So, naturally, the skittish market took hope from Dimon’s summary of economic conditions.
First, Dimon stressed the US economy was very strong, with the consumer still very healthy – as JPMorgan’s improving financial outlook shows. But he also acknowledged the threats to economic growth were growing, and there was a possibility of recession.
“Strong economy, big storm clouds,” he said in summing up his view.
“I’m calling it storm clouds because they’re storm clouds. They may dissipate. If it was a hurricane, I would tell you that – or a tsunami, like we had in ’07 or ’08.”
And just like that, Monday night’s mini relief rally on US markets was away.
But Dimon’s comments deserve a little more unpacking. The banking veteran’s key point was less where the US and global economy might go from here and more about the fact the world is facing a set of circumstances that it hasn’t seen before.
The strong economy, he explained, was “fuelled by monetary and fiscal stimulation like you’ve never seen before … But that strong economy is being met by two countervailing forces, both of which you’ve never seen before.”
The combination of high inflation and quantitative tightening, Dimon said, was highly unusual. Overlaying this was a war in Ukraine, which had sparked a humanitarian crisis, forced up the prices of oil, wheat and other commodities, and may yet have an unpredictable outcome.
Dimon’s point is not that a recession in the US is impossible, but rather that we have a set of circumstances that we haven’t seen before.
“If we go into recession, it may be different to prior recessions,” he said, adding JPMorgan will withstand a range of scenarios. “We’re not wishful thinkers. Obviously, we want it to turn out well, but we can handle all of that.”
The idea that a market and economic cycles are different from those seen in the past is usually met with scepticism, but Dimon’s point is well-made.
It is hard to find historic parallels for the situation the global economy finds itself in, where high inflation has been caused by unprecedented stimulus in the face of an unprecedented global pandemic that is not over.
And the question of how that inflation is brought under control is not easily answered. Interest rates will clearly rise, but whether the lingering effects of that stimulus mean inflation is harder or easier to tame than in the past is difficult to predict. Savings are higher, but so are debt levels – will that mean recession arrives faster than in the past, or can a soft landing be engineered?
What’s clear is that conditions are changing incredibly quickly. After the US markets closed, social media group Snap – owner of SnapChat – warned it would miss revenue and earnings targets because “the macro environment has deteriorated further and faster than we anticipated when we issued our quarterly guidance last month”.
That things could go south so quickly for this business – Snap only reported its March quarter earnings on April 21 – is worrying and underscores the contradictory forces Dimon refers to, where the consumer can be both cashed up but also very nervous.
Snap shares, already down 52 per cent this year, fell a further 30 per cent in after-market trade, dragging down broader US futures and ending Monday night’s relief rally.
All of which underlines Dimon’s central point. The confluence of events driving markets and economies is very different to what we’ve seen in the past, and so the outcomes are unpredictable and the pace of change rapid.
Dimon says JPMorgan is ready to ride out a wide range of scenarios. Investors should think of their portfolios in the same way.