(Bloomberg) – JPMorgan Chase & Co. chief Jamie Dimon said the US stock market could suffer another “easily 20%” drop, which would push the benchmark index below 3,000 – where it hasn’t yet. ever seen since the depths of the coronavirus pandemic.
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So what would another slide of that magnitude actually look like, and which stocks will be hit hardest?
For one thing, it will be painful for investors, with technology and so-called growth stocks likely to suffer as a result, with their high valuations becoming a target when borrowing costs increase. Such a drop would push the S&P 500 to 2,871 based on Tuesday’s close, removing $6 trillion from the S&P 500’s current market value of $30 trillion.
Read: Jamie Dimon’s S&P 500 bear market: Brutal, beyond imagination
The top five companies in the S&P 500 – Apple Inc., Microsoft Corp., Alphabet Inc., Amazon.com Inc. and Tesla Inc. – makes up 21% of the index, creating a risk for equity investors as any large declines from those stocks can quickly steer the broader markets lower.
“Do I think there is a possibility of another 20% reduction? No. But there’s a more than 50% chance it could happen,” said Nick Giacoumakis, president of NEIRG Wealth Management, citing the equity downturn in the early 2000s. When the dot-com bubble burst, the S&P index The 500 has lost nearly half of its value, falling 49 percent from its peak in March 2000 to its final low in October 2002, according to Bespoke Investment Group.
When the S&P 500 index peaked in October 2007, it lost 57% of its value when it hit its low in March 2009 due to the global financial crisis.
“That’s the importance of what Dimon is talking about,” Giacoumakis added. “Back then, we went through the same peak as we are now, but instead of internet stocks it’s now SPACs and trillions of dollars of excess liquidity have put the economy in jeopardy. “.
In this year’s market, Amazon has dropped more than 30%, while Tesla, Microsoft and Alphabet have all lost at least a third of their value. Apple — a stock that delivers steady earnings and pays a steady dividend — is also unscathed this year, down 21%. However, Giacoumakis, who is fond of big tech, is more concerned about chipmakers falling due to growing growth concerns.
The S&P 500 is down 25% from its closing high on Jan. 3. Another 20% drop from its high would push it below its peak by about 40% – well above the average drop for the S&P 500. with the bear market.
Since World War II, there have been nine bear markets that have accompanied a U.S. recession, with the S&P 500 index falling an average of 35% compared with a 28% drop in bear markets that were not accompanied by a recession. economy, according to CFRA.
Take a quick look at what Dimon says could happen to the market in the near future. Is he serious or just downplaying expectations ahead of the bank’s earnings on Friday?
“The man of Dimon. All he can do is estimate how the economic data comes in,” Giacoumakis said. “We are not in a recession yet, but I think it will come within the next three to nine months. So we have enough money left in the equity bubble to drop another 10% to 15% from here, no sweat. “
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