JPMorgan strategists have once again reiterated their concern about the sustainability of this year’s rally in U.S. equities. The S&P 500 is up 16.2% year-to-date.
The strategists point out that the situation is becoming “increasingly unsustainable” due to expanding multiples in the face of a restrictive rate environment.
“Equities are up 16% YTD mostly on multiple expansion while real rates and cost of capital are moving deeper into restrictive territory. History suggests this relationship is becoming increasingly unsustainable, posing risk to the equity multiple, especially since earnings expectations already face a high hurdle for 2024,” they wrote in a client note.
Rising deposit costs and capital needs are making lenders pickier, at the cost of growth
in a Sept. 8 note that looked among other things at hedge funds’ Treasury exposures, Fed economists said there was a risk of a rapid unwind of basis trade positions in case of higher repo funding costs. This would exacerbate episodes of market stress, they warned, “potentially contributing to increased Treasury market volatility and amplifying dislocations in the Treasury, futures, and repo markets.”
— 🅰🅻🅴🆂🆂🅸🅾 (@AlessioUrban) September 14, 2023
I think there is a much bigger chance than most believe that the Fed hikes 25 next week. Either way, higher for longer until something major breaks. t.co/wWTHLDDWyh
— RJR Capital (@RJRCapital) September 14, 2023
The personal savings rate of the US consumer was 3.5% in July, not far from the all-time lows set in the mid-2000s.
It was nearly 9% prior to the pandemic, per Bloomberg.
— unusual_whales (@unusual_whales) September 14, 2023
These next two weeks were the worst weeks for the market in 2022. pic.twitter.com/vuXKVLLavT
— Mac10 (@SuburbanDrone) September 14, 2023