Wall Street Lunch: Jamie Dimon Casts Doubt On Soft Landing

Summary:

• JPMorgan CEO warns that markets are not pricing in enough turbulence and inflation risks.
• Musk sets August 8 date for the Robotaxi reveal, TSLA shares gained, UBER and LYFT came under pressure.
• Check out Citi’s top picks for large-cap stocks.

Listen below or on the go on Apple Podcasts and Spotify

Jamie Dimon casts doubt on a soft landing, says AI akin to the steam engine (0:16) Stocks face trouble if the 10-year hits 4.8%. (2:21) How fast could a Tesla Robotaxi hit the road? (4:42)

This is an abridged transcript of the podcast.

JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon says the markets should be prepared for more turbulence than what is currently priced in.

In his annual letter to shareholders, Dimon said, “Equity values, by most measures, are at the high end of the valuation range, and credit spreads are extremely tight. These markets seem to be pricing in at a 70% to 80% chance of a soft landing—modest growth along with declining inflation and interest rates.”

“I believe the odds are a lot lower than that.”

He pointed to “huge fiscal spending, the trillions needed each year for the green economy, the remilitarization of the world, and the restructuring of global trade” as contributors to inflation.

“Therefore, we are prepared for a very broad range of interest rates, from 2% to 8% or even more, with equally wide-ranging economic outcomes—from strong economic growth with moderate inflation (in this case, higher interest rates would result from higher demand for capital) to a recession with inflation, i.e., stagflation,” he said.

Turning his attention to AI, Dimon said that while its full effect on banking or society isn’t known, “we are completely convinced the consequences will be extraordinary and possibly as transformational as some of the major technological inventions of the past several hundred years: think the printing press, the steam engine, electricity, computing, and the Internet, among others.”

In today’s trading

The action remains in the bond market, with traders looking ahead to the CPI midweek.

U.S. consumers kept their inflation expectations for the short term unchanged, according to the New York Fed’s March Survey of Consumer Expectations.

At the one-year horizon, median implied inflation held steady at 3.0% for a third straight month. Median three-year inflation expectations advanced to 2.9% from 2.7% in February, though the five-year outlook fell to 2.6% from 2.9%.

Richard Saperstein, chief investment officer at Treasury Partners, says, “After significant progress, inflation’s march lower has flattened and, in some cases, ticked higher. We expect further volatility in the CPI and PCE data and a longer time period until inflation moves towards the Fed’s 2% target.”

Rates continue to move higher, with the 2-year Treasury yield (US2Y) nearing 4.80% and the 10-year yield (US10Y) at 4.45%.

Tony Pasquariello, global head of hedge fund coverage at Goldman Sachs, says the big question clients are asking is, “When do higher rates begin to bite?”

He says the “history book suggests that a 2 standard deviation move in US 10-year note yields—equivalent to around 60 bps today—over a month is when impingement really kicks in. Given we closed the books at 4.20% last week, this simple rule of thumb argues that a move towards 4.80% is where things would get tricky for stocks.”

Stocks are slightly higher today, with the major averages up less than +0.5%.

This morning, Wells Fargo boosted its year-end S&P 500 (SP500) target to 5,535, one of the highest on the Street.

Analyst Chris Harvey says the “20.5x multiple reflects a 4.88% discount rate (4% 10yr UST + 88bp IG credit spread). EPS focus shifts to 2025 from 2024.”

“Given the elevated market multiples and rising bond yields, we remain cautious on stocks until earnings season delivers clear evidence of earnings growth,” Saperstein said.

Among active stocks

Apartment Income REIT (AIRC) rallied after Blackstone (NYSE:BX) agreed to purchase the owner of upscale apartments for about $10 billion, including debt.

Blackstone will buy Apartment Income REIT, known as AIR Communities, for $39.12 a share in an all-cash deal. The price represents a 25% premium to AIRC’s Friday close.

Fastly (FSLY) rose after Piper Sandler upgraded the stock to Overweight from Neutral, based in part on the company gaining a larger share of the content delivery network market and a favorable competitive field.

Analysts James Fish says “Fastly is gaining share in the core CDN market, largely with media delivery exposure, with inputs like our CDN Tracker suggesting gains are continuing.”

Perion Network (PERI) plunged after the digital ad company cut its full-year guidance for core profit and revenue.

The company now expects revenue of $590–$610 million, a decline of 19% from the year-ago period and well below the consensus of $868.39 million. Adjusted EBITDA is expected to be in the range of $78–$82 million, a 53% fall from the year-ago period.

In other news of note,

Tesla (TSLA) gained, while Uber (UBER) and Lyft (LYFT) were under pressure after Elon Musk set an August 8 date for the Robotaxi reveal.

Musk also disputed, in general terms, a report that Tesla has canceled plans to develop the Model 2, which has been highlighted as a vehicle that could be sold to the mass market.

Deepwater Asset Management analyst Gene Munster said it is the right move for Tesla since being “the first to do full autonomy at scale is a huge first mover advantage,” but predicts a Robotaxi fleet will not be on the road until 2027.

Morgan Stanley’s Adam Jonas says, “While we do believe Tesla has advantages around developing the computer vision/robotics technologies necessary to be dominant in autonomous driving, we believe a host of legal/regulatory issues will make this journey measured in decades rather than years.”

And in the Wall Street Research Corner

Citi’s basket of recommended large-cap stocks has slightly outperformed the broader market benchmark year to date.

The Citi equal-weighted Research Recommended List is up 9.6%, with the S&P 500 up 8.3% and the equal-weight S&P 500 up 5.3%.

Quanta Services (PWR) has the highest return since it was added, up 142%. Prologis (PLD), down 19%, is the worst performer.

Among the picks are Amazon (AMZN), Walmart (WMT), Bank of New York Mellon (BK), Delta Air Lines (DAL), and Lockheed Martin (LMT).

---

---