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The S&P 500 could fall by 10% during the summer months to 4,800 points, according to JP Morgan.
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The bank highlighted three catalysts that could lead to a decline.
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May's jobs report may change the bearish narrative in the stock market.
A 10% sell-off is likely in the stock market this summer after the massive year-to-date rally, according to… JP Morgan.
The bank's trading desk said in a recent note that Standard & Poor's 500 It could test the 5000 level as support and potentially fall below it with a decline of up to 10%. This would put the index at around 4800.
According to the trading desk, there are three big catalysts that could trigger this sell-off.
“Buyer fatigue”
The recent performance of stocks during earnings season indicates that potential stock buyers have been exhausted.
The bank stressed that companies that exceeded first-quarter profit expectations performed less than the Standard & Poor's 500 index, while companies that violated expectations were punished.
“The combination of earnings season stock performance and narrowing market breadth suggests the market needs a new set of catalysts and/or reassurance about the prevailing market narrative,” JPMorgan said.
That means just consistent macro data and a cautious Fed may push investors to the sidelines during second-quarter earnings, which begin in mid-July.
“Momentum relaxation”
Much of the stock market's recent gains have been driven by momentum, with technology stocks leading the advance.
However, if momentum falters, there may be greater relaxation leading to lower stock prices.
“The key to watch is the short phase of momentum. If that falters, it will lead to a bigger pullback in revenue as part of that momentum. That chain reaction is what could lead to a 5% to 10% pullback,” JP Morgan said.
“Macro data disappointment”
A resurgence of stagflation or recession would kill hopes Soft landing in the economy This will likely lead to a decline in stock prices.
This change in narrative could happen on Friday with the May jobs report.
JPMorgan said a jobs report below the 50,000 to 75,000 range or above the 250,000 to 300,000 range could lead to a change in the narrative and hurt stock prices.
Economists' current estimates are that about 190,000 jobs will be added to the economy in May.
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