JPMorgan Chase CEO Jamie Dimon believes investors are becoming too complacent about the growing risks facing the global economy. In a wide-ranging interview on The Master Investor Podcast with Wilfred Frost, Dimon said he would avoid buying both broad U.S. equities and long-dated Treasury bonds at current valuations, arguing that markets are not adequately pricing in a range of geopolitical and fiscal threats, as quoted on CNBC.
Geopolitical and Fiscal Risks Remain Elevated
Dimon said investors may be underestimating the potential impact of the ongoing conflicts in Ukraine and the Middle East, escalating tensions between the United States and China, and rising military expenditures amid an expanding government deficit.
While acknowledging that some risks may already be reflected in asset prices, he cautioned that markets cannot fully account for how future events may unfold.
Markets Stay Resilient Despite Uncertainty
The S&P 500 has climbed nearly 10% this year, supported by resilient consumer spending, still-manageable inflation and continued enthusiasm surrounding artificial intelligence (AI).
Dimon noted that the global economy has become more resilient than in previous decades because of lower dependence on energy. However, he warned that resilience does not eliminate the possibility of a sudden market or economic upheaval.
If the U.S.-Iran war prolongs and the key waterway Strait of Hormuz remains under pressure, energy prices will keep rising, which is enough to stoke global inflation materially. Amid persistent inflation, global central banks may be forced to hike rates.
AI Investment Boom May Take Longer to Pay Off
Dimon acknowledged that the enormous sums being invested in AI will likely create long-term value, much like the internet ultimately did. However, he cautioned that the path may not be as straightforward as investors expect.
Pointing to the internet era, Dimon noted that early leaders such as Yahoo and Netscape eventually lost ground, while later entrants like Google and Facebook emerged as dominant players. He suggested AI could follow a similar pattern.
Deficits Could Push Interest Rates Higher
Dimon reiterated concerns about persistent U.S. fiscal deficits, saying they could become a bigger issue over time. He expects long-term interest rates to move higher as investors demand greater compensation for financing the government's growing debt burden.
In his view, even if inflation returns to the Federal Reserve's 2% target, the yield on the 10-year Treasury should still trade in the 4% to 4.5% range.
Cautious on Stocks Despite Select Opportunities
Dimon expressed similar caution toward equities. While he said he would still consider buying an individual company if it offered compelling value, he does not find the broader stock market attractive at the current valuation levels.
Should You Buy High-Dividend ETFs?
According to Dimon, it may take multiple adverse developments before markets reach a tipping point, but the risk of such an inflection remains, per CNBC. In such a volatile scenario, dividend exchange-traded funds (ETFs) normally come to the rescue. The hunt for dividends in the equity market is always on, irrespective of how it is behaving.
After all, who doesn’t like a steady stream of current income along with capital gains? Against this backdrop, below we highlight a few dividend ETFs that yield more than 4.5% annually. These ETFs have beaten the S&P 500-based ETF SPY over the past month.
Global X SuperDividend ETF SDIV – Yields 9.13% annually
The underlying Solactive Global SuperDividend Index tracks the performance of 100 equally weighted companies that rank among the highest dividend-yielding equity securities in the world. The index provider applies certain dividend stability filters. The fund charges 58 bps in fees. The SDIV ETF has gained 2.6% over the past month, beating SPY’s 0.5% gains.
FT Vest S&P 500 Dividend Aristocrats Target Income ETF KNG – Yields 8.28% annually
The underlying Cboe S&P 500 Dividend Aristocrats Target Income Index Monthly Series is designed to track the performance of a hypothetical buy-write strategy on optionable constituents of the S&P 500 Dividend Aristocrat Index. The fund charges 74 bps in fees. KNG has gained 1.6% over the past month.
Global X Alternative Income ETF ALTY – Yields 7.44% annually
The underlying Indxx SuperDividend Alternatives Index tracks the performance of the highest dividend-yielding securities in each category of alternative investments, as defined by the Index Sponsor. The fund charges 50 bps in fees. ALTY is up 0.8% over the past month.
Global X SuperDividend U.S. ETF DIV – Yields 6.46% annually
The underlying INDXX SuperDividend U.S. Low Volatility Index tracks the performance of 50 equally weighted common stocks, MLPs & REITs that rank among the highest dividend-yielding equity securities in the United States. The fund charges 45 bps in fees. DIV is up 5.6% over the past month.
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Global X SuperDividend U.S. ETF (DIV): ETF Research Reports
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This article originally published on Zacks Investment Research (zacks.com).