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.”
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“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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