Wall Street is turning cautious on U.S. stocks, as some experts warn of future pain. Here’s what JPMorgan, Jeremy Grantham and others had to say.

• Investors are growing increasingly wary of what the end of 2023 will bring for stocks and the U.S. economy.

• Wall Street banks, including JPMorgan and Bank of America Merrill Lynch, are becoming more defensive in their investment approach.

• Here’s what six leading voices had to say about U.S. stocks as 2023 heads into its final quarter.

There is a growing sense of caution in the U.S. stock market about the economy as 2023 approaches its final quarter — and it’s promoting a more defensive approach among investors.

This is a change in mood from the first half of the year, when investors applauded the rise of artificial intelligence and what this innovative technology could mean for corporate productivity and profits.

The S&P 500 stock index is on track for its first two-month decline in a year, with investors fearing that a combination of high interest rates, dwindling household savings and rising consumer debt could lead to bad news for stocks and the economy in general.

Those taking a more cautious investment approach include Wall Street banks such as JPMorgan and Bank of America. Even pundits such as John Hussman, the infamous market bear who predicted the crashes of 2000 and 2008, have recently warned of the pain ahead for stocks, urging them to “buckle up.”

Here is a selection of the latest market commentary from six leading voices who have taken a relatively pessimistic outlook.

JP Morgan

• “US earnings are contracting and consensus expectations for next year appear too optimistic given an aging economic cycle, with very restrictive monetary policy, a rising cost of capital, the weakening of a very accommodative fiscal policy, the erosion of consumer savings and household liquidity and an elevated risk of an economic downturn,” wrote strategists at America’s largest bank in a recent research note.

• “Therefore, we remain defensive in our model portfolio, with a UW (underweight) in equities and credit versus OW (overweight) in cash and commodities,” they added.

The story continues

Bank of America Merrill Lynch

• “Investors have lately responded positively to data suggesting the economy is weakening. Central to this “bad news is good news” dynamic is the belief that a weakening economy will lead to cooling inflation, which will be satisfied by a more accommodative central bank policy and lower interest rates. In our opinion this trend will not last forever,” the bank’s strategists said in a note seen by Insider.

• “We see a number of scenarios that could develop in the coming months that could alter the way economic data is interpreted, potentially increasing market instability during the balance of the year,” they added.

• “Our baseline scenario is for a volatile and fast-paced market environment to persist for the rest of the year. Against this backdrop, from an investment perspective, we continue to favor a disciplined approach that emphasizes diversification across asset classes” , said the minister. the strategists wrote.

John Hussman, president of the Hussman Investment Trust

• “If the recession were to start in the fourth quarter, the time to buckle up would be right now. It’s not measurable in real time, but the worst stock market outcomes start about 2 months before the recession to about 4 months before the recovery” , Hussman said in a recent X post.

Ken Griffin, CEO of The Citadel

• “I’m a little anxious that this rally will continue,” the billionaire hedge fund manager said on CNBC’s “Squawk on the Street” Thursday.

• “Obviously one of the big drivers of the rally was… just the generative AI frenzy, which has fueled a lot of big tech stocks. I like to believe that this rally has legs, I’m a little anxious that we’re in the seventh or eighth inning of this rally,” he added.

Mike Wilson, head of equities at Morgan Stanley

• “The risk-reward ratio of the S&P 500 today is one of the worst I’ve ever seen, given the earnings setup we see ahead of us combined with the valuation we have today,” Wilson said during a recent Rosenberg Research webcast.

• “Cracks are forming,” he said. “They’re everywhere, and that’s why people focus on a handful of stocks,” she added.

Jeremy Grantham, veteran investor

• “A dozen giant American stocks have had an incredible run thanks to artificial intelligence, and it has certainly created the impression that the games are over,” said Grantham, during an investor event organized by Livewire Markets in Sydney this week.

• “The problem is that prices are incredibly high and basically the economy starts to crumble,” added the co-founder of asset management firm GMO. “So it’s a fake head, but it’s a damn fake head.”

Read the original article on Business Insider