JPMorgan's Dubravko Lakos on 2025 Market Strategy, Scenarios, and Fed Policy

Market Strategy and Scenarios

• 🎯 JPMorgan's base case for the S&P 500 is 5200, assuming reciprocal tariffs from April 2nd remain in effect.
• 💡 The strategy involves thinking through scenarios rather than relying on a single forecast, with a bull case of 5800 and a bare case of 4000.
• 📉 A bare case of 4000 implies some form of recession and contraction.
• 🗓️ The focus is shifting towards 2026 earnings estimates (currently around $305) as 2025 EPS numbers are considered less relevant for year-end price targets.

Economic Outlook and Catalysts

• 📈 A potential growth anchor for 2026 includes tax cuts and the onshoring/nearshoring trend.
• ⚠️ The market is navigating an environment with a potential for a large tax hike impacting US households and consumers.
• 🚫 Concerns exist about the trade discussions with China, which could impact margins for many US businesses, especially small caps.
• 🏦 The absence of a credit issue or banking crisis is noted, but potential unintended consequences from pushing economic policies too far are a risk.

Market Positioning and Consumer Strength

• 🛡️ A defensive market bent is recommended, with overweight positions in utilities, staples, and healthcare.
• 📊 Neutral stances are advised for tech and financials due to better asymmetry in low-volatility, defensive names.
• 💡 These defensive names may perform well if rates come down and valuations become more appealing.
• 🎣 Opportunities exist for bottom fishing in high-quality growth names that have been impacted by recent market momentum crashes.

Consumer Behavior and Fed Policy

• 🤔 There's difficulty in deciphering data regarding the consumer's resilience, with questions about front-loading of spending and the true underlying effect.
• 📉 JPMorgan has pushed back its expectation for the first Fed cut to the third quarter, anticipating the Fed remains anchored around inflation.
• 📊 The bond market is seen as calling the shots, with recent volatility making a significant impact.