'I am getting increasingly queasy': JPMorgan's strategy chief on why investors should dial back risk amid market distortions

• Indexes have soared on strong economic data and a big rate cut from the Fed.
• Yet, as markets eye a soft landing, potential shocks pose a higher risk to investors, David Kelly says.
• He says Americans should dial back risk and position funds away from growth stocks and toward value.

Strong economic data and a big rate cut last month have fueled bullish sentiment, but investors should be wary of adding more risk, according to JPMorgan Asset Management's David Kelly.

The firm's chief global strategist says the promise of a soft landing has encouraged Americans to pour into riskier assets at the exact time they shouldn't be.

"I will say that although I think this is positive for the equity market, I am getting increasingly queasy about the fact that the equity market keeps on pricing in a soft landing," Kelly told Business Insider.

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S&P’s $8 Trillion Rally Will Be Tested by Tricky Earnings Season

Traders are staring down a series of risks after the stock market’s torrid start to the year, from economic fear, to interest rate uncertainty, to election angst. But perhaps the most important variable for whether equities can keep rolling returns to the spotlight this week: corporate earnings.

The S&P 500 Index has soared roughly 20% in 2024, adding more than $8 trillion to its market capitalization. The gains have largely been driven by expectations of easing monetary policy and resilient profit outlooks.

But the tide may be turning as analysts slice their expectations for third-quarter results. Companies in the S&P 500 are expected to report a 4.7% increase in quarterly earnings from a year ago, according to data compiled by Bloomberg Intelligence. That’s down from projections of 7.9% on July 12, and it would represent the weakest increase in four quarters, BI data show.

“The earnings season will be more important than normal this time,” said Adam Parker, founder of Trivariate Research. “We need concrete data from corporates.“

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