A pair of JPMorgan Chase & Co. strategists raised eyebrows earlier this month when they espoused seemingly contradictory market calls.
It is the latest example of how strategists and economists working for the same Wall Street employer are increasingly comfortable offering conflicting views to clients and the media.
During an interview with Bloomberg Surveillance last week, David Kelly, the chief global strategist for JPMorgan’s JPM, -0.63% asset-management business, recommended that investors stay invested in stocks as inflation continues to ebb, potentially sparing the U.S. economy from a crushing Federal Reserve–engineered recession.
Around the same time, Marko Kolanovic, the chief global market strategist and co-head of research for JPMorgan’s research division, issued a research report advising clients to shun stocks.
“ Years ago, market strategists recalled, it was more common for banks to enforce what was known as ‘the house view.’”
A representative for JPMorgan didn’t return a request for comment.
In a post on X, the social-media site formerly known as Twitter, Tuttle Capital CEO Matthew Tuttle highlighted the contradiction with a guess at its cause and a smiley face.
Tuttle told MarketWatch that disagreements among strategists working at the same big banks seem to be increasingly common on Wall Street.
He’s not wrong. Earlier this year, Bank of America’s Savita Subramanian, head of U.S. equity and quantitative strategy, emerged as one of Wall Street’s most optimistic U.S. equity bulls. At the same time, colleague Michael Hartnett, chief investment strategist at BofA Securities, told clients he expected the 2023 rally would soon end with another selloff. Their contradictory takes were highlighted in a report from Bloomberg News last month.
Contradicting views on the economy have also surfaced at Goldman Sachs Group GS, -0.56%, where Chief Economist Jan Hatzius assured clients last year that the U.S. economy would avoid a recession in 2023 in favor of a “soft landing.” Although Hatzius’s call may ultimately prove prescient, he was contradicted last October by his boss, Goldman CEO David Solomon, who said during Saudi Arabia’s Future Investment Initiative conference that the odds of a soft landing were just 35%, according to a Fortune report.
To be sure, CEOs contradicting their own economists and analysts isn’t uncommon on Wall Street. JPMorgan CEO Jamie Dimon made headlines last year for predicting an economic “hurricane” would batter the U.S. economy, a characterization that went beyond what JPMorgan’s economists were forecasting.
That’s not the first time Dimon has contradicted his economics team, as MarketWatch reported back in 2018.
“I get a kick out of it because, to me, the only way a firm can avoid being wrong with their analysis is if one analyst tells you to buy, and the other tells you to sell,” Tuttle told MarketWatch during a phone interview.
Of course, the pressure to avoid being wrong has increased substantially across the industry, after two consecutive years when most investment-bank macro strategists and economists failed to anticipate critical trends in markets and the economy, according to several former Wall Street economists and strategists who spoke with MarketWatch.
First, Wall Street failed to anticipate the inflationary shock that sent U.S. stocks and bonds tumbling in 2022. The S&P 500 SPX finished 2022 with a drop of 19.4%, according to FactSet data, its worst calendar-year performance since 2008. The Bloomberg Barclays U.S. Aggregate Bond Index U.K.:USAG, a benchmark for the U.S. bond market, endured its worst year since at least the 1970s, bond-market strategists said.
Then again, in 2023, they were taken by surprise by a torrid rebound rally in U.S. stocks fueled by the artificial-intelligence craze. So far, the Nasdaq-100 NDX is up nearly 40% since the start of the year, according to FactSet data, as highflying megacap technology names have marched to record heights. The Invesco QQQ Trust Series 1 QQQ, a popular ETF that tracks the Nasdaq-100, has risen more than 36% since the start of the year to $363 per share. It was down 0.9% on Wednesday.
‘The clients only want to speak to analysts who are right’
Recent performance isn’t the only issue on Wall Street. There are other more entrenched factors putting pressure on the research businesses of the sell-side banks.
Several former strategists at major U.S.- and Europe-based banks said the advent of Markets in Financial Instruments Directive 2014 — colloquially known as MIFID II —- has heaped more pressure on investment-bank research departments since the European regulation essentially forced most big investment banks to charge for research separately instead of bundling it with trading fees.
“MIFID II is a killer,” said Marvin Barth, former head of foreign-exchange and emerging-market macro strategy at Barclays PLC, during a call with MarketWatch. “It has undermined the whole business model.”
As a result, individual analysts are under more pressure to cultivate a following among clients, which typically means producing more research and ideas that clients can trade on, and potentially profit from — even if that sometimes resembles “throwing spaghetti at a wall to see what sticks,” Barth said.
“The pressure for sell-side analysts to be right has become more important than ever,” said David Woo, a former top currency and fixed-income strategist at Bank of America who departed the bank in 2021.
Woo cultivated a dedicated following among the bank’s clients and across Wall Street thanks to calls like his 2016 contrarian prediction that Donald Trump would prevail over Hillary Clinton in the presidential election, when other strategists, famously, were caught off-guard.
“I guarantee you the clients only want to speak to analysts who are right,” Woo said. “They don’t care if the bank has a consistent view, a unified view. … They just want to know what this analyst thinks.”
Years ago, strategists recalled, it was more common for banks to enforce what was known as “the house view.” But that model started to go out of style in the 1990s and 2000s. Several former sell-side strategists who spoke with MarketWatch credited Morgan Stanley as a progenitor of the model that is currently in vogue, where strategists and economists are allowed, or even encouraged, to disagree and debate, sometimes in front of an audience of clients.
“I remember back in the 1990s, I had a big debate with Barton Biggs — who has since passed away, and whom I had enormous respect for — over inflation,” said Stephen Roach, a former chief economist and Asia chairman at Morgan Stanley. Roach is now a senior fellow at Yale University’s Jackson Institute for Global Affairs.
“We named the debate ‘fire and ice.’ ‘Fire’ being more inflation, and ‘ice’ being the risk of deflation,” he added.
“It had broad implications for interest rates and asset allocation. And we debated that actively in front of our clients, and even did a few ‘fire and ice’ roadshows,” he said.
Internecine debates aren’t always cordial
Internecine debates like these aren’t always cordial, which is perhaps unsurprising given the inherently competitive nature of Wall Street. Woo told MarketWatch that he remembers sometimes heated disagreements with a former Bank of America colleague, Ethan Harris, who was head of global economic research at BofA Securities.
“It happened all the time. Me and Ethan Harris, we were always at loggerheads. We were completely at odds,” Woo said. “But, in some sense, that is not a bad thing.”
Harris, who later left BofA, said he’s not surprised to see more dissenting calls among strategists and economists as major turning points for U.S. economic growth, inflation and Federal Reserve policy loom.
As for his professional disagreements with Woo, he said: “I don’t want to make this personal. Suffice to say that disagreements within sell-side shops aren’t unusual.”
Representatives from Goldman, Bank of America and Morgan Stanley didn’t return requests for comment.