall Street veterans as a justifiable reckoning in a market that had been carried aloft by the Fed’s generosity.

Falling interest rates had “been great for valuation multiples and we’re unwinding all of those,” Michael Kelly, global head of multi-asset at Pinebridge Investments LLC, said on Bloomberg TV. “We’ve had easy money for a long time and we can’t fix all of that very quickly.”

At 34%, the average bear market since World War II has been a bit shallower, but the drops vary enough that a 40% plunge fits within the bounds of plausibility. One reason the current drawdown may have legs is valuation. In short, even after losing $15 trillion of their value, stocks are far from being obvious bargains.

At the low last month, the S&P 500 was trading at 18 times earnings, a multiple that is above trough valuations seen in all previous 11 bear cycles, data compiled by Bloomberg show. In other words, should equities recover from here, this bear market bottom will have been the most expensive since the 1950s. On the other hand, matching that median would require another 25% drop in the index.

“We had a period of a lot of liquidity. That’s different now,” said Willie Delwiche, an investment strategist at All Star Charts. “Given what bond yields are doing, I don’t think you can say a 40% peak-to-trough decline is out of the question.”

Would the S&P 500 become a bargain if a 20% drop played out? It’s debatable. While 2,900 is quite cheap relative to existing estimates for 2023 earnings — about $238 a share, implying a P/E ratio of 12.2 — those estimates would be in serious trouble should a recession occur, as Dimon predicted. Adjusting forecasts for a 10% fall in profits yields an earnings multiple of 14.3 — not expensive, but not a screaming bargain, either.

Underlining Dimon’s gloomy outlook is the threat of an economic contraction. From surging inflation to the Fed’s ending quantitative easing and Russia’s war in Ukraine, a number of “serious” headwinds are likely to push the US economy into a recession in six to nine months, the JPMorgan CEO told CNBC.

Dimon’s assessment on the economy and market appears more ominous than his own in-house forecasters. Michael Feroli, JPMorgan’s chief US economist, expects real gross domestic product to expand every quarter through the end of 2023.

While market strategists led by Marko Kolanovic admitted their year-end targets for financial assets may not be reached until next year, the team kept their upbeat tone on corporate earnings. It had expected the S&P 500 to rally to 4,800 by December.

“Equities are proving to be an effective real asset class as their earnings are linked to inflation,” the team wrote in a note last week. “Unless nominal GDP growth downshifts drastically, earnings growth should remain resilient and defy expectations of a decline even in an environment of low real GDP growth.”

The clashing views underscores the reality of the post-pandemic world where Wall Street forecasts vary and efforts to predict the future have proved futile. Central bankers and investors alike misjudged the stickiness of inflation. Lately it’s become clear that retailers and chipmakers miscalculated demand and ended up stocking too many unwanted goods.

With the Fed engaged in the most aggressive monetary tightening in decades, no one can say with high conviction where the economy is going. That murky backdrop has led to a wide range of projections when it comes to corporate profits for next year — a 13% expansion to an 8% contraction, based on strategists tracked by Bloomberg.

Jane Edmondson, chief executive officer at EQM Capital, says she’s more optimistic than Dimon, though she shares the concern over the Fed’s inability to address the supply side of the inflation issue.

“I would agree that if the Fed does not slow down on its quest to combat inflation, we could see more market pain,” she said. “While their hawkishness with interest rates may curb some demand, it does not solve the issues in the supply chain causing higher prices and inflation. In that sense, Jamie’s concerns are warranted as the cure is not appropriate for what ails us.”

Most Read from Bloomberg Businessweek

The Twitter Deal Has Pierced Elon Musk’s Reality Distortion Field

The Great Post-Covid Online Shopping Bet Was a Costly Delusion

Even After $100 Billion, Self-Driving Cars Are Going Nowhere

A New Silicon Valley Emerges at the Arctic Circle

Hackers Target Eager Homebuyers With a Dumb Scam That Keeps Working

©2022 Bloomberg L.P.

Advertisement

Reuters

CORRECTED-UPDATE 2-JPMorgan CEO Dimon warns of recession in 6 to 9 months – CNBC

JPMorgan Chase & Co Chief Executive Jamie Dimon said the United States and the global economy could tip into a recession by the middle of the next year, CNBC reported on Monday. Runaway inflation, big interest rates hikes, the Russian invasion of Ukraine and the unknown effects of the Federal Reserve’s quantitative tightening policy are among the indicators of a potential recession, he said in an interview to the business news channel.

Reuters

Bridgewater’s Dalio warns of a ‘perfect storm’ for economy

Ray Dalio, the billionaire investor who built Bridgewater Associates into one of the world’s biggest hedge funds, said a “perfect storm” is forming that will spread economic pain as the U.S. Federal Reserve raises interest rates. “I don’t know whether that’s 4.5% or the economy could not take an interest rate much higher than that before it’s going to be negative.”

The Telegraph

Rejoice: we may be very close to Fed capitulation

Warnings about monetary overkill by central banks are growing louder. This time the insurgency is coming from within America’s New Keynesian elite.

Bloomberg

JPMorgan Says Too-Hot CPI Would Put Stocks at Risk of 5% Tumble

(Bloomberg) — With a dovish Federal Reserve pivot seemingly off the table after last week’s employment report, risks for speculators are running high before Thursday’s release of the consumer price index. Anything above the prior reading of 8.3% would be big trouble for the stock market, according to JPMorgan Chase & Co.’s trading desk. Most Read from BloombergHere’s How Weird Things Are Getting in the Housing MarketThis Is What 7% Mortgages Will Do to the Housing MarketIt’s Official: The Fed’s

Bloomberg

BOE’s Bailey Has a Message for Funds: ‘You’ve Got Three Days’ to Wind Up Positions

(Bloomberg) — Bank of England Governor Andrew Bailey warned fund managers they have until the end of this week to wind up positions that they can’t maintain before the central bank halts its market support, triggering a selloff in the pound and US stocks.Most Read from BloombergHere’s How Weird Things Are Getting in the Housing MarketIntel Plans Thousands of Job Cuts in Face of PC SlowdownHome Flippers Get Burned by US Housing Market’s Sudden SlumpJamie Dimon’s S&P 500 Bear Market: Brutal, Far

Parade

Constantly Scrolling Your News Feeds? Revealing New Research Might Make You Think Twice

Let’s face it: When you watch the news, nine times out of ten it isn’t exactly a mood lifter. Between COVID, monkeypox, politics and more, it only takes a few minutes of scrolling through your news feed to feel stressed and anxious. According to a recent study, there is an increase in mental and …

SmartAsset

Cash is King Now, Not Gold

While gold has long been considered a safe haven in times of market volatility, investors are actually pulling out of the metal of Midas at this moment for a somewhat different choice – cold, hard cash. Gold prices dropped 2.2% … Continue reading → The post Cash is King Now, Not Gold appeared first on SmartAsset Blog.

TipRanks

Down More Than 60%: Analysts Say Buy These 3 Beaten-Down Stocks Before They Rebound

After the annus horribilis of 2022, with the final quarter now in play, investors will be hoping a late-year rally will materialize. According to Carson Group’s chief market strategist Ryan Detrick, that’s not such a far-fetched idea. “While October has a reputation for crashes, it is really a bear market killer,” Detrick recently wrote. “Of the past 17 bear (or near bear markets), stocks bottomed in October six times. Could it happen again? With sentiment this pessimistic and extremely positive

SmartAsset

Why Now May Be a Good Time to Invest in Dividend-Paying Stocks

The market is down and inflation is up – so what’s out there for an investor looking for growth, appreciation and stability? You can try dividend-paying stocks. Many companies that pay dividends are still profitable during a market downturn so … Continue reading → The post Why Now May Be a Good Time to Invest in Dividend-Paying Stocks appeared first on SmartAsset Blog.

Reuters

Russia’s Navalny says he is back in solitary confinement

Jailed Kremlin critic Alexei Navalny said on Tuesday he had been placed in solitary confinement for 14 days for refusing to wash a fence. In a message posted on Twitter via his lawyer, Navalny said he had been sent back to a cramped isolation cell where he has served repeated spells for minor infringements of prison rules. Navalny, President Vladimir Putin’s most vocal critic inside Russia, is serving 11-1/2 years after being found guilty of parole violations and fraud and contempt of court charges.

Benzinga

3 REITs With 10%+ Dividends Priced Under $20 Per Share

Income investors sometimes look for higher-dividend yields on low-priced stocks. But buying stocks below $10 can be a high-risk venture as these stocks are usually cheap for good reasons. Therefore, it is usually better to purchase stocks above $10. Funds from operation (FFO) is the best measure of operating performance because it is the cash flow used for dividend payouts. Dividends well covered by the FFO will usually be safer from cuts. Here are three real estate investment trust (REIT) stock

Leave A Reply

Your email address will not be published.