JPMorgan Chase CEO Jamie Dimon is warning investors to pump the breaks in early 2025, calling the U.S. stock market inflated.
“Asset prices are kind of inflated,” Dimon said. “By any measure they’re up 15-20 percent—and are very elevated. There’s a lot of negatives out there and they tend to surprise you.”
Dimon says the U.S. economy is relatively stable and has a strong U.S. dollar, but what the market “really needs is growth.”
Growth is the “only resolution” to reduce these deficits and debts, especially private capital which dwarfs government investment,” Dimon noted. The JPMorgan CEO cited an “anti-business” sentiment right now that “misses the respect of the voter” and “is why those voters may have grievance and anger” that should be respected.
Dimon also brought up multiple issues, including “government spending” and “geopolitics and Ukraine, Russia, Iran, and China and whether these things can get resolved.” He also touched on economic flashpoints like overspending and high prices.
“What I’m a little cautious about is the deficit spending; it’s a global issue, not just an American issue,” he told CNBC. “And the related [issue] is, ‘Will inflation go away?’ I’m not so sure.”
The U.S. stock market has continued to run hot in January, with the S&P 500 experiencing a notable upswing, climbing by 3.6 percent year-to-date and rising 25 percent over the past year. Meanwhile, company earnings are estimated to grow by 14.8 percent annually, well ahead of the 8 percent trailing 10-year earnings average from 2014-to-2023.
Market experts say Dimon is right to express caution about stocks, even if he’s looking at the market from a fundamental standpoint.
“The price-to-earnings ratio of the entire SPX is in the top 10th percentile in the history of the stock market, exceeded most recently by the dot-com boom of the late 90s,” says Jason DeLorenzo, founder of Volland, a Virginia-based hedge-trading analysis company. “In that sense, Dimon is correct that the stock market is overvalued.”
DeLorenzo issues one caveat.
“However, the market is more than earnings,” he notes. “Inflation has created a lot of money that is not yet being reflected in earnings fully. This is because a lot of that inflation is monetary, from money creation by the U.S. government deficit”
Consequently, stocks are overvalued from a fundamental perspective, he says.
“But when you have a lot of monetary inflation from the COVID response, it makes sense there would be a period that stocks would reach these valuations,” DeLorenzo adds. “Dimon is right to be cautious about a retracement, because overvaluations, either fundamental or monetary, fall back eventually. Rarely does growth outpace inflation like that.”