A JP Morgan analyst warned that the stock market could become volatile, despite hitting record highs this year.
The company’s chief market strategist, Marko Kolanovic, issued a note on Monday predicting that the S&P 500 could fall 20 percent to 4,200 points by the end of the year.
Kolanovic urged investors not to become optimistic even though the Dow Jones Industrial Average hit 40,000 points for the first time last week, enthusing most Americans who have savings and 401(K) accounts containing funds that are invested in the stock market.
Their reasoning is that interest rates are likely to remain in restrictive territory for longer, combined with low-income consumers showing signs of weakness and high levels of geopolitical uncertainty, according to Business Insider.
“With share valuations so high, we do not view shares as attractive investments at this time and see no reason to change our stance,” Kolanovic said.
But he is the exception among big bank analysts, after Morgan Stanley’s Mike Wilson – the only other notable bear left on Wall Street – turned bullish over the weekend.
JP Morgan chief market strategist Marko Kolanovic urged investors not to turn bullish despite the Dow Jones Industrial Average hitting 40,000 points for the first time on record last week.
The analyst said third- and fourth-quarter EPS growth will need to accelerate 16 percent compared to the first quarter for the S&P 500’s 2024 earnings to meet investor expectations.
“That’s unlikely, especially if the recent streak of weaker activity data flow continues,” Kolanovic said.
He also warned against the idea that the development of technology such as artificial intelligence could help improve the stock market.
“We don’t think that specific themes like AI chips can offset all those traditional market challenges that have historically gone against the cycle,” Kolanovic said.
US stock indexes are moving around their records on Wednesday, continuing a streak of quiet trading that has already lasted for several days.
The S&P 500 was virtually unchanged in afternoon trading, a day after setting its latest all-time high.
The Dow Jones Industrial Average fell 30 points, or 0.1 percent, as of 12:36 p.m. ET. The Nasdaq composite was virtually unchanged and hovering around its latest record.
The Dow Jones Industrial Average surpassed the 40,000 point threshold on Thursday for the first time in its history.
It marked a welcome boost for economists after two years of uncertainty caused by red-hot inflation and rising interest rates.
Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, said: “Breaking the 40,000 barrier is a huge psychological boost for bulls, as round numbers have a special meaning in people’s hearts and minds.”
Most Americans have at least a portion of their 401(K) and IRA invested in the Dow Jones, S&P 500, and Nasdaq.
Research from the New York Federal Reserve shows that the age at which workers plan to retire has plummeted since March 2020.
Kolanovic issued a note on Monday predicting that the S&P 500 could fall 20 percent to 4,200 by the end of the year.
Today, only 46 percent of Americans under 62 say they expect to work after this age, even though it is three years younger than the traditional retirement age of 65.
In the six years before the pandemic, that figure averaged 55 percent, and has fallen steadily in the four years since.
The trend appears to be driven by a “cultural shift characterized by a rethinking of the value of work,” as well as a booming stock market that has given households more confidence in their financial health, the Federal Reserve said in a note. investigation.
Workers’ 401(K) plans have benefited from a buoyant stock market last year.
Stocks have risen on a red-hot labor market and surprisingly persistent consumer spending in the face of higher interest rates and rampant inflation.
Federal Reserve economists said attitudes toward early retirement could be seen as a “reflection of increasing household net wealth; greater confidence about future earnings and income growth and future financial health; greater optimism about achieving retirement savings goals.