Has the US stock market "finished adjusting"? Goldman Sachs, JPMorgan Chase are both very cautious

Recently, the US stock market has experienced intense volatility, witnessing the largest decline since September 2022 and the biggest rebound since November 2022. Investors are closely watching: Has the "correction" in the US stock market ended? Has the market bottomed out?

In response to this, JPMorgan Chase remains cautious.

JPMorgan Chase: Kolanovic's Redemption?

Marko Kolanovic, a high-energy theoretical physicist and former Chief Global Strategist at JPMorgan Chase, had been warning for months before his departure that the excessively crowded momentum trading would eventually become disordered. The market turmoil of the past week may have given him reason to quietly gloat.

Kolanovic's former team, now led by Dubravko Lakos-Bujas, released a report on Thursday regarding stock rotation, the Japanese market, and carry trade unwinding, expressing the following views:

"The stock market is no longer in a unilateral uptrend, but is increasingly revolving around economic downside risks, Federal Reserve policy timing, crowded positions, high valuations, and escalating dual games of elections and geopolitical uncertainties. In the first half of the year, the market mainly focused on inflation trends, but in the second half, the focus is rapidly shifting to growth risks...

We believe that the current market pullback is mainly driven by concerns about slowing economic growth and repricing of recession probabilities."

Lakos-Bujas believes that the momentum factor is undergoing a significant unwinding, leading to the global stock market crash last week. The team also warned that if a genuine growth panic occurs, it may trigger a massive shift of funds towards defensive stocks, leading to "bigger trouble":

"Historically, a complete reversal of the momentum factor unwinding has led to a 30% drawdown...

However, we believe we have not reached the end of the cycle yet, so we expect momentum to only partially unwind, rather than fully unwind, although we are gradually approaching this target."

Another view from JPMorgan Chase's trading department is also somewhat cautious, listing arguments for and against the market having bottomed out. Among the supporting reasons are:

1. The recent volatility may only be technical selling, as fundamental data does not support such significant fluctuations.

2. Macro and micro fundamentals remain solid, with optimistic GDP growth expectations and corporate earnings outperforming expectations.

3. The pullback is a normal phenomenon, in line with historical patterns.

The opposing reasons mainly include the following three points:

1. The Federal Reserve may delay rate cuts, triggering a negative reaction in the bond market CTA still has more room for selling.

Negative seasonal factors and geopolitical risks are intensifying.

As for the question of whether the market has bottomed out, JPMorgan's trading department stated in a report that from now on, the market trend may rise slightly, "but the market still needs to see evidence that the economy is still in a growth mode."

Goldman Sachs: Cautiously Optimistic, Believes the Market Has Bottomed Out in the Short Term

At Goldman Sachs, although the company also maintains a cautious attitude, its view is slightly optimistic, believing that the market has bottomed out in the short term:

"From here, the trend will be volatile but upward.

The S&P 500 index closed at a historical high on July 16, just a stone's throw away from 5700 points... The VIX volatility index hit 65 on Monday... This situation has only occurred twice before... during the financial crisis in November 2008 and during the COVID-19 pandemic in March 2020... The volatility we are experiencing will not disappear immediately, but we do not believe that anything terrible is brewing.

Historically, buying on a 5% pullback in the S&P 500 index has proven to be a very wise strategy."

It is worth noting that unlike the high consumer price index (CPI) in the past two years, which led to a stock market crash, the market now hopes that next week's inflation report will be slightly higher to avoid the economy falling into a deflationary spiral.

Overall, despite the market rebounding, major institutions remain cautious. Investors need to closely monitor future economic data and policy trends to determine if the market has truly bottomed out