Jamie Dimon says market ignores red flags
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Jamie Dimon is warning about "complacency in the market," as stocks near all-time highs while headwinds like tariffs and interest rates keep roaring.
Why it matters: Cracks are appearing in Wall Street's bullishness, with money managers telling Axios they agree with Dimon's sentiment: The market is ignoring red flags and mispricing risks of a slowdown.
Driving the news: Dimon said Thursday markets are "a little desensitized," adding that investors are underpricing the risk of rate hikes off the back of tariff-driven inflation, immigration policy and the increased deficit.
What they're saying: "Betting on the TACO trade today at current price levels is front-running the pain that has to happen in order for it to play out," Bob Elliott, chief investment officer at Unlimited Funds, tells Axios.
The big picture: What exactly are the bulls pricing in?
- A post-tariff reality, after the one-time inflation hit of levies has already filtered through the economy and we've made it out to the other side.
- "Proactive easing" from the Federal Reserve.
Reality check: The problem? Investors are "putting the cart before the horse when it comes to the TACO trade," Elliott says.
- Pricing in a world post-tariff impact skips an important time period: one when the levies could hurt the economy.
- Investors will only get the interest rate cuts they want if the economy slows, which would be negative for stocks.
Zoom out: Elliott argues tariffs are "a further negative shock from federal government policy into an already weakening economy," which he saw before implementation of tariff policy via weakening housing activity, coupled with construction rolling over and slower hiring.
Be smart: The bullish momentum is symptomatic of a late-cycle market environment, according to Elliott, when investors have high expectations and price in great outcomes.
Yes, but: Some would argue we're just in the early stages of a bull market.
- Mary Ann Bartels, chief investment strategist with Sanctuary Wealth, believes the bull market won't end until 2030. On tariffs, she sees some volatility heading into the fall, but not a whole derailment.
- In the near term, she's focused second-quarter earnings, which could more easily surprise to the upside given the lowered expectations.
What's next: Reality will eventually get priced in, whether that's a bullish or bearish backdrop. "Eventually, asset markets catch up," Elliott says.
