Stock market: JPMorgan raises specter of crash on Dow Jones and Nasdaq

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The US stock market (Dow Jones, Nasdaq and S&P 500) has had a spectacular run over the past eight months, but some elements now call for more caution. And JPMorgan fears a nearly 25% drop in US stocks.

Capital Video: Stock market: JPMorgan raises specter of crash on Dow Jones, Nasdaq

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– Stock market crash

Dow Jones, Nasdaq, S&P 500 (the main barometer of Wall Street)… The US stock market has been in very good shape since the major low last October. Meanwhile, the Nasdaq 100 – a stock index particularly rich in tech stocks and other growth stocks – has gained at least 42% (therefore in just 8 months!), driven by expectations of key Fed rate cuts and a boom in demand for generative artificial intelligence (ChatGPT type).

The Dow Jones has gained 24% between its October 2023 low and its recent all-time high. The S&P 500 gained 33%. However, some strategists and other fund managers are now sounding the alarm about the risk of irrational exuberance in the stock market, bullish exaggeration by stock investors who very often tend to go “faster than the music” when the underlying theme (such as generative AI) is generating enthusiasm and raises high hopes.

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Technology stock valuations on the stock market are once again historically high

Thus, Neuflize OBC (ABN Amro Group) states that recently “lowers the sail on technology stocks (the main peaks of which are American, such as Nvidia, editor’s note)», after overloading in the compartment. Tech stocks are now effectively paying 30 times their earnings (on average), returning to valuation peaks reached during the main peak in 2021, the private bank said.

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Watch out for a stock market crash in the United States, according to JPMorgan

And valuations in the semiconductor segment are particularly tight (especially Nvidia, which currently weighs more in the stock market than all of the CAC 40 companies combined!). In this now more tense context, JPMorgan has just issued a new warning about the risk of a crash on Wall Street. In fact, one of the bank’s star analysts reiterated his clearly bearish scenario on the S&P 500, which he says risks a 23% drop by the end of 2024.

Earnings of listed companies risk disappointment

If Neuflize so far observes an acceleration in the profits of American companies listed on the stock exchange, the private bank nevertheless expects a slowdown in GDP growth in the United States against the background of a reduction in excess savings (made up by American households during the COVID-19 crisis) and a tightening of financial conditions (listed companies will have to this year and in refinance at higher rates in 2025). ABN Amro Investment Solutions warns that in a situation where productivity growth stagnates, sustained pressures on wages could weigh on the margins of listed companies.

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A JPMorgan analyst fears that S&P 500 companies’ profit growth will not exceed 2% this year, compared with the nearly 9% expected by financial analysts on average. To avoid a crash scenario, according to the expert, in the near future, high-tech (and especially the fallout from the artificial intelligence boom) would have to boost the economic growth of states more strongly than expected. In a scenario he considers unlikely, the positive impact of the rise of artificial intelligence on the accounts of listed companies (positive impact on employee productivity) is expected to be only very gradual in the coming years. Faced with the risk of market disappointment in the earnings of Wall Street-listed companies, JPMorgan therefore advises stock investors to exercise a certain amount of caution.

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Nasdaq is overbought, time to short US stocks

Caution on U.S. stocks shared by Momentum, Capital’s daily premium investment letter, which rates the Nasdaq particularly overbought (in daily data by math indicators). Other elements of technical analysis also support lowering the sail on US technology stocks. Discover our recent complete analysis of the outlook for the Nasdaq at Momentum. And find our scenarios on CAC 40 and listed stocks every day. Take advantage of the last few hours of our flash offer on the price of an annual subscription to Momentum. To take advantage of it, simply click on the link embedded above in this article. Discover too Chartist figures of technical analysismy book dedicated to investment methods in the stock market.

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