Jamie Dimon's S&P 500 Bear Market: Brutal, Far From Unimaginable

Jamie Dimon says don’t be surprised if the S&P 500 loses another one-fifth of its value. While such a plunge would fray trader nerves and stress retirement accounts, history shows it wouldn’t require any major departures from past precedents to occur.

Judged by valuation and its impact on long-term returns, the JPMorgan Chase chief executive officer’s “easy 20%” tumble, mentioned in a CNBC interview yesterday, would result in a bear market that is in many regards normal. A decline roughly to 2,900 on the S&P 500 would leave the gauge 39% below its January high, a notable collapse but one that pales next to both the dot-com crash and global financial crisis.

The price implied in Dimon’s scenario is roughly the index’s peak from 2018, the year when President Donald Trump’s corporate tax cuts took effect and an equity selloff forced the Federal Reserve to end rate hikes. Rolling back the gains since then would leave investors with nothing over four years, a relatively long fallow period. But, given the force of the bull market that raged before then, it would cut annualized gains over the past decade only to about 7%, in line with the long-term average.

Nobody knows where the market is going, Dimon included, and much will depend on the evolution of Federal Reserve policy and whether earnings stand up to its anti-inflationary measures. As an exercise, though, it’s worth noticing that a drawdown of the scope he described isn’t unheard-of, and would strike many Wall Street veterans as a justifiable reckoning in a market that had been carried aloft by the Fed’s generosity.