In an interview with Bloomberg Television on Thursday, Daniel Pinto, JPMorgan’s co-president, said he believes that markets are “nervous,” and if President Donald Trump moves beyond what he has already announced about steel tariffs, then investors may react badly.
“We know there will be a correction at some point,” Pinto, who oversees the trading and investment banking unit at one of the U.S.’s largest banks, said in the interview.”It could be a deep correction. It could be between 20 percent to 40 percent depending on the valuation.”
When a correction that severe does materialize, the recent market turmoil will seem tame by comparison.
Pinto’s comments come as investors are beginning to worry about the impact of rising interest rates alongside rising inflation. And the prospect of a global trade war has put the market on edge as Trump’s steel and aluminum tariffs have been met with vows of retaliation in both China and Europe.
“Markets are going to be nervous, nervous about anything. Nervous about anything that relates to inflation, nervous about anything that relates to growth,” Pinto said. “These tariffs, if they go a lot beyond what has been announced, it is something that will concern the markets about future growth.”
Last month, the markets briefly fell into correction territory as the Dow Jones Industrial Average plummeted more than 3,200 points, or 12%, over two weeks. The market then rallied from those lows and both the S&P 500 and Dow ended February up for the year.
But so far this month, fears about a possible trade war and Gary Cohn’s, a former Goldman Sachs executive, exit from the White House as President Trump’s chief economic advisor roiled markets once again.
Pinto also noted that market corrections tend to be the result of multiple factors, highlighting central bank activity as a potential pitfall for global markets.
“I think those are the things you want to watch: that inflation doesn’t go up too fast, that forces the central banks to go a little faster and quickly than they’re doing now,” Pinto said. “So you want to watch economic indicators, that they don’t show that the economy is sliding down and you want to look at some geopolitical issues.”
JPMorgan’s CEO, Jamie Dimon, agrees.
Echoing Pinto’s concerns about tariffs, Dimon said in a separate interview Thursday, “If it continues and it gets worse, then it will hurt growth, it will hurt investments. It could offset some of the very huge positives we’ve had from competitive tax reform.”
JPMorgam isn’t the only major investment bank that has issues correction warnings lately. Goldman Sachs has said that a spike in 10-year U.S. Treasury yields could cause a 20% to 25% drop in stock prices by the end of the year, while the global chief investment officer at Guggenheim Partners, Scott Minerd, warned that the mood in the market now is similar to the mood in 1987 when the market crashed.