As the first-quarter earnings season of the U.S. stock market slowly opened last week, JPMorgan Chase , which has always been bearish on the prospects of U.S. stocksAnother pessimistic warning.
JP Morgan strategists are not optimistic about the outlook for corporate earnings this earnings season, believing that except for a few technology giants, most U.S. stock companies will see an overall decline in earnings.
They also believe that even if U.S. stock companies perform well in earnings, it will be difficult to push U.S. stocks higher because most of the optimism has been digested in advance.
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The team of Mislav Matejka, head of global equity strategists at JPMorgan Chase, wrote in a report that they have lowered their profit expectations for the first quarter of U.S. stock companies.
Strategists said first-quarter earnings for most companies in the S&P 500 are expected to decline across the board after excluding several technology giants.
Matejka also noted that investor positioning looks “very tight” as the S&P 500 index has risen to a record high.
He said:
“U.S. stocks have been performing well previously, suggesting investors are more optimistic than the pessimistic earnings forecasts conveyed by sell-side analysts… We would need to see significant earnings acceleration to justify current stock valuations, but we are concerned that this Probably won’t happen .”
Matejka also noted that half of the U.S. companies that have reported results so far have underperformed the market on the day of the announcement. That includes JPMorgan Chase itself.
Last Friday, JPMorgan Chase released a mixed first-quarter report. As its net interest margin shrank by 4% from the previous quarter and its guidance for fiscal year expenses increased, the company’s stock price fell sharply by 6.47% last Friday.
Rising U.S. bond yields raise concerns
Although the S&P 500 index rose 10% in the first quarter, JPMorgan Chase’s equity strategists have always maintained a pessimistic stance on the outlook for U.S. stocks.
Matejka believes stocks are underestimating the impact of rising price pressures on central bank policy and bond yields.
Last week, as U.S. inflation data was higher than expected, the possibility of the Federal Reserve cutting interest rates was further suppressed. The U.S. 10-year Treasury bond yield also surged last week, hovering at 4.558% as of press time, near a new high since November last year.
Against this background, the previous strong upward trend of U.S. stocks has been suspended. The S&P 500 closed down 1.46% on Friday and was close to its 50-day moving average. Judging from the weekly chart, the S&P 500 Index has fallen for two consecutive weeks.
JPMorgan strategists wrote in a note: “While the move in yields may be partly due to the upbeat U.S. economic growth outlook, we believe much of it is driven by sticky inflation…a complete reversal of the Fed’s policy focus and the risk of continued overheating of inflation All are rising.”
In addition to JPMorgan Chase, another well-known “big short” on Wall Street – Morgan StanleyStrategist Michael Wilson also recently warned about the impact of rising interest rates on stock valuations. He expects stocks to show greater sensitivity to interest rates as the U.S. 10-year Treasury yield surges above 4.4%.
“On the surface, valuation differentiation is increasing as the market becomes more critical of corporate quality and profitability,” Wilson said. “The stock market’s reaction during earnings season may show how risky valuations are.”
Of course, pessimists aren’t the only ones on Wall Street. For example, Societe GeneraleStrategist Manish Kabra predicted in a report just last week that a strong earnings season would continue to drive U.S. stocks higher.
He said that while rising U.S. Treasury yields could be a headwind for the S&P 500, “the longer-term stability of Fed rates should keep yields in check.”
