JPMorgan Is Now Bearish, Bullish And Neutral On Stocks All At The Same Time

At a time when markets have never been more broken and disconnected from reality (as BofA showed earlier), it is hardly a surprise that the largest US commercial bank, which appropriately enough was just surpassed in market cap by Tesla - which has never turned a true GAAP profit in its history - has two diametrically opposite views on the market, on one hand bullish, and on the other hand bearish.

Instead of delving the logic behind each "analysis" - since it is meaningless to analyze anything in this broken "market" where the only thing that matters is what the Fed is doing or will do next - we will content ourselves with merely laying out the various components of this theater of the absurd.

First, as first profiled here earlier this week, here is an excerpt from a report written by JPM's head of equity strategy, Mislav Matejka, published just 4 days ago on July 6, 2020. Here is the punchline: "We had a positive equity view throughout 2019, but we believe the risk-reward is unattractive for equities in 2H of 2020, stocks are likely to lag bonds and cash again, as they did in 1H ‘20." To justify his bearish slant, Matejka gives the following three main concerns for 2H:

  • First, will the template of SARS in 2003 fully repeat, where after May ‘03 there was no further negative impact on activity from the virus. Most economic projections assume consumer behavior is largely normalized in 2H, but that might not work if the Covid-19 lingers.
  • Second, the key in our view is that we do not end up in a negative spiral which is typical of recessions, between weak final demand, falling profits, weak labor market, weak credit markets, and low oil price. Recessions are usually jumpstarted by shocks, be it an oil spike, sharp Fed rate hikes, credit event, geopolitical event, or other, but even once the initial shock faded, the negative spiral took time to stabilize. This particular shock impacts the key driver of Western economies - the consumer, which accounts for 70% of GDP, and the US consumer hasn’t faced labor market weakness for 11 years.
  • Third, the US-China relationship is at risk of souring again, with the relapse into trade uncertainty even before the November elections are out of the way.
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