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- Jamie Dimon flagged the risk of a disruptive event in stock and bond markets.
- The top banker said he was avoiding both assets at the moment due to broader macro risks.
- Hotter inflation and higher rates are two of Dimon's top concerns.
Jamie Dimon is sounding the alarm on risks building in the market.
The JPMorgan boss said he was eyeing risks of a potential shock in US markets. Speaking on an episode of The Master Investor podcast on Monday, the top banker raised concerns that investors weren't accurately pricing in the risks to stocks or bonds, two assets he said he's avoiding as an investor.
Dimon, who says he generally doesn't buy the major stock indexes, added that he hadn't bought individual equities lately, though he would consider investments on a name-by-name basis that were truly "great."
"I would not be a buyer," Dimon said, pointing to three risks hanging over markets in particular.
Hotter inflation. Rates could be higher given recent inflationary pressures in the economy. Even if inflation were at the Fed's 2% price target, the 10-year US Treasury would likely remain around their current levels at around 4% to 4.5%, while short-term rates remain around 3%, Dimon said. Higher rates often push down bond and equity prices.
Dimon pointed to parallels with the mid-1970s economy, when inflation peaked at 12% around the middle of the decade.
- Geopolitical risks. Tensions are still high in the Middle East, and renewed fighting between the US and Iran has led to renewed risks of a war-fueled shock. The market's top concern is that higher energy prices could feed into broader inflation.
- Rising deficits around the world will eventually "become a problem," Dimon said, speculating that markets could get "rattled" as concerns rise over higher debts and deficit spending. Debt is inflationary, meaning higher deficits could also bring on hotter price growth and interest rates over time.
"I do think those risks are probably bigger than other people think," Dimon said, pointing to geopolitics and rising deficits in particular.
"It's possible something's baked in, but what's not baked in is what actually happens," he added of a more disruptive shock in markets.
Dimon pointed to the risk of an disruptive event in fixed income. Bond market vigilantes — investors who are said to sell bonds and jack up yields to pressure policymakers into fiscal responsibility — could rattles markets as they demand a higher premium to hold onto Treasurys, he suggested.
"Hopefully not worse than that, but it could be worse than that," he said.
The market environment for banks is about "as good as it gets" at the moment, Dimon said. Big US banks, including JPMorgan, reported blockbuster second-quarter results.
"High asset prices, a lot of people trading, etc. So, this could go on for a while. It will eventually end," Dimon said.
The comments mark one of Dimon's more bearish outlooks recently. Speaking in a call with analysts following JPMorgan's latest earnings, Dimon said the market was in an "exuberant" state with room to get even better, though he wasn't sure by how much.
Late last year, he sparked concerns about the private credit sector when he commented on high-profile bankruptcies of two leveraged borrowers, remarking that there were likely more "cockroaches" in lurking in the debt markets.
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