JPMorgan Thinks the US Stock Market Fundamentals Remain Unchanged, Suggests Buying on Dips

JPMorgan Chase's Market Intelligence team released its latest views on Wednesday, maintaining an overall "tactical bullish" stance, but also providing a more nuanced analysis of market risks, both bearish and bullish.

The bearish voices are getting louder. Matt Reiner from JPMorgan Chase's stock trading desk noted that client sentiment shifted from cautious to a full bearish view in a very short time, but the VIX only rose by 3% that day, significantly diverging from client sentiment. He also warned that many actively managed funds that have underperformed the benchmark for the year may begin to "go all-in" on the bearish side of AI trading in order to catch up on performance.

The bullish side also has its reasons. Team member Kujawski cited historical data, pointing out that during Obama's administration, oil prices remained above $100 for over three years, during which the S&P 500 tripled, recording 118 historical highs. High oil prices do not necessarily end the bull market.

From a fundamental perspective, there has been no substantial crack on the consumer side. Data from US banks show that only about 20% of the tax refund money has been spent, with nearly half flowing into savings accounts, and the overall health of household balance sheets remains relatively sound. The S&P 500 is expected to achieve an approximate revenue growth of about 11% and an earnings growth of 28% for this quarter, with profit margins reaching a historical high.

The biggest tail risk comes from the Middle East. It is reported that Iran has proposed five preconditions for negotiations, including the lifting of all sanctions, compensation for war damages, and recognition of sovereignty over the Strait of Hormuz, which are almost impossible conditions for the US to accept. If conflict reignites, it will be the most direct impact on the current bullish logic.

The core pillars that the team maintains for being bullish include resilient consumption, strong earnings, the tech sector regaining investor favor, potential benefits from the China-US summit, and the possibility of the Strait of Hormuz reopening. Until there is a substantive shift in the fundamentals, buying on dips remains the preferred strategy.