Jamie Dimon warns stock market and Treasury bond risks underpriced

JPMorgan Chase CEO Jamie Dimon said in an interview on Monday that he wouldn’t buy stocks or long-term Treasury bonds at their current prices as he thinks investors aren’t accounting fully for risks that could cause turmoil in equity and debt markets.

Dimon said in an interview with CNBC that he thinks geopolitical and fiscal risks are “probably bigger than other people think” amid the ongoing conflicts in Ukraine and the Middle East, as well as looming tensions between the U.S. and China.

He also said that growing budget deficits by governments around the world pose a fiscal risk during a period of rising defense spending, which could lead to interest rates on government bonds remaining higher.

Dimon said he wouldn’t buy long-term Treasurys given the current conditions of the bond market, saying that he thinks interest rates on U.S. bonds will likely remain elevated even if inflation subsides.

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The JPMorgan Chase CEO said he believes “the 10-year bond should probably be at 4% to 4.5%” even if inflation returns to the Federal Reserve’s long-run target of 2%, and said that he personally wouldn’t buy long-term Treasurys and sees little upside for bond prices.

The 10-year Treasury yield is currently about 4.6% and has remained above 4.2% since March after they had trended closer to 4% late last year.

The most recent consumer price index (CPI) data showed inflation was up 3.5% from a year ago – well above the Fed’s 2% target – despite declining month-over-month as gas prices declined as the energy market stabilized during a period of reduced hostilities between the U.S. and Iran.

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Stubbornly high inflation prompted the Fed to leave interest rates unchanged at the central bank’s June meeting and Fed Chair Kevin Warsh has signaled that policymakers won’t tolerate elevated inflation.

That has caused the market’s view of the probability of rate cuts to plunge, as the CME FedWatch tool suggests that the federal funds rate will either remain steady or rise before the end of this year.

Dimon also struck a cautious note on the stock market in the interview, saying he wouldn’t invest in the broader market at the high valuations that can currently be found at many leading companies and would instead look at individual companies to find “a great investment.”

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He also likened the impact of artificial intelligence (AI) on the market as it reshapes the tech sector and the broader economy to what happened during the initial internet boom, saying that companies are spending a “huge” amount of money that may not quickly lead to the desired results.

“Will it in total pay off? Probably, just like the internet did,” Dimon told CNBC. “Will it pay off the way you expect and the timetable you expect? Definitely not.”