Wall Street Lunch: Geopolitical Tensions Biggest Risk To Markets – Dimon

Summary:

• Jamie Dimon warns geopolitical tensions, especially the Ukraine war and Middle East conflicts, are the biggest risks to global financial markets, overshadowing economic debates.
• Darden Restaurants reported mixed same-restaurant sales and announced a multi-year delivery partnership with Uber.
• Alibaba unveiled new AI tools at its cloud event, highlighting growing AI demand.

Listen below or on the go on Apple Podcasts and Spotify.

J.P. Morgan CEO says current geopolitics are biggest risk to financial markets. (0:16) S&P 500 takes out 5,700 in a delayed post-Fed rally. (1:15) Alibaba unveils 100 open-source AI models. (4:01)

This is an abridged transcript of the podcast.

Our top story so far. JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon says people are overly focused on the soft landing-hard landing debate, warning that geopolitical tensions pose the biggest risk to global financial markets and “may affect the free and Democratic world for the next 100 years.”

Speaking at the 2024 Financial Markets Quality Conference, Dimon said: “The most important thing that dwarfs all other things, that’s really far more important today than it’s been probably since 1945 is the war in Ukraine, what’s going on in Israel, in the Middle East, America’s relations with China and the attack fundamentally on the rule of law that was set up after World War II.”

Dimon spoke about the nearly 1 million casualties in the Ukraine war and the threat of nuclear blackmail.

“Iran, North Korea and Russia, I think you can legitimately call an evil axis, who are working every day on how to make it worse for the Western World and for America,” he said.

He added that he wouldn’t include China in the evil axis but said they’re “on the wrong side, at least as far as I’m concerned and the Western world is concerned.”

In today’s trading, delayed reaction or just time to digest? Stocks are rallying sharply after closing lower in the previous session.

The Nasdaq (COMP.IND) is gaining more than 2%, and the S&P 500 (SP500) is fighting for its first close above 5,700. Both the Dow (DJI) and S&P have set new intraday records.

The question, as usual, is what is gearing up the bulls. Are they coming around to Fed chief Jay Powell’s protestations that the economy is strong, despite starting the easing cycle with a big rate cut? Or are they, like the swaps market, thinking that the Fed will be cutting like crazy to stave off recession?

The latest Fed dot plot priced in 50 basis points of further cuts this year, with two meetings to go. But traders are betting on at least 75 bps more, with a 20% of 100 bps.

Pantheon macroeconomist Samuel Tombs says the Fed will be forced to cut by 50 again because members are “overly optimistic on the labor market.”

But T.S. Lombard economist Dario Perkins says “the mid-1990s can provide a useful template for what is to come.”

“Although the risks are skewed towards the Fed cutting rates much faster than Greenspan’s’mid-course recalibration’ of policy in the short term, we believe investors are underestimating the resilience of the US economy in 2025 and beyond.”

“That should mean terminal rates end up higher than priced in by the bond markets; and there is even a possibility of a reverse (hawkish) pivot over the next

18 months,” he said.

Among active stocks today, Darden Restaurants (DRI) rallied as sales increased by 1% in fiscal Q1 to $2.8 billion. Same-restaurant sales were down 2.9% for the Olive Garden chain for the quarter that ended on August 25 and fell 6.0% for the company’s fine dining chains, which include Ruth’s Chris and Capital Grille. The LongHorn Steakhouse chain saw a 3.7% increase in same-restaurant sales during the quarter.

In terms of guidance, Darden sees FY25 EPS of $9.40 to $9.60 (midpoint $9.50) vs. $9.48 consensus.

Separately, Darden announced that it entered into an exclusive multi-year delivery partnership with Uber (UBER) set to begin with Olive Garden in late 2024.

Vanda Pharmaceuticals (VNDA) slumped after the FDA declined to approve its marketing application for experimental therapy tradipitant for a stomach-related medical condition called gastroparesis. The agency suggested the company conduct additional studies.

And Union Pacific (UNP) released a guidance update, saying it expects revenue (excluding fuel surcharge) will grow faster than volume (excluding coal), which is anticipated to outpace the markets the company serves over the next three years.

In terms of profitability, UNP forecast an earnings per share compound annual growth rate in the high single to low double-digit range. UNP also expects annual capital investments of roughly $3.5 billion to $3.7 billion over the next three years.

In other news of note, Alibaba (BABA) released more than 100 open-source artificial intelligence models at its cloud unit’s annual flagship event, Apsara.

The Chinese tech giant also unveiled a new text-to-video tool based on its AI models.

The open-source models are based on the company’s large language model, or LLM, Qwen 2.5, and are designed for use in areas including automobiles, gaming, and science research.

Eddie Wu, Chairman and CEO of Alibaba Cloud Intelligence, noted that the company has seen that over 50% of new computing power demand stems from AI, and AI computing needs are at the forefront of demand. He expects this trend is set to grow exponentially.

And in the Wall Street Research Corner, if you think the Fed’s bold cut is a sign of nerves about the economic engine, BofA screened for small-cap stocks that rank the highest based on factors that have historically outperformed during downturns.

These factors include high quality scores, good revisions, low risk, and sufficient liquidity.

Strategist Jill Carey Hall says: “Within the Russell 2000 (IWM), high quality, low risk, and large size have been the best-performing styles. Quality has also outperformed amid the seasonally weak September/October period, and in periods of a rising VIX (VIX).”

Among the stocks that surfaced are Sprouts Farmers Market (SFM), First Bancorp (FBP), Integer Holdings (ITGR), Knife River (KNF), and Ryman Hospitality Properties (RHP).

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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