JPMorgan, Bank of America Warn of Short-Lived US Stock Market Recovery

JPMorgan Chase has cautioned that the recent recovery in the US stock market may be short-lived. The firm's trading team acknowledges that there is some near-term upside potential due to the de-escalation of trade tensions. However, they warn that the full impact of President Trump’s tariffs on the economy has not yet been realized. According to JPMorgan, the market is likely to drift higher in the absence of negative news, but this does not signal an all-clear for investors. The firm believes that it will take another 1-2 months to see the negative impact of the trade war on the real economy.

JPMorgan's equity research team shares a similar sentiment, advising a bias towards selling risk assets on strength rather than chasing momentum. They note that a complete shift in narrative will require clearing further headlines. This cautious stance reflects the firm's view that the market is not yet over the hump and that investors should be prepared for potential volatility.

Meanwhile, Bank of America's team of market strategists also expresses skepticism about the sustainability of the market recovery. They advise clients to sell into rallies in US stocks and the dollar, identifying the debasement of the US dollar as the "cleanest investment theme to play." According to Bank of America, a depreciating dollar is a strong signal that investors around the world are moving capital away from US assets. This capital flight is likely to continue unless the Federal Reserve slashes rates, a trade deal with China is reached, and consumer spending remains strong.

Bank of America highlights that a weak US dollar suggests investors are reallocating capital into commodities like gold and foreign stock markets. The US dollar index, which measures the strength of the USD against a basket of other major foreign currencies, has seen a significant decline this year. This trend is accompanied by a rise in the S&P 500, which has increased by roughly 15% since its lows in April.

The contrasting views from JPMorgan Chase and Bank of America reflect the complexity of the current market environment. While both firms acknowledge the potential for near-term gains, they also warn of underlying risks that could lead to a market reversal. Investors are advised to remain cautious and strategic in their approach, focusing on diversification and staying informed about economic developments and market trends.