JPMorgan believes now is a good time for a correction in the market. What it advises

JPMorgan believes that a correction in the U.S. stock market now would be "useful" and would help lay the groundwork for a new rally. The bank expects that when quotations fall, large investors will take advantage of the situation to build up their positions. A number of analysts also warn of a possible correction in the short term, but remain optimistic in the long term.

A slight decline in quotes could prove beneficial for the U.S. stock market, said JPMorgan strategist Dubravko Leikos. "A correction would be helpful as it would remove some of the overheating in the market and pave the way for the next phase of the rally," he said in a note quoted by CNBC. Should the indexes decline, large institutional investors, who have stayed on the sidelines since April, would seize the moment to buy along with corporates and retail participants, the strategist suggested.

Leykos also warned that in the short term, investors should be cautious as companies enter the share repurchase ban season. But in the longer term, he maintains a positive outlook and believes the S&P 500 will rise to 7,000 points by early next year, about 5% above its closing level on Friday, October 17.

In early October, JPMorgan CEO Jamie Dimon estimated the probability of a major correction in the stock market at 30% - three times higher than the average forecast by market participants. He declined to give an exact timeline, but suggested it could happen within six months to two years. Dimon cited global geopolitical instability as the biggest risk. According to him, the world is entering a period of heightened uncertainty amid geopolitical tensions, rising government spending and remilitarization.

Morgan Stanley strategist Michael Wilson also warns that investors should be cautious in the short term. According to him, it is too early to give "green light" to shares - the market still has unresolved risks associated with trade relations between the U.S. and China, as well as the slowdown in the revision of profit forecasts of companies.

"We need to see clearer signs of de-escalation in trade, stabilization of EPS revisions and improved liquidity before we can say the risks of a near-term correction are behind us," Wilson said in a note cited by Bloomberg. Last week, Wilson allowed that U.S. stocks could slip 11% if trade tensions between the U.S. and China are not resolved by November. Despite caution on the near-term horizon, he maintains a positive view of economic recovery in the 6-12 month outlook.

Oppenheimer chief investment strategist John Stoltzfus added that the results of the third-quarter reporting season so far look encouraging, with companies in the S&P 500 index that have already released their results showing earnings growth of 16% on average, compared to expectations of 12%. According to Stoltzfus, the fact that U.S. businesses continue to exceed forecasts even amid external risks indicates "enough resilience for the market to continue to move upward."

In trading on October 20, all three major U.S. indices - S&P 500, Nasdaq Composite and Dow Jones - rose within 1-1.5% after Donald Trump expressed confidence that China and the U.S. will be able to resolve the trade dispute, notes Bloomberg. Trump named rare earth metals, fentanyl and soybeans among the key topics of the upcoming talks with Beijing.

Last week, US stocks came under pressure due to escalating trade disagreements between the world's two largest economies and concerns about bad loans at regional banks. Thus, over the past week, the total share of stocks in investors' portfolios fell at the maximum rate since April, the agency quotes data from Deutsche Bank.

This article was AI-translated and verified by a human editor