JPMorgan sees no reason to join this group due to expectations for the stock market this year. Despite the S&P 500 index nearing new highs, JPMorgan's Dubravko Lakos Bujas remains relatively pessimistic about what 2024 will hold. He has set a year-end target for Wall Street's composite index at a low of 4,200, which is 12.2% below where it was at Thursday's close. One of the reasons for Lakos Bujas' concerns is corporate profits. In a client report on Friday, he called early earnings and forward guidance for S&P 500 companies “lackluster.” He noted that only about half of the companies that have already reported have exceeded earnings expectations, and many have underperformed after announcing their results, adding that their quality is “questionable.” “Stocks face high hurdles,” he told clients. “Anything less than strong corporate guidance that reaffirms current high growth expectations is likely to be penalized during this earnings season.'' .SPX YTD Mountain S&P 500 Year-to-date Performance Indeed, corporate earnings season is still in He pointed out that it is in the early stages. According to FactSet, about 1 in 10 S&P 500 companies report their financial results. About 67% of companies that have already reported earnings beat Wall Street expectations. While the market has largely priced in a soft landing, Lacos-Bujas warned that a prolonged interest rate environment could leave investors in for a surprise. While he acknowledged that financial conditions are softer than expected, he said there are risks to the Federal Reserve's dovish sentiment following recent economic data. There are signs that optimism about when interest rate cuts will begin is waning. Traders are pricing in a 51.9% chance that the Fed will lower borrowing costs at its March meeting, down from 76.9% a week ago, according to CMEGroup's FedWatch tool. The probability that monetary policy will not be changed at the meeting rose to 46.8% from 19% a week ago. In a longer-term scenario, Lakos-Bujas said valuations would be at risk after stocks were rerated to levels before central banks started raising interest rates. And there will likely be a change in equity leadership, he added. Turning to technology and artificial intelligence, he said the ratings of these stocks could be downgraded if investments fail to generate returns or productivity gains in coming quarters. “Almost everything related to AI themes has been reevaluated in the last year,” he said Lakos-Bujas. “Going forward, the market has to differentiate between the disruptors and the disrupted.” His concerns come as the S&P 500 is on track to reach a record high at Friday's close. Despite some turmoil earlier this month, investors are increasingly bullish on expectations that the Fed will start cutting interest rates before the end of the year. According to the CNBC Professional Market Strategist Survey, the average analyst has a target value of 4,914 for the S&P 500 index at the end of 2024. That's 2.8% higher than where the broader index ended Thursday.
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