Jamie Dimon Sees ‘Easy 20 Percent’ Drop in Stocks but Warns It Could Be Worse

JP Morgan Chase CEO Jamie Dimon testifies before the House Financial Services Committee on Capitol Hill in Washington on April 10, 2019. Mandel Ngan/AFP via Getty Images

JPMorgan Chase CEO Jamie Dimon commented that it was unlikely that the Federal Reserve would be able to slow the economy without causing a “tough” recession.

Dimon spoke at a financial industry conference in Washington on Oct. 13 where he made his prediction.

He said that Wall Street could suffer another “easy 20 percent” drop, plunging the S&P 500 below 3,000 to a level not seen since the height of the pandemic.

“I don’t know if it could be a soft landing—I don’t think so, but it might,” regarding a market plunge, believing that there would be a mild or a severe recession.

“In a tough recession, you could expect the market to go down another 20 percent to 30 percent,” which is 10 percent higher than the number he first floated four days ago.

A decline of that magnitude could push the S&P 500 to 2,871, shaving $6 trillion off its current market value of $30 trillion, according to Bloomberg.

The S&P 500 has already fallen 25 percent from its Jan. 3 peak.

Dimon’s prediction would push it about 40 percent below its peak, well beyond the average drawdown for bear markets.

The S&P 500 lost 57 percent of its value, after peaking in October 2007 and only hit rock bottom in March 2009 in the wake of the Great Recession.

Top Five Companies

The top five companies on the index Apple, Microsoft, Alphabet, Amazon.com, and Tesla, account for 21 percent of the index, said Bloomberg.

Any big declines from those big Tech stocks could quickly push the markets lower, creating risk for equity investors.

Amazon has since lost more than 30 percent of its value since the beginning of the year.

Tesla, Microsoft, and Alphabet have all lost at least a third of their value.

Even Apple, which normally delivers stable earnings, tumbled 21 percent.

Traders work on the floor at the New York Stock Exchange in New York on Oct. 4, 2022. Seth Wenig/AP Photo

Prediction Sparked Selloff

His earlier comments on Oct. 10 to CNBC, predicting a worldwide recession in “6 to 9” months due to factors such as rising interest rates, continuing inflation, and the Ukraine crisis, sparked a selloff on Wall Street this week, which sent the markets down.

“These are very, very serious things which I think are likely to push the U.S. and the world—I mean, Europe is already in recession—and they’re likely to put the U.S. in some kind of recession six to nine months from now,” Dimon said.

Dimon criticized the Federal Reserve in the interview, saying it “waited too long and did too little” in hiking interest rates in hopes of taming runaway levels of inflation not seen in four decades.

Meanwhile, he said that he still maintains “total faith and trust” in Fed Chairman Jerome Powell and explained why the central bank cannot cool the economy without bringing on a real recession.

He also explained that economic stagflation is a far worse alternative than most of the other potential outcomes and supports the Fed’s policies.

U.S. Federal Reserve chair Jerome Powell speaks at a news conference following a meeting of the Federal Open Market Committee at Federal Reserve headquarters in Washington, D.C., on July 27, 2022. Drew Angerer/Getty Images

The JP Morgan chief also said that his “gut” tells him that the Fed’s benchmark rate will probably have to rise higher than the 4 to 4.5 percent level, which economists say is required to beat inflation.

The Labor Department’s core inflation results, excluding food and energy, rose to a 40-year high of 6.6 percent in September from last year, according to data released on Oct. 13.

Dimon also noted that the consumer strength will be healthy enough for another nine months, which is around the time the recession hits, and that markets may be getting ahead of themselves.

“Someone is going to be off-side,” said Dimon.

“We don’t see anything that looks systemic, but there is leverage in certain credit portfolios, there’s leverage in certain companies, so you’re probably going to see some of that.”

Dimon also took a swipe at President Joe Biden’s energy policy following OPEC’s decision to cut the global oil supply by some 2 percent last week.

“Obviously, America needs to play a real leadership role—America is the swing producer, not Saudi Arabia,” Dimon told CNBC.

“We should have gotten that right starting in March,” said Dimon, commenting, “in my view, America should have been pumping more oil and gas and it should have been supported.”

Gas prices over $7.00 a gallon are displayed at a Chevron gas station in Mill Valley, Calif., on Oct. 3, 2022. Justin Sullivan/Getty Images

The Biden administration had been pushing Saudi Arabia not to slash production amid high oil and gas prices while cutting American crude production domestically.

“Jamie Dimon is right—we need to lead on energy production, which will increase supply & make us less vulnerable to OPEC+, inevitably leading to lower prices,” said Sen. Kevin Cramer (R-N.D.) in a tweet.

The JPMorgan CEO is later expected to report his bank’s earnings today and clarify why it refuses to move its deposit rate above 0.01 percent, which is keeping $2.2 trillion in liquidity locked inside the Fed’s overnight funding facility.

Shares of the bank are down roughly 33 percent year to date, reported CNBC.