JP Morgan: Stocks Begin to Fall, and Gold Hits New Record Prices

JP Morgan, a major US bank, predicts that stock markets will fall next year, while gold will set a new record high and silver will reach $30 per ounce.

According to the bank, there is only a moderate risk that the global economy will contract in the short term. They do not expect a major recession until mid-2025. Nonetheless, by 2024, the prices of a number of riskier assets are expected to fall.

“As we approach 2024, we expect both inflation and economic growth to moderate as the factors that have previously supported growth and riskier assets fade.” We are cautious about riskier asset returns and economic growth in the coming year because monetary policy, geopolitical risks, and high asset prices will be a drag,” JP Morgan’s chief of global markets strategist, Marko Kolanovic said.

The bank forecasts that equity markets will perform poorly over the next year. While the S&P500, the largest US stock index, is currently trading at around 4,720 points, JP Morgan expects the index to trade at 4,200 points next year. This implies an 11% drop in equity markets from current levels.

“Bond yields will peak before interest rate cuts, and equity markets are likely to correct as equity price levels do not reflect the slowing economy and unrealistically high earnings expectations,” Thomas Salopek, a strategist at JP Morgan Securities, said.

Interest rates will begin to decline.

At the same time, central banks continue to withdraw liquidity from the system as their balance sheets shrink (the inverse of the money printing process), and interest rates remain relatively high, limiting economic activity for both consumers and businesses.

The first interest rate cuts are expected in the third quarter of 2024, according to the Bank.

Geopolitical risks remain high as well. “Right now, there are two major conflicts going on, and elections are coming up in 40 different countries, including the United States.” As a result, volatility in the stock market will be higher than in 2023. The extent of volatility, however, will ultimately depend on the depth of the upcoming recession,” the bank wrote in its market review.

The Commodity Markets are Performing Better.

According to JP Morgan, commodity markets are expected to perform well in the coming year, with gold and silver performing particularly well.

Next year, Brent crude is expected to average $83 per barrel. Brent is currently trading at 77 dollars per barrel. Crude oil prices, on the other hand, are expected to fall by 10% by 2025, according to the bank.

“Despite headwinds in the economy, we expect daily oil demand to rise by 1.6 million barrels in 2024, supported by good economic health in emerging markets, the US economy and a weak but stable European economy,” the report said.

In the Metals Sector, Gold and Silver Shine.

According to the bank, gold and silver will shine the brightest in the metals sector in the coming year. Future Federal Reserve interest rate cuts and falling real yields on US Treasuries will drive gold prices to new highs by mid-2024, with the average ounce price reaching $2,175 by the fourth quarter. The ounce price of silver is expected to reach $30 by the fourth quarter.

The price of gold is currently $2033 per ounce. An ounce of silver will set you back $24

“Of all metals, gold and silver have given us the most confidence in price increases.” The rise should continue into the first half of 2025, in addition to 2024. “The point of entry into the market is still important,” said Gregory Shearer, JP Morgan’s head of base and precious metals strategy.

Agricultural markets are also expected to rise this year, particularly in the first half. “We expect sugar to show good price growth, while cereals, oilseeds and cotton will see moderate price increases.”

JP Morgan forecasts a difficult outlook for equity markets and the global economy, with significant changes expected in the coming years. The bank forecasts an 11% drop in equity markets by 2024, with the S&P500 index falling to around 4,200 points, owing to slowing economic growth, high earnings expectations, and the impact of monetary policies and geopolitical risks. Central banks are expected to begin withdrawing liquidity and maintain high interest rates, which could limit economic activity for consumers and businesses. However, by the third quarter of 2024, interest rate policies are expected to change. Added to these financial pressures are increased geopolitical risks resulting from ongoing conflicts and elections in a number of countries, including the United States, which could lead to increased market volatility.

In contrast to the gloomy outlook for stocks and the overall economy, JP Morgan sees a bright future for commodities, particularly gold and silver. Gold prices are expected to reach new record highs of around $2,175 per ounce by the fourth quarter of 2024, while silver prices are expected to reach $30 per ounce. The bullish outlook for gold and silver is being driven by expected interest rate cuts and falling real yields on US Treasuries. The bank also expects a positive trend in agricultural markets, with price increases in commodities such as sugar, cereals, oilseeds, and cotton. This contrast highlights a strategic shift towards more stable investment options, such as precious metals, which thrive in volatile economic environments.