Jamie Dimon Sees Risks in the Stock Market. It Isn’t the First Time.

JP Morgan Chase CEO Jamie Dimon isn’t afraid of making predictions. (Al Drago/Bloomberg)

Former British Prime Minister Winston Churchill was quoted more than a century ago as saying that his greatest political challenge was that of “events,” or the unknown circumstances that can ultimately bring down a government.

Fast forward to today. It may be worth adding bank CEOs to the list of those whose predictions can be undone by things that happen unexpectedly, although that hasn’t stopped them from making them.

JPMorgan Chase boss Jamie Dimon, the son of a stockbroker and as steeped in financial market knowledge as any executive on Wall Street, has seen more than a few of his forecasts fall flat recently. The culprit has generally been what the late Donald Rumsfeld famously described as “unknown unknowns”.

Dimon’s place at the helm of Wall Street’s signature bank, and his informal status as capitalism’s voice of reason, mean media outlets from around the world ask him a lot of questions. And, to his credit, he very rarely seeks to avoid responding.

But his record isn’t great.

Back in the summer of 2022, when the Federal Reserve was slowing the pace of its bond purchases, inflation was just about to peak and oil prices had taken off because of Russia’s war on Ukraine, Dimon warned of an economic “hurricane” that could thrash global markets.

A few months later, of course, the market began its long bull march, supercharged by the launch of OpenAI’s ChatGPT, a steady pullback in inflation pressures, and a resilient domestic economy.

Dimon had every right to be concerned at the time, and as steward of the nation’s biggest bank, a responsibility to articulate it. But he didn’t see the artificial intelligence trade, the market’s ability to blow through Fed rate hikes ,and the efforts of OPEC to keep oil prices in check.

In the summer of 2023, he said that it would be a “huge mistake” to think the economy would continue to outperform. A few months later, he warned that the Fed could raise its benchmark borrowing rate to as high as 7%.

The economy defied recession risks, of course, and the Fed began cutting rates in the autumn of 2024.

Today, Dimon told the BBC he remains “far more worried than others” about a stock market correction. He cited the combination of fiscal weakness in the U.S., the Trump administration’s attack on the independence of the Fed, and a slumping U.S. dollar.

“The level of uncertainty should be higher in most people’s minds than what I would call normal,” Dimon said of the current economic and market conditions. “So if the market is pricing in 10%, I would say it’s more like 30%.”

Perhaps remembering the accuracy of his previous predictions, however, Dimon was quick to add an important caveat as to when such a correction might occur. “I’m not saying next year because the timing of these things is almost impossible,” Dimon said.

But that timing is critical. Missing out on even a few days of a rally, even if you also suffer the 10% pullback that is usually defined as a “correction,” can have a big impact on your portfolio.

A recent note published by Deutsche Bank analysts Adrian Cox and Stefan Abrudan cited data showing that a $10,000 investment in stocks in 1996, during the heady days of the dot-com rally but also before its collapse in March of 2000, would be worth around $170,000 today.

However, that pile would be “less than half as much if you’d missed the 10 best days and a quarter as much if you’d missed the 20 best days” of the market’s moves since then.

Portfolio managers, meanwhile, don’t have an incentive to predict market corrections. A fund manager that loses money in a falling market, like everyone else, simply gets a smaller bonus. One who loses money when the market is going up gets fired.

That dynamic generally keeps money flowing into stocks even as concerns pile up. Today’s version of that is worry about stretched valuations, a bubble in artificial intelligence stocks, weakness in the job market, and a lack of government data showing how bad things are.

As Joe Tigay, portfolio manager at Ration Equity Armor Fund, puts it, “the wall of worry remains formidable, but history suggests it’s worth climbing.”

I bet even Jamie Dimon would agree with that.

Write to Martin Baccardax at martin.baccardax@barrons.com