They Got It Wrong

 Under normal contrarian rules when the last bears throw in the towel, the stock market is nearing a peak. So, now that  JP Morgan Chase chieftain Jamie Dimon, and  hedge fund tycoon Ray Dalio admit that they were excessively bearish about market prospects, that must tell us that the rally is just about over.

Good-bye magnificent seven. Welcome to gloom and doom.

When the great minds of Wall Street agree that the market has nowhere to go but up, the chances are good that we are going to see a precipitous decline.

How did they get it wrong? Apparently, the titans of finance were terrorized by high interest rates. They believed that such a policy would produce an economic contraction. 

Two years ago, these masters of metaphor predicted bad weather. Dimon warned of an upcoming hurricane, while Dalio predicted a “perfect storm” of economic pain. Did they read too much propaganda about climate change?

The Wall Street Journal explains their error:

The experts were way off. They underestimated the impact of government stimulus and the resilience of consumers and businesses. And they were too skeptical of the Federal Reserve’s ability to push inflation lower without sparking a recession. The economy continues to grow at a steady clip. Inflation is getting closer to the Fed’s goal of 2%, unemployment remains near a half-century low and the stock market is near record highs.

And yet, some market strategists still expect that a recession is looming. If not now, then eventually. Among them, Jeffrey Gundlach and David Rosenberg:

But some of those who predicted tough times say difficulties are still on their way. Gundlach recently predicted a recession this year and a drop to 3200 for the S&P 500, which closed Friday at about 5100. Gundlach didn’t respond to requests for comment. 

And also,

For his part, Rosenberg said gross domestic income, adjusted for inflation, has been flat over the past year, the job market is weaker than it appears and personal income isn’t keeping up with spending. In an interview, he said the economy’s troubles will be clear later this year. 

Obviously, the market gurus tell us, the problem of the national debt has not been solved or resolved. So they are leaving open the chance that things will turn sour. The question is when, not if:

Dalio says key questions are whether productivity will continue to improve, as businesses embrace artificial intelligence, and whether all the debt the government has piled up—and the resulting debt payments that will have to be made—will come back to haunt the economy. The U.S. government is expected to pay an additional $1.1 trillion in interest over the coming decade, according to the Congressional Budget Office’s latest estimates.

And Jamie Dimon is still concerned:

As for Dimon, he says he remains worried about serious issues facing the economy, including inflation remaining too high, geopolitical upheaval, and rising government spending and debt. He says so-called stagflation, or slow growth with unhealthy inflation, is a concern.

“I wouldn’t count my eggs yet,” Dimon said.

Figure that one out. We used to count chickens. Now we count eggs? 

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