JPMorgan's Kelly Warns US Stock Rally May Be Overdone Amid Tariffs

David Kelly, the chief global strategist at JPMorgan Asset Management, has expressed his views on the current state of the US stock market, which has seen a significant rally following the imposition of tariffs on imports by the US on April 2nd. In a recent interview, Kelly cautioned that the relief rally in the stock market may be overdone, given the near-term and medium-term economic prospects of the US.

Kelly noted that while the S&P 500 index has recovered from its losses, the higher tariff rates and slower long-term economic growth suggest that the rally might be exaggerated. He advised investors to be cautious, stating that the significant premium in US equity prices compared to the rest of the world is likely not justified. Kelly believes that the fiscal stimulus, while beneficial, may not be enough to sustain long-term bullish sentiment in equities, especially given the current full employment economy and the Federal Reserve's limited room to cut interest rates.

According to Kelly, international equities are poised to offer better returns in the foreseeable future compared to US stocks. He pointed out that European equities and international equities, in general, have shown strong performance this year, while the US dollar has weakened. Kelly expects this trend to continue due to the lingering effects of tariffs, higher deficits, lower immigration, and slower economic growth in the short to medium term. He questioned whether the US equity market deserves to maintain a 50% premium over the rest of the world in terms of price-to-earnings ratios, given these economic factors.