JP Morgan's bearish call on stocks turns bullish. Too late to the party?

JP Morgan U-Turns on US Stocks after being Bearish since late 2022.

JP Morgan’s Marko Kolanovic lost his job earlier this year as the head of the investment bank’s equity strategy team, following two years of bad calls.

The move follows a disastrous two-year stretch of stock-market predictions by Kolanovic. He was steadfastly bullish in much of 2022 as the S&P 500 Index sank 19% and strategists across Wall Street lowered their expectations for equities. He then turned bearish just as the market bottomed, missing last year’s 24% surge in the S&P 500 as well as the 14% gain in the first half of this year.

JP Morgan’s strategists have stood out among Wall Street’s megabanks in continuing to expect a selloff in US equities, even as firms like Goldman Sachs, Citigroup, and Bank of America have steadily raised their outlooks. JP Morgan has the lowest 2024 target for the S&P 500 among banks tracked by Bloomberg at 4,200. The benchmark is trading above 6,000.

Kolanovic, who was previously at Bear Stearns, joined JPMorgan when it took over the firm in 2008; prior to that, he was at Merrill Lynch. The strategist, once called “Gandalf” in the media after a series of prescient forecasts, went to the US from Croatia in the 1990s to study at New York University and received a Ph.D. in theoretical physics in 2003.

Kolanovic suffered from thinking the market behaves as it should. For a man with so much experience, his run of bad luck must baffle him.

Bears never struggle to find things to back up their opinion. There is always plenty of ‘doom and gloom’ around if you look for it. Inflation is still prevalent in the U.S., there are wars in the Middle East and Eastern Europe. The latter has even had Vladimir Putin lower the threshold for the use of nuclear weapons.

Interest rates went from 0.25% to 5.5% in 18 months (this happened so quickly that it is still a mystery how nothing broke). In 2023, 5 large U.S. banks failed with 3 of them having deposits of over $100 billion.

U.S. interest rates are now 4.75%, still very high. The last time rates got above 5% was the year before the banking crisis. In 2023 Silicon Valley Bank’s failure was the 3^rd largest bank failure in US history and the largest since 2008. The repercussions were actually relatively small, but JP Morgan was perhaps expecting more.

Kolanovic had been bearish since late 2022 and the bank kept its target for the S&P 500 Index pinned at 4,200 for almost two years. That was even as the US equities benchmark blew past that level in 2023 and climbed above 6,000 this year, and as Wall Street peers rushed to upgrade their outlooks.

Dubravko Lakos-Bujas, who took over market research for the firm this summer, released a new year-end 2025 target of 6,500, which eclipses the average projection of about 6,300 among strategists tracked by Bloomberg.

JP Morgan’s new forecast implies an advance of roughly 9% from the current level. Lakos-Bujas based his bullish estimate on expectations for a healthy labour market, interest-rate cuts and a capital-expenditure boom in the race to capture the lead in artificial intelligence technology, among other tailwinds.

“Heightened geopolitical uncertainty and the evolving policy agenda are introducing unusual complexity to the outlook, but opportunities are likely to outweigh risks,” Lakos-Bujas wrote in a note to clients.

The view marks a notable reversal from the warnings coming from JP Morgan strategists for much of the past two years. Entering 2024, the group cautioned that they expected an economic slowdown would pressure corporate earnings. They also said that rich valuations, crowded positioning and low volatility made stocks “very vulnerable.”

Instead, the S&P 500 is on track to deliver two consecutive years of gains eclipsing 20% for the first time this century as a strong economy, AI enthusiasm, and monetary easing propel share prices. The shift in views removes JP Morgan as one of the few remaining contrarians on Wall Street.

For the year ahead, forecasts from major banks and analysts are bullish and clustered: Predictions from Goldman Sachs Group Inc., Morgan Stanley, and Bank of America Corp. fall around the 6,600 level, with estimates going as high as 7,000 from Deutsche Bank AG and Yardeni Research.

Generally speaking, equity strategists play is safe, predicting a rise in the market of around 10% each year. Historically, this would be a safe bet and playing the odds. Some strategists such as Kolanovic and Morgan Stanley’s Mike Wilson, aren’t afraid to give their honest, and sometimes controversial views. Mike Wilson was hailed as a hero and Wall Street’s top stock strategist for calling the bear market of 2022. However, he then predicted the same in 2023 and 2024.

In January 2023, Morgan Stanley’s Chief Investment Officer argued that the S&P 500 could drop as low as 3,000. The key to Wilson’s bearish theory was the idea that falling inflation would lower corporate profits, just as rising inflation helped to increase them in 2021. Looking closer at this, it is still a prediction that could play out in 2025, 2 years later.

The current optimism from the rest of Wall Street comes with US stocks at a crossroads as the S&P 500 trades at more than 22 times projected 12-month earnings, compared with an average reading of 18 in the last decade. There’s also the worry that President-elect Donald Trump’s promised policies, from tariffs to the mass deportation of workers, could reignite inflation and push up bond yields, weighing on equities.

“The timing, scope, and multi-order effects of policy actions and executive orders remain considerable unknown levers for earnings,” Lakos-Bujas said in his outlook. But despite the risk of “extremely disruptive policies and the downside risk to equities they could pose,” Trump’s focus on markets, Federal Reserve rate cuts and stimulus efforts from China should place a floor under the market.

In other expectations for 2025, JP Morgan strategists say the Trump administration’s energy agenda presents downside risks to oil prices from deregulation and increased US production, while stronger capital-markets activity is likely on lower rates and a more favourable regulatory backdrop.

Both Morgan Stanley and JP Morgan (the largest investment bank in America) have had to bite the bullet, and both are now predicting a rise in equities next year. Given they’ve been wrong for the last few years, could now be the time to sell? 😉

Who knows the answer to this? Perhaps this article has proven that even the most experienced professionals do not, therefore, how could anyone else?

This is why TPP’s long/flat and long/short strategies could well be coming into their own in 2025. If the market slows, many of our long/flat strategies look to trade ranges in the index and heighten returns. No equity strategy is perfect, but could 2025 be the year for caution after the bulls have taken the last two?

Only time will tell.

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On our platform:

As JP Morgan found out to their cost, global stocks, and US stocks in particular, have been very bullish this year.

Our leveraged trackers have had a brilliant year (so far) on the back of that, but it's safe to say that the market climate won't always be as bullish as this year.

Like with any investment, diversification is key.

Our 'active strategies' have been the strongest performers since our formation, but this year they have struggled to keep up with our other types of strategies.

The best portfolios on TPP are those that spread their risk across our strategy types.

Our leveraged trackers are designed to yield 1.5 times their market benchmark. As a long-term growth tool, they are very hard to beat. If you think equities have performed well over the last couple of years, just imagine compounding those gains by 1.5 times.

The best thing about our leveraged trackers is that we offer them in two types. One is a whole market tracker (eg SP500) and one tracks structured products like the Buffett Fund.

They are a great starting point for your TPP foundations. If you can link to one of them (or multiple trackers) after a market pullback, even better. Timing the markets with these is always hard when global stocks seem so bullish, but if you're looking over a 5-10 year timeframe, it is very hard to beat these.

Combine the leveraged trackers with our 'long or flat' strategies to conclude your foundations. We find our LoF's tend to perform best in markets that oscillate, and would you believe that one of these strategies invests in the FTSE 100, but has outperformed the S&P500 this year! Our founders are big fans of these types of strategies.

Regardless of where equity markets reside, they always seem to offer an entry point for investors to link with these strategies. They're patient and they wait for high-probability trades.

Finally, although our active strategies have been the laggards this year (so far), they will come good. JP Morgan struggled to time this over-exuberant market, and so did some of our active strategies.

However, what if the markets took a plunge from here? Even a retracement of 5-10%? It is safe to say that if they kept their current portfolio bias, they'd be very well positioned.

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Moving into 2025, make sure your TPP portfolio is diversified and ready to profit regardless of the climate.

Don't be like JP Morgan, be a benchmark-beating investor.

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