Wall Street is no stranger to conflicting views and contradictory market calls, as recent examples from JPMorgan Chase & Co. demonstrate. Strategists and economists working for the same Wall Street employers are increasingly comfortable offering conflicting views to clients and the media. This was evident when JPMorgan’s chief global strategist recommended that investors stay invested in stocks, while the chief global market strategist advised clients to shun stocks. This contradiction is not unique to JPMorgan, as disagreements among strategists at big banks are becoming more common on Wall Street. Bank of America and Goldman Sachs have also experienced contradicting views among their own economists and analysts. The pressure to avoid being wrong has increased substantially in the industry, especially after two consecutive years of failed predictions for critical market trends.
One factor contributing to the conflicting views is the advent of Markets in Financial Instruments Directive 2014 (MIFID II), which has put more pressure on investment bank research departments. MIFID II forced most big investment banks to charge separately for research, leading individual analysts to produce more research and ideas to cultivate a following among clients. The pressure to be right has become more important than ever, as clients are more interested in individual analysts’ opinions rather than a consistent view from the bank. This shift in the industry has led to a model where strategists and economists are allowed, or even encouraged, to disagree and debate, sometimes in front of clients. While these debates can become heated, they reflect the competitive nature of Wall Street and the importance of differing perspectives.
Contradicting Market Calls from JPMorgan Strategists Highlight Growing Trend on Wall Street
A recent contradiction in market calls from two JPMorgan Chase & Co. strategists has raised eyebrows and shed light on a growing trend on Wall Street. David Kelly, the chief global strategist for JPMorgan’s asset-management business, recommended that investors stay invested in stocks as inflation continues to ebb, potentially sparing the U.S. economy from a recession. However, Marko Kolanovic, the chief global market strategist and co-head of research for JPMorgan’s research division, advised clients to shun stocks. This is not an isolated incident, as disagreements among strategists at the same big banks are becoming increasingly common.
The contradiction was highlighted by Matthew Tuttle, CEO of Tuttle Capital, who pointed out the conflicting views in a humorous comment on social media. Tuttle believes that disagreements among strategists at big banks are becoming more prevalent on Wall Street. This sentiment is supported by examples from Bank of America and Goldman Sachs, where differences in economic outlooks have been observed among top executives and their teams.
The pressure to avoid being wrong has increased in the industry, especially after investment-bank macro strategists and economists failed to anticipate critical trends in recent years. In 2022, Wall Street failed to foresee the inflationary shock that led to a significant drop in the stock and bond markets. Conversely, in 2023, they were caught off-guard by a rebound rally in U.S. stocks fueled by the artificial-intelligence craze. These unforeseen events have put additional pressure on analysts to be right in their predictions.
One factor contributing to the increase in conflicting views is the advent of MIFID II, a European regulation that forced most big investment banks to charge separately for research, rather than bundling it with trading fees. This has put more pressure on research departments to produce valuable insights that clients are willing to pay for. As a result, individual analysts are under more pressure to cultivate a following among clients by producing research and ideas that can potentially lead to profits.
In the past, banks enforced a "house view" where all analysts were expected to have a unified perspective. However, this model has fallen out of favor, and banks now encourage strategists and economists to disagree and debate in front of clients. This trend was pioneered by Morgan Stanley in the 1990s and 2000s, and it has become the norm in the industry. While internecine debates can sometimes become heated, they are seen as a healthy part of the competitive nature of Wall Street.
As major turning points for the U.S. economy, inflation, and Federal Reserve policy approach, it is not surprising to see more dissenting calls among strategists and economists. Disagreements within sell-side shops are not unusual, according to Ethan Harris, former head of global economic research at BofA Securities. The industry’s focus on being right and providing valuable insights to clients has fueled this trend of conflicting views among analysts at the same big banks.
In conclusion, the recent contradiction in market calls from JPMorgan strategists is just one example of a growing trend on Wall Street. Disagreements among strategists and economists at the same big banks have become increasingly common. The pressure to be right and provide valuable insights to clients, along with external factors like regulatory changes, has contributed to this trend. While conflicting views may create uncertainty, they are seen as a healthy part of the competitive nature of the industry.