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Stocks could be in 'panic' mode in 2024, warns JPMorgan

Published Dec 07, 2023 12:04PM ET
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© Reuters. Stocks could be in 'panic' mode in 2024, warns JPM's Kolanovic
 
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JPMorgan analysts offered fresh comments about the outlook for financial markets for the next year. The famous strategists anticipate “another challenging year for market participants.”

JPMorgan economists anticipate a softening in both inflation data and economic activity in 2024. The question arises whether investors and risky assets should welcome a decline in inflation, leading to increased demand for bonds and stocks, or if the decrease in inflation signals a potential economic recession.

“We think that the decline in inflation and economic activity that we forecast for 2024 will at some point make investors worry or perhaps even panic,” analysts wrote in a note.

The primary concern stems from the interest rate shock observed over the past 18 months, which is anticipated to have a negative impact on economic activity. Moreover, geopolitical developments pose challenges, affecting commodity prices, inflation, global trade, and financial flows.

Despite these factors, the bank notes that valuations of risky assets are, on average, expensive.

The bank’s forecasts suggest that the Federal Reserve could begin easing in the second half of 2024, potentially at a pace of 25 basis points per meeting.

In the scenario of a gradual economic slowdown, the decline in bond yields is expected to be led by the midsection and eventually the front end of the yield curve.

The forecasts also indicate that the U.S. 10-year note yield could decrease to 3.75% over the next year, with the possibility of further decline if the economy enters a recession.

Along these lines, JPMorgan sees the case for a stronger dollar.

“Currency carry trades, that attracted significant inflows and performed very well this year, would likely give back some of this performance, or potentially unwind in a sharp risk-off scenario,” analysts added.

“In commodities, precious metals have structural tailwinds and would benefit from a risk-off sentiment and subsequent easing of monetary policy. There is significant value in energy, but economic weakness may interfere with geopolitical and structural tailwinds.”

JPMorgan highlights the difficulty of envisioning an economic acceleration or a sustained risk rally without a substantial decrease in interest rates and a reversal of quantitative tightening.

“This is a catch22 situation, in which risk assets can’t have a sustainable rally at this level of monetary restriction, and there will likely be no decisive easing unless risky assets correct (or inflation declines due to, for example, weaker demand, thus hurting corporate profits),” analysts added.

“This would imply that we would need to first see some market declines and volatility during 2024 before easing of monetary conditions and a more sustainable rally.”

All-in-all, JPMorgan holds a cautious outlook on the performance of risky assets and the broader macroeconomic environment over the next 12 months.

“Regardless of whether a recession happens or not, ex-ante, the risk-reward in equities and other risky assets is worse than in cash or bonds.”

Stocks could be in 'panic' mode in 2024, warns JPMorgan
 

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Comments (13)
Ken Roth
Ken Roth Dec 08, 2023 12:43AM ET
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More likely the contrary will happen. Inflation is going down, interest rates has topped and will start to fall which in both cases will give more purchasing power to the people. If history is guidance then they will spend again thus creating demand for goods that needs to be produced…
Gurinder Sira
Gurinder Sira Dec 07, 2023 9:48PM ET
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They will be right one day then come on media again & say we told you
Buck Wood
Buck Wood Dec 07, 2023 9:20PM ET
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This is the same worn-out story that JPM has been preaching for years. They haven't been right yet, and they are not right now. One day they will be correct, just not today.
Maximus Maximus
Maximus Maximus Dec 07, 2023 8:33PM ET
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to even be allowed to spread their 'predictions', they should at least show a proven track record of past predictions...
Maximus Maximus
Maximus Maximus Dec 07, 2023 8:20PM ET
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here we go again.. why do the media keep providing a free megaphone to these manipulating turds..?
MIchael Hagen
MIchael Hagen Dec 07, 2023 4:56PM ET
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JPM starting to sound more like MS and enter a permabear thought train all-the-while they continue to make outsized profits trading the markets.   Not useful to me.
Casador Del Oso
Casador Del Oso Dec 07, 2023 1:43PM ET
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Housing market and freight industry already in recession. 2024 may be a great time to buy stocks as valuations return to the mean.
Stan Smith
Stan Smith Dec 07, 2023 1:40PM ET
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Shrugged off?
sibayan banerjee
sibayan banerjee Dec 07, 2023 1:35PM ET
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No mention of presidential year ?
First Last
First Last Dec 07, 2023 1:35PM ET
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Maybe JPM don't see Trump winning so not a source of panic.
laura valle
laura valle Dec 07, 2023 1:35PM ET
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第一个 最后一个 well said
Ri O
Ri O Dec 07, 2023 1:35PM ET
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First Last  Democratic TROLL
First Last
First Last Dec 07, 2023 1:35PM ET
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Ri O   Plenty of Republicans "don't see Trump winning" either.
First Last
First Last Dec 07, 2023 1:35PM ET
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Ri O   Also, I'm not the one to bring up this subject.  Why don't you try to answer the op's question instead of being the troll?
Chart Harmonics
Chart Harmonics Dec 07, 2023 1:31PM ET
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Oh yes. Decreasing inflation even during a time of historic low taxes and low interest rates is going to cause a panic. Guess I'll start stuffing my mattress again.
 
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