JPMorgan warns stagflation threatens US stock rally
JPMorgan Chase has warned that the stock market's rally could soon come to an end as the economy is likely to enter a period of stagflation. Analysts for the world's biggest and most powerful bank have warned that stagflation - when prices rise and economic growth slows at the same time - could hit the economy this summer.
Economists consider stagflation, last seen in the US in the 1970s, to be worse than a recession. Stocks have whipsawed following President Trump's 'Liberation Day' tariff announcements in April, and last month the S&P 500 posted its best results since 2023.
However, stagflation would send stocks down, hitting regular Americans' 401(K)s and investments. 'Post the recent bounce, we think softer leg is in store next, which could resemble a bit of a stagflationary episode,' JPMorgan said in a research note on Monday.
The ongoing uncertainty of the US's trade relations with its biggest partners will also keep stocks in check, the strategists wrote. The 'current tariffs picture is worse than most thought at the start of the year,' they added.
Despite the recent rally the S&P 500 is only up 0.5 percent this year, underperforming European and Asian benchmarks. Last month JPMorgan's CEO Jamie Dimon warned that the threat of stagflation was probably double that of other analysts predictions , and said Americans should prepare.
'There's a chance that (we'll) have stagflation (in the US),' Dimon told Bloomberg. He said that while he was not making a certain prediction, 'we have to be prepared for something like that.'
'Global fiscal deficits are inflationary. I think the remilitarization of the world is inflationary. The restructuring of trade is inflationary,' he said during the TV interview. At the bank's annual investor day earlier in May, Dimon told industry leaders that the chances of stagflation returning are probably twice that of what others have projected.
The billionaire also said that markets were showing an 'extraordinary amount of complacency' in the face of the economic threats of Trump's tariffs. Dimon said the full effect of Trump's aggressive trade policies has yet to be felt. Dimon is not alone, with a host of major economists also warning that stagflation could return.
'Directionally, it is stagflation,' Mark Zandi, chief economist at Moody's Analytics, warned back in March. 'It's higher inflation and weaker economic growth that is the result of policy - tariff policy and immigration policy.' This is not the first time Dimon has warned that the US economy is in peril in recent months.
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