Stock Market Outlook: Dial Back Risk Amid Market Distortions

  • Indexes have soared on strong economic data and a big rate cut from the Fed.
  • Yet, as markets eye a soft landing, potential shocks pose a higher risk to investors, David Kelly says.
  • He says Americans should dial back risk and position funds away from growth stocks and toward value.

Strong economic data and a big rate cut last month have fueled bullish sentiment, but investors should be wary of adding more risk, according to JPMorgan Asset Management’s David Kelly.

The firm’s chief global strategist says the promise of a soft landing has encouraged Americans to pour into riskier assets at the exact time they shouldn’t be.

“I will say that although I think this is positive for the equity market, I am getting increasingly queasy about the fact that the equity market keeps on pricing in a soft landing,” Kelly told Business Insider.

He said that as the market prices in a soft landing, valuations rise, which means any shock to the market could send asset prices tumbling.

“Markets have gone up a lot and become more distorted, and because they’re more distorted and at higher valuations, they’re more risky,” he said.

At the same time, the average American’s wealth has soared. According to Fed data, the total aggregate wealth of American households grew by about $50 trillion in the last five years. That means many middle-income households that couldn’t afford retirement just a few years ago now can, Kelly says.

As a result, investors shouldn’t take on more risk than they need to, he says.

“They should dial back risk. There’s no need to increase risk if you’ve got enough money to do the things that you want to do,” Kelly said.

Kelly was particularly cautious over keeping money tied up in high-flying growth stocks.

“At the very time when I think logic would dictate that investors take a little bit of risk off the table, they are passively allowing risk to accumulate on the table,” he said.

Instead, he recommended investors rebalance their portfolios, funneling funds out of growth stocks and toward value shares, international equities, and alternatives.

Kelly says the market has been trending toward a soft landing for quite some time, and Friday’s blockbuster jobs report only strengthened the case. The report showed a dip in the unemployment rate from 4.2% to 4.1%, with 254,000 nonfarm payrolls added, blowing past estimates of around 150,000.

The strong report all but dashed hopes for another big rate cut next month, with investors quickly lowering the odds of a 50 basis point move from 33% to less than 1%, according to the CME FedWatch Tool.

Kelly acknowledged, though, that the data leaves room for error, so it’s possible that last month’s employment appeared weaker than reality and this month seemed stronger than reality.

Regardless, he says the report validates that the US has a healthy, strong labor market and that the economy is on a “very nice soft landing path.”

Kelly expects the Fed to cut an additional 50 basis points over the course of its next two meetings, and another 100 next year.

Back in August, when a surprise increase in unemployment triggered a massive global sell-off, Kelly told Business Insider that the Fed needs to do more to broadcast its confidence in the economy.

Now, he says the Fed should continue showing its confidence, and show that it can take its time cutting interest rates.

“The more the Federal Reserve seems to be taking its time and not overly concerned, the more that’s going to do to support confidence,” he said.



Source link

Visited 1 times, 1 visit(s) today

Related Article

Asian chip stocks slump as Nvidia’s slowing revenue growth worries investors

Nvidia’s headquarters in Santa Clara, California. Justin Sullivan | Getty Images Asian semiconductor-related stocks mostly slumped on Thursday after Nvidia reported an earnings forecast that failed to meet the lofty expectations of some investors. While Nvidia’s third-quarter results exceeded analysts’ expectations and delivered a strong forecast for the current quarter, its shares still shed 2.5% in

Homeless man arrested for plotting to bomb New York Stock Exchange

A large American Flag hangs at the entrance to the New York Stock Exchange on Wall Street on Election Day, Tuesday, Nov. 5, 2024 in New York City. On Wednesday, authorities arrested a homeless man plotting to blow up the financial institution this week. Photo by John Angelillo/UPI | License Photo Nov. 20 (UPI) —

Qualcomm stock falls after new autos, PC targets fail to wow investors

Qualcomm stock (QCOM) fell as much as 6% on Wednesday, a day after the company provided new financial targets for its non-smartphone business at its first investor day in three years. Qualcomm, which gets the majority of its revenue from designing and licensing handset chips, has been expanding into semiconductors that go into cars, personal

Florida suspect arrested over alleged plot to bomb NYSE: FBI

A Florida suspect was arrested for allegedly planning to bomb the New York Stock Exchange (NYSE) this week, according to disturbing court documents obtained by Fox News Digital. Suspect Harun Abdul-Malik Yener, 30, was arrested Wednesday and allegedly intended to carry out the terrorist attack in New York City some time during the week of

Jim Cramer says consumers are loyal to value and not brands

CNBC’s Jim Cramer on Wednesday said consumers right now aren’t focused on brand names, but on companies that can provide the most value. “Prices have gotten so high over the past few years that we’re losing our loyalty to brands,” he said. “These days, this whole country is about one thing: The Benjamins.” Cramer used

Why Qualcomm (QCOM) Stock Is Down Today

Why Qualcomm (QCOM) Stock Is Down Today Shares of wireless chipmaker Qualcomm (NASDAQ:QCOM) fell 6.2% in the morning session after the company announced its plans to diversify from the smartphone market by the end of the decade during its IoT and Automotive Diversification Investor Day event. However, the stock’s reaction suggests markets are struggling to

Nvidia stock dips despite optimistic forecast for ‘Age of AI’

The Claman Countdown panelists Scott Bauer and Jay Woods unpack the companys earnings. Nvidia released its earnings report on Wednesday and projected that fourth-quarter sales were above Wall Street estimates, but investors balked as those figures fell short of the lofty expectations the artificial intelligence (AI) giant has garnered during its historic rise. Nvidia forecast fourth-quarter

Is MicroStrategy Forming a Blow-off Top?

Bubbles Always Burst History is littered with the memories of epic bubbles in various markets worldwide. “Tulip Mania” took the Netherlands by storm in the 17th century when tulip bulb prices exploded to extraordinary heights before crashing down to earth. In the early 1980s, the billionaire Hunt brothers, believing that inflation would run rampant, attempted

Super Micro Computer Submits Nasdaq Compliance Plan Amid Filing Delays

Super Micro Computer (SMCI) has submitted a compliance plan to Nasdaq on November 18, 2024, requesting an extension to regain compliance with listing requirements. The company is currently non-compliant with Nasdaq rule 5250(c)(1) due to delays in filing both its 2024 Form 10-K and Q1 2025 Form 10-Q. SMCI believes

Why Target Stock Is Getting Crushed Today

Based on the market reaction, it seems the third quarter couldn’t have gone worse for discount retailer Target (TGT -21.41%). And that initial response looks about right. The company missed third-quarter revenue and earnings estimates and slashed its full-year guidance. It was the biggest earnings miss for the company in two years. And the stock

Northrop Secures a Contract to Boost US’ Underwater Capabilities

Northrop Grumman Corp. NOC recently clinched a contract to provide ongoing support for the Trident II (D-5) deployed ballistic missile submarines and the guided missile submarines (SSGN) underwater launcher systems (ULS). The award has been offered by the Strategic Systems Programs, Washington, D.C. Details of the Deal Valued at $42.4 million, the contract is expected

Target CEO Says Consumer Budgets Are Being ‘Stretched’

As economic uncertainty and rising costs continue to impact consumers, shoppers are more cautious with their spending, according to Target CEO Brian Cornell. Faced with a volatile financial landscape, many are making deliberate purchasing decisions, prioritizing essentials and seeking value. “Consumers tell us their budgets are being stretched,” Cornell said Wednesday (Nov. 20) during the

Nvidia, Nokia, Walmart, Volkswagen and British Land

Shares in chipmaker Nvidia were flat in pre-market trading ahead of the release of its highly anticipated third-quarter earnings after the bell on Wednesday. Nvidia has become a bellwether for gauging the strength of the global push in AI, with demand for its chips as an enabler of this trend continuing to drive the company’s

Nvidia to report Q3 earnings today as AI fever continues to power Wall Street

Nvidia (NVDA) will report its third quarter earnings after the bell today, giving Wall Street its best and latest look into the strength of the artificial intelligence trade. The world’s largest publicly traded company by market cap, Nvidia’s stock price has continued to rocket higher throughout 2024, thanks to the explosive growth in AI across

Nvidia Earnings Report Could Trigger $300 Billion Market Swing

Market watchers are bracing for potentially historic volatility when Nvidia reports its earnings  on Wednesday (Nov. 20), according to Bloomberg News. The chip giant’s stock could move about 8% in either direction following the results, potentially shifting its market value by nearly $300 billion — an amount exceeding the total worth of most S&P 500

Better Artificial Intelligence Stock: Nvidia vs. Palantir

Palantir (NYSE: PLTR) and Nvidia (NASDAQ: NVDA) are two of the best-performing stocks on the S&P 500 this year. In fact, they rank in second and third place for share price gains, respectively, behind only Vistra, an unregulated utility that has spiked on bets that the same artificial intelligence (AI) boom driving Palantir and Nvidia

Wall Street Looks to Nvidia Earnings for Blackwell Demand Numbers

Morning! Retired Navy SEAL Jocko Willink sometimes works out for three hours a day, but some of the most effective exercises don’t require much equipment and can be done right at home. In today’s big story, all eyes are on Nvidia’s earnings report after the bell and what it says about the chip giant’s future.

Stock markets retreat ahead of Nvidia earnings

Chip behemoth Nvidia, the world’s most expensive listed company and market darling, will release earnings Wednesday (JUSTIN SULLIVAN) US and European stock markets retreated on Wednesday as investors eagerly awaited results from artificial-intelligence giant Nvidia. The dollar firmed against rivals as US president-elect Donald Trump works on completing his cabinet picks, the outlook for US

Robinhood’s Acquisition of TradePMR to Transform Wealth Management

Robinhood Markets HOOD has announced a pivotal move in its expansion strategy with the $300 million acquisition of TradePMR, a custodial and portfolio management platform specializing in services for Registered Investment Advisors (RIAs).  With this stock and cash deal expected to close in the first half of 2025, HOOD is signaling a significant shift from

Palantir’s Stock Just Did Something It Hasn’t Done Since 2021

Palantir (PLTR 2.81%) has been one of the hottest artificial intelligence (AI) stocks to own this year. It’s up around 280% as of the time of this writing and has far exceeded many investors’ expectations. However, this run-up hasn’t entirely come from its business booming, as the price investors are willing to pay for its

0
Would love your thoughts, please comment.x
()
x