JPMorgan’s bearish stance on the 2024 stock market is encountering an unexpected challenge, potentially reshaping its outlook. Despite technical strategist Jason Hunter’s prediction of a 23% decline in the S&P 500 by mid-2024, a surge in small-cap stocks has emerged as a significant risk to this bearish projection.
Hunter, JPMorgan’s top chart expert, initially expressed pessimism about the stock market’s trajectory for 2024, foreseeing a re-test of the bear market bottom from October 2022 with a dive to 3,500 in the S&P 500. This forecast stands as one of the most bearish on Wall Street, surpassing JPMorgan’s own house view of a decline to 4,200 next year.
The core of Hunter’s skepticism lies in the disproportionate influence of a few mega-cap tech stocks driving this year’s rally. The lack of market breadth, or widespread participation in the current upswing, has been a cause for concern in his analysis.
However, recent developments, including a breakout above major resistance levels for broad market averages, are challenging Hunter’s bearish perspective. In a note last month, he acknowledged a tactical retreat from the bearish first-half equity outlook for the fourth quarter due to this chart-based assessment.
While Hunter initially considered a surge in stock market laggards as a low-probability event, recent market dynamics have proven otherwise. Notably, the small-cap Russell 2000, which had largely been absent from this year’s rally, is now outperforming the S&P 500. Over the past week, the Russell 2000 has gained nearly 3%, while the S&P 500 remains relatively flat.
This trend has persisted over the past four weeks, with the Russell 2000 posting a 7% gain, surpassing the S&P 500’s 4.8% increase during the same period. The shift signals a potential rotation of investors into previously neglected stocks, prompting Hunter to reevaluate his bearish outlook for 2024.
Looking ahead, Hunter notes the possibility of large-cap stocks forming short-term distribution patterns in the early weeks of the next year. Alternatively, signs of laggards breaking out could pose a risk to the base-case outlook, compelling a reassessment of the 2024 trajectory. As the small-cap surge challenges JPMorgan’s bearish stance, the market remains dynamic and open to unexpected shifts in the coming months.
