JPMorgan Lists The Bull And Bear Cases For Markets

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by Tyler Durden
Monday, Aug 16, 2021 - 08:31 PM

With most banks publishing mea culpas (see Goldman and Morgan Stanley) for failing to predict the meltup in the market that has now pushed the S&P 100% higher from the pandemic bottom in March 2020 and is trading at a new all time high as of this moment, this morning JPMorgan - which has been one of the most vocally bullish banks even if it has called for outperformance of value stocks which have lost their mojo in the past 3 months as the reflation case was abandoned by markets - published its Bull and Bear Cases, including several key risks that the bank's strategist believe will define markets for the next few months.


  1. Earnings momentum – JPM's chief equity strategist increased his EPS estimates on 7/20/21 to $205 for 2021, $230for 2022, and $250 for 2023; all are above Street consensus

  2. Accelerating buybacks – As of 8/6/21 there were $477bn of announced buybacks, implying $800bn annualized number which would trail only 2018 in $-volume and exceed 2019’s $702bn

  3. Improving COVID environment –this will boost Consumer spending and job growth; JPM cites Marko Kolanovic' view that the effective reproduction number (Rt) is declining in 40 of 50 states

  4. More stimulus – the most likely is infrastructure, which could be $550bn or ~$4T

  5. China growth reboot – China may decide to add more fiscal & monetary stimulus helping boost RoW

  6. Improved labor markets – this would also have positive, direct impacts on GDP.


  1. COVID expands/mutates – JPM says that there is evidence that Delta-variant is more harmful on children than other strains and the under 18 year old hospitalization rate is the highest of the pandemic (WaPo); given children under 12 are ineligible for vaccines JPM believes that "we may see lockdowns reinstated to protect kids"

  2. Online schooling – A move to delay or cancel in-person learning is market negative given the impacts on the labor market, spending without stimulus, and sentiment;

  3. Fed policy mistake – The bank believes that at this stage, it would be too early for the Fed to announce tapering which could mean that unemployment does not reach February 2020 levels as financial conditions tighten;

  4. China’s COVID-Zero policy hurts global growth – the shutdown of the world’s 3rd busiest port in China in response to one positive case triggering global delays include at the Port of Los Angeles but generally the policy has led most economists to downgrade growth.

  5. Government Shutdown – US fiscal policy has been a tailwind throughout the pandemic but the fighting surrounding infra and the debt ceiling could lead to another shutdown according to JPM; the 2011 shutdown led to a US credit downgrade on 8/5/11 triggering a 1.29% decline in the SPX in Aug/Sept with the 10Y yield falling from 2.40% on 8/4 to 1.92% on 9/30


  1. Geopolitics – the top risk is the situation in Afghanistan which could spill across the region potentially bringing American/Allied, Chinese, or Russian, forces to the region or a prolonged basis; at best this is a humanitarian crisis that triggers waves of refugees;

  2. US Consumer fails to boost the economy – while much focus has been on stimulus and savings rates, one hidden source of level is the proliferation of Buy Now, Pay Later (“BNPL”) that grew from $9.5bn in 2019 to $19bn in 2020 (CNBC) and may grow exponentially from here given new entrants like Apple and M&A. There is evidence that BNPL represents hidden leverage and thus could mute the impact of normalizing savings rates and/or become a new source of economy-wide credit risk.

  3. Rates/USD – a surge in yields, a plunge in dollars, or inflation expectations jumping materially could drive volatility into Equity markets; and,

  4. Financial conditions – could become a headwind, stalling growth.