Market Rally Faces Headwinds Despite Strong Fundamentals
Despite a recent surge to all-time highs,Wall Street is showing increasing caution,though remaining “tactically bullish” on stocks. JPMorgan traders, who accurately predicted the S&P 500’s rally, now express their optimism “with lower conviction” due to emerging concerns about inflation and potential trade conflicts.
The bank’s trading desk highlights that rising tariffs are likely to fuel further inflation,compounded by a tightening labor market and the potential for wage increases spurred by anticipated interest rate cuts. They anticipate the Federal Reserve will lower rates by at least 0.25% at its September 17th meeting, with the possibility of two more cuts before year-end, following recent data indicating a slowing labor market.
However,jpmorgan warns the rate cut itself could trigger a ”Sell the News” event,as investors reassess macroeconomic data,the Fed‘s policy response,current market positioning,potential declines in corporate buybacks,and reduced retail investor participation.
Geopolitical tensions are also a concern, with JPMorgan anticipating potential escalation in trade disputes between the U.S., China, and the European Union as countries strengthen regional agreements and ties with China.
Despite these headwinds, underlying market drivers remain strong.The artificial intelligence (AI) sector continues to demonstrate robust momentum, evidenced by strong earnings from Nvidia and Broadcom. Furthermore, corporate earnings are expected to remain healthy, with analysts projecting a 7.5% year-over-year increase in third-quarter earnings, following an 11.3% growth in the second quarter.
Mark gibbens, President and CIO of Gibbens Capital Management, remains positive, stating, “The markets themselves look pretty good…The economy keeps chugging along, backed by the consumer and business.” He emphasizes that “the core trade [in the market] is the AI trade, and that’s not going anywhere.”
