Jamie Dimon warns of complacency in the market: S&P 500 earnings are going to zero, inflation and stagnation risks are rising

Market Overconfidence: Dimon Points Out Three Major Concerns

JPMorgan Chase CEO Jamie Dimon warned at the annual investor day event in New York this week that the current market is underestimating the risks of U.S. fiscal deficit, trade tariffs, and international tensions. He stated: "We have a massive deficit, and an overly complacent central bank. Everyone believes the central bank can handle everything, but I don't think so."

Dimon further pointed out that the market's current optimistic sentiment is built on a reality not yet fully realized, especially regarding the actual impact of tariff policies. He emphasized that investors' nonchalance about potential economic risks is an unusual phenomenon.

Will S&P 500 Profits "Return to Zero"? Dimon Warns

Regarding corporate profit expectations, Dimon expressed extreme pessimism. He predicted that due to increasing uncertainty, the profit growth expectation for S&P 500 index companies would decline from around 12% at the beginning of the year to potentially "0%" in the next 6 months. He believes that once companies start revising their financial forecasts, investors will readjust the price-to-earnings ratio, leading to stock price declines.

He directly stated: "I believe profit expectations will be revised downward, which also means the price-to-earnings ratio will decrease."

Stagflation Risk Doubles

Dimon is not only pessimistic about corporate profit prospects but also raised deeper concerns about economic trends. He pointed out that the market underestimates the possibility of "stagflation," a scenario where economic growth stagnates while inflation occurs simultaneously. He stated that the probability of this scenario is approximately twice the current market expectation.

Investment Banking Slows Down, Enterprises Still Observing

JPMorgan executive Troy Rohrbaugh added that corporate clients are still taking a wait-and-see approach to mergers and capital market operations. He predicted that investment banking revenue in the second quarter this year would decline by "mid-teens percent" (13% to 17%) compared to the same period last year, while the trading department's performance would slightly improve, expected to grow by "mid-to-high single digits".

Successor Not Yet Determined, Longest Speaker Has Highest Hope

Regarding the succession issue, Dimon stated that there is currently no change, reiterating last year's timeline: "If I work for four more years and then serve two more years as executive chairman, that would be considered long enough."

Notably, Consumer Finance Division head Marianne Lake was given a full hour of speaking time at the meeting, making her the longest-speaking executive of the day and raising her profile as a potential successor. In contrast, another potential successor, Chief Operating Officer Jennifer Piepszak, has publicly stated that she will not compete for the CEO position.

Due to investors' concerns about U.S. debt issues, the upcoming new budget, and escalating trade conflicts, global asset prices experienced significant volatility early this week. The U.S. stock market initially dropped sharply in the morning but gradually stabilized. The S&P 500 index was nearly flat around 2 PM after falling nearly 1% earlier. The Nasdaq index rebounded to last Friday's closing level after dropping 1.3% at the opening.

The cryptocurrency market was also affected. Bit fell in the early morning but recovered some losses by afternoon, trading slightly above $105,000, down about 1% from Sunday's high.

One of the triggers for market turbulence was Moody's announcement late Friday to downgrade the U.S. government's credit rating from the highest AAA to Aa1, indicating a slight increase in risk. This move was widely seen by analysts as the primary reason for the stock market's early morning decline and the rise in U.S. Treasury yields.

Moody's attributed the downgrade to the continuously expanding U.S. fiscal deficit and rising debt interest liabilities. In fact, two of the three major U.S. credit rating agencies had previously made similar decisions; S&P Global Ratings downgraded the rating in 2011, and Fitch Ratings also downgraded in 2023.

The second market trigger was Trump's Big, Beautiful Tax Bill being questioned by both the House and Senate, which is believed to increase the federal deficit and is currently under revision to gain bipartisan support. The following is a compiled analysis report.

Analysts Believe Moody's Rating Downgrade Will Only Cause Short-Term Market Volatility

Market observers and analysts believe Moody's rating adjustment should be viewed rationally. Nicholas Colas, co-founder of DataTrek Research, pointed out that Moody's rating downgrade might trigger short-term market volatility, but historical experience shows this does not equate to structural interest rate increases, imminent economic recession, or long-term stock market decline.

He added that credit rating agencies play an important role in capital markets, but their assessment of U.S. sovereign debt cannot accurately predict the price trends of digital assets.

The White House seems unconcerned about this news. Treasury Secretary Scott Bessent stated in an NBC interview this morning that Moody's is a lagging indicator.

Big and Beautiful Tax Bill May Increase Federal Deficit, Bill Undergoing Revision Review

The "Big and Beautiful Tax Bill" championed by the Trump administration received partial key committee votes in the House of Representatives on Sunday. Experts from both parties unanimously believe the bill will further increase the federal deficit over the next decade. House Speaker Mike Johnson stated that to win support from fiscal conservatives within the Republican Party, some revisions have been made to the bill's content. House Budget Committee Chairman Jodey Arrington revealed that bill negotiations are ongoing, with the House potentially voting as early as Thursday.

Moody's, one of the three major international credit rating agencies, has long been considered a crucial reference for global investors in measuring risk through its sovereign credit ratings. Founded in 1909, Moody's rating system brought standardized risk measurement tools to debt markets, especially after rapid international financial market development, with its national sovereign credit assessments viewed as key variables in international capital flow and borrowing costs.

The United States has long maintained the highest AAA credit rating, symbolizing global capital market confidence. However, since Standard & Poor's first downgraded the U.S. rating in 2011, the U.S. credit rating has begun to waver. Moody's follow-up downgrade symbolizes increased market concerns about U.S. federal government deficit and policy uncertainties. Although the short-term impact on assets and market prices is limited, in the long term, continued rating downgrades may persistently increase government borrowing costs and challenge the U.S. status as a "global risk-free asset".