By JPMorgan CEO Jamie Dimon is sounding the alarm bell on stocks, stating in an interview at the World Economic Forum in Davos, Switzerland, this week that the market looks overvalued.
“Asset prices are kind of inflated, by any measure,” Dimon told CNBC in Davos. He added that “they are in the top 10% or 15%” of historical valuations.
The S&P 500 is less than 1% away from hitting a record high, and elevated valuations have been a hallmark of the current bull market rally that began in October 2022.
The S&P 500 is trading at a forward price-to-earnings multiple of 21.6x, which is above its five-year and 10-year average of 19.7x and 18.2x, respectively.
According to Dimon, much has to go right for the stock market to continue its record run.
“They’re elevated, and you need fairly good outcomes to justify those prices. Having pro-growth strategies helps make that happen, but there are negatives out there, and they can tend to surprise you,” Dimon said.
Some of the “negatives” that concern Dimon include the potential for a rebound in inflation, ongoing risks from government deficit spending, and ongoing geopolitical risks.
“What I’m a little cautious about is the deficit spending; it’s a global issue, not just an American issue,” he said. “And the related [question], ‘Will inflation go away?’ I’m not so sure.”
Dimon’s cautious comments come as the new Trump administration unleashes “animal spirits” that have helped spark a rally in the stock market.
Top hedge fund investor Stanley Druckenmiller made those comments to CNBC on Monday, arguing that in his 49-year career, he’s never seen such an about-face in Washington, D.C., comparing the pro-business stance of the Trump administration to the perceived anti-business stance of the Biden administration.
“We do a lot of talking to CEOs and companies on the ground, and I’d say CEOs are somewhere between relieved and giddy,” Druckenmiller said. “So we’re a believer in animal spirits.”
But Dimon isn’t the only one with a cautious view of the stock market.
A recent note from strategists at Goldman Sachs suggested that the stock market is “priced for perfection.”
The bank said it sees the stock market as increasingly vulnerable for a correction this year, especially when considering the historically high valuations and concentration in a handful of stocks.
“Looking at individual markets, the US has a valuation at its 20-year peak, and this remains true even if we exclude the largest technology companies,” Goldman Sachs said. “This combination of performance over recent months and high valuations implies lower returns than in 2024.”
Jamie Dimon has struck a cautious tone on the stock market before. Over the past three years, he has repeatedly warned of a potential economic “hurricane” hurting the stock market, though his prediction hasn’t yet been realized.
