The sizzling stock rally is under threat, and company profits could shrink as consumers feel the squeeze, JPMorgan strategist says

Advertisement
The sizzling stock rally is under threat, and company profits could shrink as consumers feel the squeeze, JPMorgan strategist says
An American flag hangs behind traders working on the floor of the New York Stock Exchange (NYSE) on October 11, 2019 in New York City.Drew Angerer/Getty Images
  • 2023's blistering stock rally is under threat, according to a top JPMorgan Asset Management strategist.
  • The impact of banking chaos could soon start to weigh on stocks, David Lebovitz said.
Advertisement

The sizzling stock rally is under threat, and company profits could shrink as consumers feel the squeeze, according to a top strategist at JPMorgan's asset management arm.

"In the very near term there's probably more room for this market to run but we do see some clouds forming on the horizon and that will begin to weigh on risk asset performance later on this year," global market strategist David Lebovitz said in a Bloomberg interview on Wednesday.

Lebovitz highlighted this spring's banking chaos, the Fed injecting liquidity into the markets, and the central bank slowing the pace of its interest rates hikes as obstacles to the rally's longevity.

"That reset the shot clock on any sort of softer growth, any sort of downturn. I simply think that that's been pushed into 2024 and markets are not grappling with that," Lebovitz said.

US stocks have been on a tear since the start of 2023 thanks to an AI-fueled tech boom. Investor excitement about the future of artificial intelligence has seen traders pile into tech stocks, helping boost the S&P 500 and Nasdaq significantly, with the indexes up 17% and 39% this year respectively.

Advertisement

Other market experts have also warned that the blistering rally may be about to end. Top economist David Rosenberg has repeatedly argued that the stunning climb in stocks suggests a recession may be underway.

Ahead of Thursday's inflation report, Lebovitz also commented on company margins and whether sticky costs will weigh on firms' pricing power.

"When we look at the consumer, the consumer looks fine today, but the consumer is beginning to bend. They're not broken, but they're in the process of bending," Lebovitz said.

"So, I do think you're going to see demand begin to fade here, that could very well coincide with a cooling labor market. That's going to undermine the pricing power that's allowed a lot of these companies to keep their heads above water," he added.

"We're going to see margins get squeezed more significantly."

Advertisement
{{}}