Many analysts believe that now is the time to buy stocks because they hope that the US economy will not experience a hard landing in 2024, and the Federal Reserve has already completed its rate hikes. However, Dubravko Lakos-Bujas, Chief Global Equity Strategist at JPMorgan Chase & Co., does not think so.
Lakos-Bujas stated in an interview, “The market’s pricing actually reflects some sort of soft landing. Many people are calling for a ‘Goldilocks’ scenario. This is an ideal economic condition: not too hot, not too cold… but it’s unrealistic.”
“Goldilocks” in economics refers to having relatively low inflation rates while experiencing rapid economic growth.
Lakos-Bujas believes that stocks will face risks in 2024 as slowing economic growth is expected to put pressure on corporate earnings and threaten profit margins due to decreased pricing power. He stated that combined with high valuations, more crowded positions, and low volatility, this creates a stock market situation that is “very fragile.”
He mentioned that although rising interest rates have always been investors’ biggest concern, bets on rate cuts are driven by lower growth expectations: with reduced demand, interest rates and inflation have already declined. He added,”All these factors pose risks of downward revisions to next year’s quite high earnings expectations.”
Lakos-Bujas believes that the economy will be unstable next year and advises investors to buy defensive stocks such as utilities which may help hedge against the risk of an economic downturn. He also noted that if a soft landing occurs, this sector should generate substantial returns.
Unlike JPMorgan Chase & Co., many institutions on Wall Street predict that the US stock market will reach new historical highs next year. The S&P 500 index has risen by 20% this year.
JPMorgan Chase & Co expects US corporate profits to grow by 2% to 3% next year, lower than the general expectations. The bank also pointed out that expectations may be too high as the “fear index” VIX approaches a three-year low.
Regarding the prospects of a soft landing, Lakos-Bujas said, “Almost everyone is optimistic. So I don’t know, maybe we are the only crazy ones.”