2018 stock market crash? Warnings and optimism from JPMorgan.

Someone googled for ‘stocks collapse 2018’ and they found kopiandproperty.com. Two of them. Cool. Anyway, I googled for the same keywords and found under ‘News’ category that there was a recent article about it. The warnings plus optimism (same article) coming from JPMorgan. Since JPMorgan’s revenue for 2016 was close to US$100 billion, I think they know more than most of us. First of all, that full article from JPMorgan’s warning here. It’s in businessinsider.my They even coined a term for it called ‘Great Liquidity Crisis.’ It does not say exactly when but it said that the unwinding of Federal Reserve’s massive balance sheet will be one likely cause. Basically, a collapse in liquidity. (To explain in brief, since the 2008 crisis, the Federal Reserve has been buying government bonds, mortgage-backed securities and other assets to support the economy. It will STOP continuing the purchase. Well, as long as the demand from the private sector is enough to support, then it should be okay. JPMorgan is worried that this may not be the case) 

This is what Marko Kolanovic, JPMorgan’s global head of quantitative and derivatives strategy said in a client note. “The timing will largely be determined by the pace of central bank normalization, business cycle dynamics and various idiosyncratic events, and hence cannot be known accurately.” A few other things may be adding up together to add to the severity of this liquidity disruptions. Currently however, everything seemed okay. Kolanovic said that conditions are fine and that currently, the market is backed by optimism over an overhaul of the tax system and a stock market rotation at the sector level.  Currently, the S&P 500 has just reached record highs and even earnings growth is growing strongly and this is the backbone of the 8.5 year bull market. He concluded his overall assessment with the same worry. That the Federal Reserve may just take an early decision to proceed with this.

From the many recent news, it’s clear that Federal Reserve is positive that the U.S. economy is on the right track. This was also strengthened by Yellen’s support for continuous increase in rates even if Trump does not really agree. Now, we could see that JPMorgan also feel that it may be better for Fed to continue supporting the market. Well, no time lines were stated though. My opinion is simple. Increase the rates if the U.S. economy is really strong. Stop all the rhetorics and thus all the useless anticipation and thus speculative activities in the currency market. By the way, if it is not as strong as was expected, the market better be OBJECTIVE. Till then, happy reading and following. Yes, I love Economics even if I have taken just a few modules of it. Cheers.

written on 15Oct 2017

Next suggested article: Yellen: Next financial crisis not happening during our lifetime


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