Not a day goes by without someone, somewhere sounding the alarm bells of imminent financial-market danger. When the messenger of caution is Jamie Dimon though, investors sit up and listen.

Dimon is the highly respected chairman and CEO of banking giant JPMorgan Chase (NYSE:JPM). He published a latest letter to the bank’s shareholders on Monday, but in fact, non-shareholders can and should read it as well.

Even in the event you don’t occur to agree with Dimon’s ideas, it’s still worthwhile to listen to what the legendary financier has to say. As he surveys the “unsettling landscape” of the U.S. economy and markets, you could be persuaded to review your investment strategy for the rest of 2024.

Looking ahead to “downside risks”

First, Dimon characterised the U.S. economy as “resilient.” While he didn’t cite the Bureau of Labor Statistics’ March employment report specifically, the roles data does appear to support this characterization.

Impressively, the U.S. economy added roughly 303,000 jobs in March. That’s nearly 100,000 more jobs than economists had anticipated. Also in March, the unemployment rate fell barely to three.8%, and anything below 4% is typically considered full or nearly full employment. Other recent data indicates a healthy hiring rate within the U.S. and a rebound in labor productivity.

That’s necessary because, in response to Bank of America (NYSE:BAC) strategist Ohsung Kwon, “If productivity goes higher, then [companies] are capable of cut costs, improve margins, things like that.”

With all of that, there’s also evidence that the manufacturing sector is picking up. The Institute for Supply Management’s Purchasing Managers Index (PMI) moved as much as 50.3 in March, and anything above 50 indicates that the U.S. manufacturing sector is in expansion mode.

That is positive news because the March reading marks the primary time the PMI has been above 50 since September 2022. Moreover, the 50.3 PMI reading for March easily beat the 48.3 that economists had expected.

With these encouraging data points in mind, investors could also be tempted to easily dismiss Dimon’s description of the nation’s economic landscape as “unsettling.” Nonetheless, investors should keep in mind that Dimon’s perspective is that of a banking executive. Surely, the regional-banking turmoil of 2023 remains to be fresh in his mind.

Nonetheless, Dimon offers timely reminders for the market’s perma-bulls and “soft landing” optimists. With eyes wide open, financial-market participants can actually see that America’s “economy is being fueled by large amounts of presidency deficit spending and past stimulus.” That is practically indisputable, with the U.S. sovereign debt recently surpassing $34 trillion and increasing by $1 trillion every 100 days or so.

Thus, even while the economy could also be “resilient,” Dimon is quick to indicate the “downside risks.” Amongst them is quantitative tightening (QT), which is “draining greater than $900 billion in liquidity from the system annually.” Then there are the “ongoing wars in Ukraine and the Middle East,” which could disrupt the order of the world, and due to this fact, the financial markets.

With all of that in mind, Dimon and JPMorgan “remain cautious.” Yet, there’s more to the shareholder letter, including a bombshell or two.

Are 8%+ rates of interest and stagflation coming?

Those that lived through the Nineteen Seventies can have not-so-fond memories of the dreaded “s”-word: stagflation. It’s a brutal combination of stagnant economic conditions (i.e., a recession) and elevated inflation.

Thus, it’s jarring to see the CEO of JPMorgan Chase raising the specter of stagflation in 2024. Yet, Dimon did indeed go there in his shareholder letter.

For one thing, he’s clearly skeptical of the market’s assumption of a 70% to 80% likelihood of a “soft landing” within the economy. Without specifying his estimate, Dimon expressed his belief that the “odds are lots lower than that.”

Furthermore, Dimon is bracing for rates of interest (presumably, the federal funds rate) to differ widely from “2% to eight% or much more.” That is such a wide selection that one might say it’s not particularly helpful or isn’t really a prediction in any respect.

Moreover, Dimon is looking out for a broad range of possibilities, “from strong economic growth with moderate inflation… to a recession with inflation; i.e., stagflation.” Again, this will be viewed as unhelpful, even though it does make sense for investors to arrange for absolutely anything in the approaching months.

As such, I think preparation for all outcomes is the gist of Dimon’s message. Eight-percent-or-greater inflation and stagflation aren’t likely, but they’re possible. His letter really is only a memo for one’s mental inbox for individuals who need it, prompting investors to arrange today slightly than repair tomorrow.