-
According to JPMorgan, the S&P 500 could fall 10% over the summer to 4,800.
-
The bank highlighted three factors that could cause a decline.
-
The May employment report could trigger a bearish shift in the stock market.
After a big rally so far this year, the stock market could see a 10% sell-off this summer, according to JPMorgan.
The bank’s trading desk said in a recent note that the S&P 500 will test the 5,000 support level before a break below which could see it fall by as much as 10%, which would put the index at around 4,800.
According to the trading desk, there are three big factors that could trigger such a sell-off.
“Buyer fatigue”
Recent stock price movements during earnings season suggest that potential stock buyers are becoming fatigued.
The bank highlighted that companies that beat first-quarter profit expectations underperformed the S&P 500 index, while companies that missed expectations were hurt.
“The combination of earnings season stock price activity and narrowing market breadth suggests the market is in need of a new set of catalysts and a reaffirmation of the mainstream market outlook,” JPMorgan said.
That means that during the second-quarter earnings season that begins in mid-July, macroeconomic indicators that are in line with expectations and a cautious Fed stance could be enough to force investors to wait and see.
“The momentum is waning.”
Much of the stock market’s recent rally has been driven by momentum, with tech stocks leading the way.
But if momentum fades, a larger unwinding could occur, sending stock prices lower.
“The focus will be on near-term momentum, as a stall in that would trigger greater deglossing as part of the momentum loss. This could lead to a knock-on effect of a 5-10% decline,” JPMorgan said.
“Macro data disappoints”
If talk of stagflation or recession resurfaces, hopes for a soft economic landing will be dashed and stock prices will likely fall further.
A change in that narrative could come with Friday’s May jobs report.
JPMorgan said a reading below the 50,000 to 75,000 range or above the 250,000 to 300,000 range could trigger a shift in public opinion and hurt stock prices.
Economists currently estimate that about 190,000 jobs were added to the economy in May.
Read the original article on Business Insider
