JPMorgan’s head of technical strategy is warning that the stock market may see further moves to the downside in the short to midterm.
In a new CNBC interview, Jason Hunter says that JPMorgan is currently bearish on the stock market.
According to Hunter, the “tide is turning” for the S&P 500 after the stock market index printed a recent high of 4,607 points.
“So we stepped off of our bearish view with the move above 4,200, but as the markets [started] to roll over again from channel resistance at 4,600, some of our technical signals started to trigger, at that point, pattern-based signals, so we are bearish going into the fall period now.”
The technical strategist also says that the banking giant is keeping a close watch on the yield curve, which plots the interest rates of government bonds versus maturities.
Hunter says the yield curve has been inverted for quite some time now, which does not bode well for the stock market.
An inverted yield curve occurs when short-term bonds have a higher yield than long-term debt instruments. An inverted yield curve has often historically preceded a recession since the 1970s.
Says Hunter,
“If we take a big step back and look at some of the broader cross-market signals, the yield curve has been inverted for the better part of a year and a half now. Historically if you go back to the early 1970s and look at the timing of these cycles, generally between 19 and 24 months after the curve inverts, you see your cycle peaks in equity markets that then transition into an economic contraction.
As we go into the fourth quarter, you’re about to roll into that window of time from the yield curve inverting from the time ago that it did.
On top of that, just from a yearly cyclical perspective, you’ll get seasonality. It’s well known September and early October [is] not a good time to be in risky markets.
So we put that together with the high-frequency pattern signaling that we talked about already from 4,600… at the very least, for right now, looks like the pendulum is going to swing back in the bearish direction.”
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