J.P. Morgan Forecasts Stock Market Cool-Down Amidst European Declines

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10:13

The European trading day started on a negative note, but without substantial changes. The UK’s FTSE index dropped by 0.3%, while the DAX and KAC opened steady.

08:34

The stock markets in China, Hong Kong, and South Korea have been closed for the Chinese New Year, while Japan’s stock market is shut on account of National Day. Meanwhile, Wall Street futures exhibited a mixed trend with minimal changes.

Last Friday, Wall Street closed mixed with the S&P 500 index gaining by around 0.6% and finishing above 5,000 points for the first time. The Dow Jones index, however, dropped by approximately 0.1%, while the Nasdaq saw increases of around 1.2%.

Cloud Flair surged 20% on Friday following better-than-expected reports. PepsiCo saw a decline of more than 3% after mixed results, while Pinterest dropped around 11% after reporting lower-than-expected revenue but higher earnings.

The American online travel agency Expedia Group fell by about 18% after reporting revenues of $21.7 billion, slightly below expectations. The company also announced a change in its CEO.

This week, we anticipate fascinating reports from Coca-Cola and IRB, Paramount Global, Cisco Corp, Occidental Petroleum (where Warren Buffett holds a significant stake), Coinbase Global, Applied Materials, and Rocco.

In the American bond market, government bonds ended the week mixed. The yield on 10-year bonds saw a slight decrease, trading around 4.17%.

In the commodities and currency markets, American oil was trading at $76.5 per barrel and Brent oil at $81.7. Cryptocurrencies saw a surge over the weekend with Bitcoin trading at $48,100 per coin and Ethereum at $2,500.

Macro: This week is packed with new data releases. On Tuesday, we expect unemployment data from the UK, the consumer price index from Switzerland, and the US consumer price index. On Wednesday, we anticipate the consumer price index from the UK, the Eurozone’s GDP, and on Thursday, Japan’s GDP, Australia’s unemployment data, the UK’s GDP, and the US’s retail sales. On Friday, we await the producer price index and the University of Michigan’s business sentiment index.

Research analyst David Benjaminov from Global X shared his views on Wall Street and particularly the S&P 500 index’s recent peak. He warned of potential correction risks if the economic data does not support the current upward trend. He also warned about the possible tightening of monetary policy aimed at cooling prices.

Contrarily, J.P. Morgan’s forecast is more straightforward. The firm’s analysts recently published a forecast predicting limited market increases and a potential 20%-30% fall from a record to be set this year.

Despite the caution, J.P. Morgan analysts remain optimistic about small companies (small caps), stating that they represent a more attractive investment opportunity than large companies.

The analysts highlighted warning signs of volatility and risk, such as the inverted yield curve, a traditional indicator of economic recession. They also pointed to the absence of a risk premium on American stocks, reflected by profit returns that are even lower than the Fed’s interest rate.

“In our 25-year career, we’ve seen stock markets behaving irrationally in the past and those were warning lights to watch out for like 2+2 is always 4,” the analysts said.