An additional 20% drop on Wall Street would be normal

Morgan Chase & Co CEO Jamie Dimon.  (Photo: Drew Angerer/Getty Images)

Morgan Chase & Co CEO Jamie Dimon. (Photo: Drew Angerer/Getty Images)

(Bloomberg) — JPMorgan Chase & Co Chief Executive Officer Jamie Dimon says the U.S. stock market could suffer another drop of “easily 20%,” leaving the benchmark below 3,000 points, a level that It hasn’t been seen since the worst of the coronavirus pandemic.

So what will a further drop of that magnitude look like, and which stocks will be hit the hardest?

First, it would be painful for investors, with tech stocks and growth calls bearing the brunt and their lofty valuations becoming targets as borrowing costs rise. Such a decline would take the S&P 500 to 2,871 based on Tuesday’s close, taking $6 trillion off the S&P 500’s current market value of $30 trillion.

The top five companies in the S&P 500 — Apple, Microsoft, Alphabet, Amazon and Tesla — account for 21% of the index, creating risk for equity investors because any big decline in those stocks can send markets down rapidly. More spacious.

A fall that would not be rare

“I think another 20% drop from here is likely? No. But there is more than a 50% chance of it happening,” said Nick Giacoumakis, president of NEIRG Wealth Management, citing the sharp decline in stocks in the early 2000s. When the dot-com bubble burst, the The S&P 500 lost almost half its value, falling 49% from its peak in March 2000 to its low in October 2002, according to Bespoke Investment Group.

When the S&P 500 peaked in October 2007, it lost 57% of its value when it finally bottomed out in March 2009 following the global financial crisis.

Evolution of the S&P during the last few years and where is the level of 3,000 points.  Graphic: Bloomberg.

Evolution of the S&P during the last years and where is the level of 3,000 points. Chart: Bloomberg.

“That’s the magnitude of what Dimon is talking about,” Giacoumakis added. “Back then, we had an extreme surge in exuberance similar to today, but instead of internet stocks, now it is SPACs and trillions of dollars in excess liquidity that have put the economy on steroids.” .

During this year’s market crash, Amazon is down more than 30%, while Tesla, Microsoft and Alphabet have lost at least a third of their value. Apple, a stock that generates stable earnings and pays a steady dividend, hasn’t been protected this year either, down 21%. But Giacoumakis, who likes big tech companies, is more worried about the decline of chipmakers due to growing concerns about growth.

The S&P 500 is already down 25% from its January 3 closing high. Another 20% decline from its peak would put it 40% below its peak.much larger than the average decline in bear markets.

Since World War II, there have been nine bear markets that have been accompanied by a recession in the United States, and the S&P 500 has fallen 35% on average, versus a 28% decline in bear markets that have not been accompanied. of an economic downturn, according to the CFRA.

A quick look at what Dimon says could happen in the market in the near future. Are you serious or are you just lowering expectations ahead of the bank’s earnings release on Friday?

Dimon is human. All he can do is make estimates on how the economic data is coming,” Giacoumakis said. “We’re not in a recession yet, but I think it will be in the next three to nine months. So we’ve got enough left in the stock bubble to drop another 10% or 15% from here, no problem.”

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Original Note:What Dimon’s ‘Easy 20%’ Drop in the S&P 500 From Here Looks Like

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