Speaking at the Goldman Sachs financial conference, the chief executives of JPMorgan Chase , JPM -4.46% Wells Fargo WFC -4.54% and Bank of America BAC -5.43% all said they see exceptionally strong economic conditions at the moment, citing strong consumer spending and business confidence.
Bankers are often criticized for being out of touch with the real world. Often that is unfair, but on Tuesday, as the leaders of the nation’s three biggest banks told investors that the economy was great, investors were acting like the boom was over.As they were speaking, their stocks told a different story. Shares of all three banks fell 4.5% to 5.5%, worse than the 3.2% decline in the S&P 500.On closer inspection, all three bank executives gave hints of trouble just beneath the surface.
JPMorgan Chase Chief Executive James Dimon spoke of the indirect costs of trade tensions to business confidence and investment. He sounded skeptical these tensions would be resolved within the cease-fire time period agreed to by the U.S. and China over the weekend. “There’s no way you can finish the complexity of these trade negotiations in 90 days,” he said... Mr. Dimon also suggested he’s been puzzled that middle-market borrowers haven’t ramped up their borrowing more as the economy has improved… Bank of America’s Brian Moynihan struck a similar note, saying medium to large-size clients are already making changes to their supply chains in response to the trade uncertainty, which he said costs them money while adding no value for their customers.
Wells Fargo Chief Executive Timothy Sloan cited a different risk, saying the biggest concern he hears from business clients is “their inability to hire enough workers.” This is the kind of thing that can lead to what Mr. Dimon referred to as a “traditional recession” caused by Federal Reserve raising interest rates as wages and prices rise.
Sometimes the risks are greatest just when things seem to be at their best. Investors are right to brace for what may come next.