According to a JPMorgan statement, the market’s biggest challenges still lie ahead. The headwind for the stock market is currently stronger than the tailwind.
• JPMorgan analyst: Most of the negative effects of high interest rates are yet to come to the market
• CNN Fear & Greed Index temporarily reaches “extreme fear” range
• S&P 500 price target will not be increased
JPMorgan analyst: Stock market faces headwinds
According to a statement from JPMorgan, the painful phase on the stock market is unlikely to be over any time soon. The reason for this is that the market is struggling with three stubborn headwinds. According to Markets Insider, the bank pointed out that with bond yields rising (to levels not seen since 2007), it would be difficult for stocks to recover. Especially in an environment that shows clear parallels to 2008. “Our cautious outlook is likely to remain in place as long as interest rates remain highly restrictive, valuations remain high and the overhang of geopolitical risks remains. Year-to-date, market headwinds are stronger and tailwinds are weaker,” explains JPMorgan’s Marko Kolanovic. Last week the 10-year yield reached a new cycle high of over 4.80 percent. The challenges for stocks and the economy as a whole are becoming significantly greater, as this “finally” offers investors an alternative to buying shares.
Parallels to 2007-2008
The statement also states that there would still be negative consequences for the markets with regard to interest rate policy. “The lag in the impact of high interest rates is longer this time, but we believe that most of the negative impact is yet to come. Consumer loan defaults and corporate bankruptcies are increasing, and this trend is likely to continue if interest rates are not reduced,” explains Kolanovic . In addition, the increased oil prices, which have risen by around 30 percent in the past three months, are not helping the situation of risk assets. Furthermore, the analyst emphasizes that this does not mean that the situation now is the same as in the years 2007 to 2008. However, there are enough similarities to warrant caution.
One of the similarities between today’s situation and 2008 is that investors are panicking based on current sentiment indicators in a similar way to back then. The CNN Fear & Greed Index hit “extreme fear” territory last week as investors worry about high interest rates, according to Markets Insider. He is now back in the “fear” zone. The weekly AAII investor sentiment survey also shows a steady decline in optimistic reactions in recent weeks, which are now below average levels. According to Kolanovic, it is particularly noteworthy that investors’ discussions at the beginning of the crisis in 2007 included exactly the same topics as today. These included the Fed’s pause, consumer resilience, a soft economic landing and strong jobs.
And it is precisely these parallels that lead Kolanovic to leave his price target for the S&P 500 at the end of the year at 4,200 points, which is around 4.0 percent below the current level. As long as the headwinds do not subside, Kolanovic sees no reason to increase his price target in the foreseeable future.
Top investors also warn of risks
But the JPMorgan analyst is not the only one calling for caution. Some of the best-known top investors have also recently warned against taking risks. Hedge fund manager Bill Ackman, for example, expects a slowing economy, while Altimeter Capital CEO Brad Gerstner expects further interest rate increases. However, it remains to be seen how the market environment will develop in the future.
Editorial team finanzen.net
This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.
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