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Jamie Dimon casts doubt on soft landing, says artificial intelligence is similar to steam engine (0:16) Stocks will be in trouble if 10-year yield hits 4.8%. (2:21) How quickly can Tesla Robotaxi hit the road? (4:42)
This is an abridged transcript of the podcast.
JPMorgan(New York Stock Exchange: JPMorgan Chase) Chief Executive Jamie Dimon said the market should prepare for greater volatility than currently priced in.
“By most measures, equity values are at the high end of the valuation spectrum, and credit spreads are extremely tight. These markets appear to have a 70% to 80% chance of pricing in a soft landing,” Dimon said in his annual letter to shareholders. — Moderate growth and falling inflation and interest rates. “
“I believe the odds are much lower than that.”
He pointed to “huge fiscal spending, the trillions of dollars needed each year to green the economy, the remilitarization of the world and the reorganization of global trade” as one of the causes of inflation.
“So we are prepared to accept a very broad range of interest rates, from 2% to 8% or even higher, with the same broad range of economic outcomes — strong economic growth and moderate inflation (in this case, more “High interest rates will lead to everything from higher capital requirements to recession with inflation, known as stagflation,” he said.
Turning his attention to artificial intelligence, Dimon said that while the full impact of artificial intelligence on banks or society is not yet clear, “we fully believe that the consequences will be extraordinary and likely to be like some of the major technologies of the past hundreds of years.” Inventions are just as transformative: think of the printing press, the steam engine, electricity, computing, and the Internet, to name a few.”
In today’s transaction
Momentum remains in the bond market, with traders looking ahead to midweek Consumer Price Index (CPI) data.
U.S. consumers maintained their short-term inflation expectations unchanged, according to the New York Federal Reserve Bank’s March Consumer Expectations Survey.
Over the year, median implied inflation held steady at 3.0% for the third consecutive month. The median three-year inflation forecast rose to 2.9% from 2.7% in February, but the five-year inflation forecast fell to 2.6% from 2.9%.
Richard Saperstein, chief investment officer at Treasury Partners, said: “After significant progress, the downward trend in inflation has leveled off and in some cases even increased. We expect further volatility in CPI and PCE data, with inflation rates approaching The Fed’s 2% target will take longer.”
Interest rates continue to rise, with the 2-year Treasury bond yield (US2Y) near 4.80% and the 10-year Treasury bond yield (US10Y) at 4.45%.
Tony Pasquariello, global head of hedge funds at Goldman Sachs, said a big question from clients is, “When do higher rates start to have an impact?”
He said, “The history books show that a 2 standard deviation move in the U.S. 10-year Treasury yield over a month (equivalent to about 60 basis points today) is when the impact really starts. Given that we last week at 4.20% price checkout, this simple rule of thumb shows that if the stock market rises to 4.80%, things will get tricky.”
Stocks are slightly higher today, with the major indexes up less than +0.5%.
This morning, Wells Fargo raised its year-end target for the S&P 500 (SP500) to 5,535, one of the highest targets on Wall Street.
Analyst Chris Harvey said, “20.5x reflects a discount rate of 4.88% (4% 10-year UST + 88bp IG credit spread). EPS focus shifts from 2024 to 2025.”
“Given rising market multiples and rising bond yields, we remain cautious on stocks until earnings season provides clear evidence of earnings growth,” Saperstein said.
Among active stocks
Apartment Income REIT (AIRC) rose after Blackstone (NYSE:BX) agreed to acquire upscale apartment owners for about $10 billion, including debt.
Blackstone will acquire Apartment Income REIT, or AIR Communities, in an all-cash transaction of $39.12 per share. The price represents a 25% premium to AIRC’s closing price on Friday.
Piper Sandler upgraded Fastly (FSLY) stock to “overweight” from “neutral” in part because the company has gained a larger share of the content delivery network market and has favorable competitive areas.
“Fastly is growing share of the core CDN market, primarily through media delivery exposure, and input data such as our CDN Tracker suggests continued share growth,” said analyst James Fish.
Digital advertising company Perion Network (PERI) fell sharply after it lowered its full-year core profit and revenue guidance.
The company currently expects revenue of $5.9-610 million, down 19% from the same period last year and well below market expectations of $868.39 million. Adjusted EBITDA is expected to be in the range of $78-82 million, down 53% from the same period last year.
In other noteworthy news,
Tesla (TSLA) rose while Uber (UBER) and Lyft (LYFT) came under pressure after Elon Musk set to launch a robotaxi on August 8.
Musk also disputed reports that Tesla had canceled development plans for the Model 2, which was highlighted as a car that could be sold to the mass market.
Deepwater Asset Management analyst Gene Munster said this is the right move for Tesla because “as the first company to achieve full self-driving at scale, this is a huge first.” But he predicts that the Robotaxi fleet will not be on the road until 2027.
Morgan Stanley’s Adam Jonas said: “While we do believe Tesla is well positioned to develop the computer vision/robotics technology needed to dominate autonomous driving, we believe a host of legal/regulatory issues will Make this journey measured in decades rather than years.”
Study Corner on Wall Street
Citi’s basket of large-cap stocks has slightly outperformed the broad market benchmark so far this year.
Citigroup’s equal-weighted research recommendation index rose 9.6%, with the S&P 500 index rising 8.3% and the equal-weighted S&P 500 index rising 5.3%.
Quanta Services (PWR) has had the best return since joining, growing 142%. Prologis (PLD) fell 19% and was the worst performer.
These include Amazon (AMZN), Walmart (WMT), Bank of New York Mellon (BK), Delta Air Lines (DAL) and Lockheed Martin (LMT).
