Key highlights:

  • Jamie Dimon said he would avoid buying stocks and bonds for now
  • He pointed to wars, government debt, and U.S.-China tensions as causes of concern
  • The JPMorgan CEO also warned that the AI investment boom may not deliver results as fast as many hope

So far this year, stock market investors have had little to complain about. Major stock indexes have gone higher even with the wars and economic uncertainty. However, JPMorgan CEO Jamie Dimon said the market has forgotten that these risks still exist.

In an interview with Wilfred Frost on The Master Investor Podcast, Dimon said investors are underestimating the risks that could shake the global economy. The veteran banker said now is not the best time to buy assets that have already seen large gains.

JPMorgan CEO sees bigger risks ahead

Dimon said the list of threats the global economy is currently exposed to is longer than many people think.

He pointed to the wars in Ukraine and the Middle East, tensions between the United States and China, and military spending around the world as key events to watch. If that wasn’t bad enough, governments are also dealing with budget deficits and debt burdens.

“I do think those risks are probably bigger than other people think,” Dimon said.

Wilfred Frost pushed further and asked whether markets are pricing with the expectation of an economic shock. Dimon responded, saying that investors are more focused on how green the market looks right now rather than what could happen next.

According to him, some risks may already be reflected in asset prices, but the impact of future events is still unknown.

“It’s possible something’s baked in, but what’s not baked in is what actually happens,” he explained.

His warning comes as the U.S Iran war continues. Tensions between Iran and its regional allies have brought about concerns about global energy supplies and international trade routes.

In fact, Goldman Sachs said recently that Brent crude could potentially hit $120 per barrel if the problems on the Strait of Hormuz worsen.

Stocks may be too expensive right now

The CEO said the current valuations of stocks are enough reason not to buy. He highlighted that if economic growth slows or geopolitical tensions worsen, markets would be at the receiving end of the pain.

Dimon also said he would not buy long-dated U.S. Treasury bonds at today's levels. He added that the 10-year Treasury yield would likely remain between 4% and 4.5%, even if inflation returns to the Fed’s 2% target.

The JPMorgan chief also warned that government deficits could be a bigger issue. If debt levels keep rising, Investors may have to ask for higher returns when they lend money to the government. This could also lead to an interest rate hike. 

AI boom could take longer than many think

In the past two years, AI companies have undoubtedly been the biggest winners in financial markets. The sector has seen huge investments from tech giants, which led to the optimism that AI will change industries.

Dimon said AI should deliver that long-term value, but then he cautioned investors from thinking that this result would happen fast.

“The amount of money being spent is huge. Will it in total pay off? Probably, just like the internet did,” he said.

He said that the companies that enjoyed the benefits from the internet revolution were not the ones that dominated in the early stage. For context, Yahoo and Netscape were once leaders but then faded later on. Meanwhile, Google and Facebook came later on and became industry giants.

So, Dimon said investors should be careful about assuming today's AI leaders will still be on top for years to come.

“Will it pay off the way you expect and the timetable you expect? Definitely not,” he added.