Monday October 24, 2022

// October 24th, 2022 // Comments Off on Monday October 24, 2022 // Daily News

JPMorgan president says a recession may be price to pay to beat inflation, market bottom not in yet

KEY POINTS

• While there is a growing chorus of voices who say that the Federal Reserve should slow or halt its rate increases, JPMorgan President Daniel Pinto is not in that camp.
• “I think putting inflation back in a box is very important,” Pinto told CNBC in an interview. “If it causes a slightly deeper recession for a period of time, that is the price we have to pay.”
• “I don’t think we’ve seen the bottom of the market yet,” he said, adding that corporate earnings expectations were still too high.
• Pinto, who leads the world’s biggest investment bank by revenue, called cryptocurrencies a small asset class that is “kind of irrelevant” at the moment.

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JPMorgan Chase President Daniel Pinto has vivid memories of what life is like when a country loses control of inflation.

As a child growing up in Argentina, Pinto, 59, said that inflation was often so high, prices for food and other goods spiked on an hourly basis. Workers could lose 20% of their salary if they didn’t rush to convert their paycheck into U.S. dollars, he said.

“Supermarkets had these armies of people using machines to relabel products, sometimes 10 to 15 times a day,” Pinto said. “At the end of the day, they had to remove all the labels and start over again the next day.”

The experiences of Pinto, a Wall Street veteran who runs the world’s biggest investment bank by revenue, informs his views at a key time for markets and the economy.

After unleashing trillions of dollars in support of households and businesses in 2020, the Federal Reserve is grappling with inflation at four-decade highs by raising rates and pulling back on its debt-buying programs. The moves have cratered stocks and bonds this year and rippled around the world as a surging dollar complicates other nations’ own battles with inflation.

Living with pervasive inflation was “very, very stressful” and is especially hard on low-income families, Pinto said in a recent interview from JPMorgan’s New York headquarters. Price increases averaged more than 300% a year in Argentina from 1975 to 1991.

Aggressive Fed

While there is a growing chorus of voices who say the Federal Reserve should slow or halt its rate increases amid some signs of price moderation, Pinto is not in that camp.

“That’s why when people say, `the Fed is too hawkish,′ I disagree,” said Pinto, who became JPMorgan’s sole president and chief operating officer earlier this year, solidifying his status as CEO Jamie Dimon’s top lieutenant and potential successor.

“I think putting inflation back in a box is very important,” he said. “If it causes a slightly deeper recession for a period of time, that is the price we have to pay.”

The Fed can’t allow inflation to become ingrained in the economy, according to the executive. A premature return to easier monetary policy risks repeating the mistakes of the ’70s and ’80s, he said.

That’s why he thinks it’s more likely the Fed errs on the side of being aggressive on rates. The fed funds rate will probably peak at around 5%; that, along with a rise in unemployment, will likely curb inflation, Pinto said. The rate is currently in a 3% to 3.25% range.

Markets haven’t bottomed

Like a string of other executives have said recently, including Dimon and Goldman Sachs CEO David Solomon, the U.S. faces a recession because of the Fed’s predicament, Pinto said. The only question is how severe the slowdown will be. That, of course, is being reflected in the markets that Pinto watches daily.

“We’re dealing with a market that is pricing the probability of recession and how deep it’s going to be,” Pinto said.

The economic situation this year has been unlike any other in recent history; apart from booming price increases for goods and services, corporate earnings have been relatively resilient, confusing investors looking for signs of a slowdown.

But profit estimates haven’t fallen far enough to reflect what’s coming, according to Pinto, and that could mean the market takes another leg down. The S&P 500 has dropped 21% this year as of Friday.

″I don’t think we’ve seen the bottom of the market yet,” Pinto said. “When you think about corporate earnings heading into next year, expectations may still be too elevated; multiples in some equity markets including the S&P are probably a bit high.″

Monday September 26, 2022

// September 26th, 2022 // Comments Off on Monday September 26, 2022 // Daily News

Fox News: The stock market’s value is down $7.6 trillion since Biden took office

The Morgan Stanley strategist who called the bear market says the S&P could fall to the low 3,000s

PUBLISHED MON, SEP 26 2022

The S&P 500 could fall to the low 3,000 range, as an earnings recession appears “unavoidable,” but the market may then not stay down for long, said Mike Wilson, Morgan Stanley’s chief U.S. equity strategist, who was correctly bearish going into this tough year for markets.

“We’re in a cyclical downturn for growth, and that’s the fire-and-ice narrative to a tee, right — the tightening policy and the slowing growth,” he said Monday on CNBC’s “Squawk Box.” “And we’re just not finished yet, in our estimation.”

Market observers have questioned where the “bottom” of the market will be now that the Federal Reserve appears to be willing to tolerate a recession in order to win its battle against inflation.

Wilson’s bear case for the S&P 500 is around 3,000, with his base case at 3,400. The strategist said he sees potential for both cases with the soft landing for earnings now less likely. These estimates represent a drop of about 8% to 18% from the S&P 500′s current level.

The rapid move in rates was another bad sign in the strategist’s view, with the one-year Treasury bill yield surpassing 4% on Monday.

Wilson said this could be an unusual moment in the market. The employment picture can create confusion about the state of the economy, as the labor shortage keeps wages up, which isn’t typically seen during recessionary periods.

Wilson also noted there is “so much money sloshing around” compared with other times of economic downswing, but he would not use that to make bets on where the market goes.

He said efforts to curb inflation are the “medicine” to get the country out of the “debt trap” it has been trying to free itself from since the 2008 recession. The market needs time to readjust to the headwinds as the Fed attempts to control inflation through rate hikes, he said.

Wilson said we are nearing a turning point and he is getting ready to spring into action once the market hits the firm’s target. The S&P 500 is off 23% from its high and near its lowest levels in two years.

“We’re getting close to the end,” he said. “The damage has been done. … Now, we’re actually starting to get ready to be more aggressive. It’s just not time yet, in our view, and to be premature can be quite costly.”