JPMorgan warns of a potential risk to the recent S&P 500 rally due to a narrative shift.
Despite prevailing bullish sentiment, concerns about inflationary pressures arise from lenient financial conditions, robust labor markets, and government spending policies.
The Federal Reserve may need to maintain elevated interest rates for an extended period in response to these concerns.
JPMorgan suggests a possible shift in the narrative towards a 1970s-style stagflation scenario, influenced by geopolitical tensions in global trade, potentially exacerbated by the upcoming US election.
Such a narrative shift could have significant implications for asset allocation in the equity market, according to JPMorgan.
The bank’s chief market strategists highlight potential upside risks to inflation, citing loose financial conditions, tight labor markets, high government spending, and geopolitical tensions.
Macro-economic risks associated with global trade uncertainties, geopolitical shifts, and inflation concerns are further heightened by the US elections, with the strategists expressing the view that there may be no market upside related to the election outcome.
JPMorgan points out that increased investor positioning presents a growing headwind for the market.
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