(Bloomberg) — Higher prices and weaker US economic growth over the summer are likely to threaten the S&P 500’s rally, according to JPMorgan Chase & Co. strategists.
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“Post the recent bounce, we think softer leg is in store next, which could resemble a bit of a stagflationary episode,” the team led by Mislav Matejka wrote in a research note.
The threat of stagflation and continued uncertainty over trade negotiations between the US and its biggest partners will keep stocks in check in the coming months, according to the strategists. They also said the “current tariffs picture is worse than most thought at the start of the year.”
The bearish prediction comes after the S&P 500 just finished its best month since 2023, but the worries have returned about global trade tensions and a ballooning US budget deficit. The US benchmark is up 0.5% so far this year, underperforming European and Asian shares.
Torsten Slok, chief economist at Apollo Managment, said the “highly unusual divergence” in the inflation outlook between the US and Europe “will continue to put upward pressure on US rates across the curve and downward pressure on rates in Europe.”
The JPMorgan strategists said they continue to prefer international stocks over the US, where valuations are stretched. They also like emerging markets and are bullish on Chinese technology stocks.
Meanwhile, Goldman Sachs Group Inc. strategists led by David Kostin said the S&P 500 is trading close to fair value, and they expect valuations to be roughly unchanged in the next 12 months. At Morgan Stanley, strategist Michael Wilson reiterated his bullish view on US corporate earnings and said stock valuations have likely bottomed.
–With assistance from Dana El Baltaji.
(Adds inflation expectations in fifth paragraph)
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