The mood among market participants is among the grimmest since the pandemic, according to JPMorgan Chase & Co.'s Ilan Benhamou, but he still sees a case for US equities to rally.
Benhamou, in the bank's equity derivatives sales team, said it's hard to not be more bearish in the face of a slowing economy, rising recession odds, mounting earnings revisions and falling equities price targets. Still, he writes that “when everything looks grim that the fiercest bounces usually happen.”
“The machine looks gripped by negativity,” Benhamou wrote in a note to clients. “It's hard for a contrarian like me to resist fading one of the biggest short consensus ahead of the biggest macro week in recent years.”
Benhamou, who called for a pause in the sell-the-rally stance last week, acknowledged that his last comments “didn't age well.” US stocks posted another decline, with the S&P 500 Index falling 1.5% and the Nasdaq 100 declining 2.4% last week. The tech-heavy gauge has fallen more than 2% during five of the past six trading weeks, with big tech stocks no longer seen as havens given the uncertainty around artificial intelligence.
There could be a “no-escape rally,” he says, as markets are pricing a worst-case scenario for tariffs and the Trump administration's announcement could be vaguer than expected. “Trading sentiment could also change as quickly” as on the way down, he wrote.
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