DEEP DIVE: Pessimistic Consensus

It’s hard to be a contrarian for very long these days because the consensus seems to change so quickly. At the end of last year, there seemed to be widespread agreement that the first half of 2023 would continue to be bad for stocks as the Fed continues to raise interest rates and the market discounts a recession during H2-2023. The bear market in stocks was expected to continue through mid-year, with the major stock market averages falling to new lows before the start of a bull market during H2-2023 as the market started to discount a better 2024. The year has barely started, yet the consensus already seems to be turning less pessimistic. Consider the following:

(1) The boy who cried “hurricane” all the way to the bank. Leading the consensus on the economic outlook has been JPMorgan Chase CEO Jamie Dimon. In May of last year at an annual conference sponsored by AllianceBernstein, Dimon told a group of investors that a “hurricane” was coming for the economy. “Right now, it’s kind of sunny, things are doing fine, everyone thinks the Fed can handle it,” he said at the time. “That hurricane is right out there down the road coming our way. We don’t know if it’s a minor one or Superstorm Sandy. You better brace yourself. JPMorgan is bracing ourselves.”

Early last week, in an interview with Fox Business, Dimon said, “I shouldn’t have ever used the word ‘hurricane.’ What I said was there were storm clouds which may mitigate, and people said, ‘Oh, he doesn’t think it’s a big deal.’ So I said, ‘No, those storm clouds could be a hurricane.” Is that clearer now? In any event, Dimon’s bank is now calling for a “mild recession” later this year.

As a result, the bank increased its loan-loss reserves by $1.4 billion in Q4-2022. In a Friday earnings call with analysts, CFO Jeremy Barnum said that JPMorgan is now on track to resume share purchases this quarter and reiterated that both small businesses and consumers are “generally on solid footing.”

JPMorgan’s profit for the three months ended December 31 was $11.0 billion compared with $10.4 billion a year earlier.