Dubrovko Lakos of JPMorgan said the rally in the S&P 500 would stall during the rest of the year.
This is because there are a series of negative factors heading towards 2024 that will affect stocks.
He added that the strength of the US economy only delayed the next recession, and did not prevent it.
The rally is that equities are over for the year, as there are a whole lot of factors that will influence the market until the end of 2023, according to JPMorgan’s chief global equity strategist, Dubravko Lakos.
Lacus said that while many on Wall Street are still anticipating new highs for the S&P 500 this year, even as the market struggled in August, any further rally is likely to be constrained by a combination of factors.
The benchmark index rose nearly 20% during the month of July, and the benchmark is still only 9% below its new all-time high even after the August sell-off.
But Lacuse warned investors in an interview with CNBC this week not to be sure the gains will continue. Here’s what he sees as a headwind to more upside.
Stock prices are high compared to earnings. The S&P 500 is currently trading around a price-to-earnings ratio of 20, a level that Lacusse describes as the “ceiling”.
The investor situation is very bullish. Lacus said that contrasts with the beginning of the year, when investors were overly bearish. investors Injecting $45 billion into stocks During the month of June alone, according to Bank of America data.
Monetary policy is likely to remain tight. Lacus said Fed officials are likely to keep rates high for the rest of the year and are unlikely to start cutting them any time soon as they continue to monitor inflation.
Fiscal policy will become tighter. Lacus said 2023 was a “year of massive fiscal easing” as the government spent $1.8 trillion, but federal spending is likely to decline significantly in 2024, which could affect economic growth.
While bull market commentators pointed out that The United States can avoid a recession this yearAny resilience in the economy now, Lacus said, is largely due to strong fiscal and consumer spending, both of which are expected to moderate through 2024. Consumer savings are also rapidly dwindlingHe said this would remove a barrier that had protected the economy from difficult financial conditions.
“I believe there is no landing, no landing, until you get to the hard landing. I don’t subscribe to the soft landing thesis.” Lacus said, calling a Recession is inevitable for the American economy. “I find it hard to believe that inflation will come down, that the Fed will cut interest rates, and that growth will be OK.”
Stocks can drop as much as 15% even on a small pullbackMarko Kolanovic of JPMorgan predicted in a recent note.
Investors are now pricing in A There is a 42% chance that the Fed will raise interest rates by another 25 basis points In November. Meanwhile, the Federal Reserve Bank of New York sees a recession as more likely than not over the next year, anticipating a recession. There is a 66% chance that the economy will slip into recession by July 2024.
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