JPMorgan cautions that stocks will fall ’20-30% from 2024 peak’

According to JPMorgan equity strategists, there is now limited upward potential for the world's stock markets.

In a note, analysts stated, "We stick to our view that upside from here appears limited and that equities will fall 20–30% from a 2024 peak."

The strategists continue to hold a positive perspective for small caps in spite of this gloomy forecast, arguing that they provide a more alluring investment opportunity than their larger counterparts in developed nations outside of Japan.

Analysts said, "They stand to deliver 34-59% of alpha over the coming 2-3 years, but they could underperform by another 200-300 bps tops."

The experts point out a number of alarming disparities in the market that suggest possible risk and volatility. Among these is an inverted yield curve, which normally predicts a recession in the economy, yet profit projections point to faster growth.

Even when large caps hit new highs, there is a record difference in the performance of small and large caps, suggesting a risk-off climate. Analysts also highlight the lack of a risk premium in US shares, with earnings yields below fund rates set by the Federal Reserve.

The historically low yield spreads are another cause for concern, particularly in light of the recent aggressive rate rises by central banks—the largest in over fifty years—and the fact that corporate balance sheets are noticeably worse than they were before the 2008 financial crisis.

(Sources: investing.com, reuters.com)