It won’t go on like this: JP Morgan’s gloomy outlook for Wall Street stocks

Despite the good half of the year for the US flagship index, the S&P 500, which rose 14.5% and expressed investors’ expectations for a “soft landing” in the economy, not everyone is optimistic about the future, to say the least.

In J.P. Morgan, for example, is sticking to their pessimistic forecast about the stock market on Wall Street. Despite the highs of the S&P 500, they expect a fairly significant decline.

The bank’s chief strategist, Marko Kolanovic, reiterated his bearish position regarding Wall Street and he advises investors to reduce exposure to the market: “with a high probability, the macro picture is moving away from the aspiration for a soft landing.” Kolanovich predicts that an economic crisis or high and sticky inflation will force the Federal Reserve and other Western central banks to maintain high interest rates, and perhaps even raise them, “therefore the fear of a hard landing is increasing.”

“Soft landing”, a metaphor borrowed from the world of aviation, is actually a restrictive monetary policy (high interest rates) aimed at curbing inflation without harming the labor market or causing financial pain to individuals and corporations carrying debts. A hard landing refers to a significant economic slowdown or decline following a period of rapid growth.

In J.P. Morgan expects only one rate cut this year. “The Fed’s market committee is split between one or two cuts this year, and we believe Chairman Powell is leaning toward two. Our people changed their minds this week and are only looking at one, in November.”

Kolanovich claims that there are a number of risks that disappear from the eyes of investors, and these include political and geopolitical risks, a concentrated stock market, the excessive rise of meme stocks and cryptocurrencies, while the economic indicators point to a slowdown or recession, “and yet, the stocks are trading around the highs their”. The bank expects the index to end the year at 4,200 points – about 22% less than its current level.

JP Morgan is not alone

Petr Brezin, chief strategist at research firm BCA research, told MarketWatch that he had revised down his forecast for the S&P 500 to 3,750 points, even less than J.P. Morgan. Barzin also expects that the US economy will enter an unexpected recession, when? “At the end of this year or at the beginning of next year”, he also expects that the recession will spread to Europe as well.

Barzin predicts that the slowdown in the labor market will increase quickly and will weigh on consumer spending, he points to bank data that already shows lower incomes and declining savings, and that following consumers, businesses will also reduce their investments.

Historically, the last time the index fell by similar percentages was in the second half of 2008 after the bankruptcy of Lehman Brothers. The index dropped by about 30% in the same half year. And in general, out of 157 halves of the year since 1946, in only five of them did the index shed more than 20% in half a year.