The American stock market soared to a new record high last week, but JPMorgan analysts say there could still be trouble on the horizon.
The forecast from JPMorgan’s chief market strategist Marko Kolanovic is one of the most pessimistic on Wall Street. He and his colleagues see the S&P 500 ending the year at 4,200 – the lowest year-end target among the major Wall Street banks. From the current level, this means a decrease of more than 21%.
“With very high equity valuations, we do not currently view equities as attractive investments, and we see no reason to change our view,” Kolanovic wrote in an analyst note this week.
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Stocks have hit record highs this past week, with the Dow Jones Industrial Average rising above 40,000 for the first time ever, while the S&P 500 climbed above 5,300.
The indices were little changed on Wednesday as investors waited for Nvidia earnings and Federal Reserve meeting minutes that could shed light on the timing of rate cuts.
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But Kolanovic suggested the gains are unlikely to last as interest rates are likely to remain restrictive for longer amid signs of persistent inflation, signs of weakness among lower-income consumers and rising geopolitical uncertainty.
A boost from artificial intelligence is unlikely to offset the other risks, he warned.
“We don’t think narrow themes like AI chips can offset all those traditional market challenges that have historically worked against the cycle,” Kolanovic said.
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The dire forecast comes after a volatile year for the stock market.
All three indexes plummeted in mid-2023 due to fears about the future Federal Reserve would raise interest rates higher than previously expected – and keep them at their highest levels for longer. But they’ve recovered these losses and more, with the S&P 500 up more than 29% since bottoming in late October.
Since the beginning of the year, the benchmark index is up about 11.5%, while the Dow Jones Industrial Average is up 5.5%, or about 2,098 points. The tech-heavy Nasdaq Composite, meanwhile, is up about 12% year to date.
Original article source: JPMorgan warns that the S&P 500 could plunge 20% by the end of the year
