Stocks fell this morning after JPMorgan CEO Jamie Dimon warned investors of an impending economic “hurricane.” The Dow, S&P, and Nasdaq Composite all tumbled. Even mega-cap tech stocks, which did well yesterday, dropped slightly.
“You know, I said there’s storm clouds but I’m going to change it […] it’s a hurricane,” Dimon said at a financial conference earlier today.
“You better brace yourself. JPMorgan is bracing ourselves and we’re going to be very conservative with our balance sheet.”
He continued with the weather metaphors, adding that conditions seemed “fine” at the moment, but the coming hurricane could be anything ranging from “a minor one or Superstorm Sandy.”
Dimon placed the majority of the blame on the Federal Reserve, and more specifically, its quantitative tightening (QT) program that begins this month and will increase to $95 billion per month in bond reductions.
“We’ve never had QT like this, so you’re looking at something you could be writing history books on for 50 years,” he said.
Quantitative easing (QE), on the other hand, completely “backfired” according to Dimon. He called the decision to induce negative rates a “huge mistake” as well.
Sound familiar? It’s something that we, along with a handful of other skeptical analysts, have been saying for years. In his remarks this morning, Dimon essentially ran down the key talking points we covered back when the Fed initially uncorked a massive QE program in response to Covid.
That was before the war in Ukraine, however, which could potentially do even more economic damage to Western nations as the price of oil ramps higher.
Crude “almost has to go up in price” Dimon said, before predicting prices of $150-175 per barrel. Brent crude is currently trading for around $120 per barrel. A jump to $150 would represent a 25% increase in price.
That’s significant. And, if Dimon’s prediction proves to be accurate, major energy uncertainty could be awaiting the West as a result.
“Wars go bad, [they] go south in unintended consequences,” he said.
“We’re not taking the proper actions to protect Europe from what’s going to happen to oil in the short run.”
Really, Dimon’s call for $150-175 crude barrels is what pitched stocks lower today. As we mentioned recently, the market is back in “bad news is good news” territory with investors eagerly awaiting a halt to the Fed’s rate hikes.
Rising inflation, however, is still being interpreted as a major bearish impulse. Rising oil prices suggest inflation will remain persistently high as well, which may prompt the Fed to return to a more hawkish stance.
“I hate the word unprecedented,” Dimon concluded. “You’ve got to put this in the back of your mind, when we’ve seen things that have never happened before […] you have to question your ability to predict [outcomes].”
Hopefully, Dimon’s proven wrong. But the possibility that he’s right – that crude will advance to as high as $175 per barrel – remains a threat to the bear market rally. And, until investors see news suggesting that peace will be reached in Ukraine, it will continue to weigh on bulls for the foreseeable future.