The latest rally in stocks 'makes little sense' and the market will likely slump back toward 2022 lows, JPMorgan says

• The recent upbeat trend in risk assets "makes little sense" as the Federal Reserve hasn't yet signaled any rate cuts, according to JPMorgan.
• "The banking crisis appears to have quieted down, though we would characterize this as the calm before the storm," strategists at the bank said.

US stocks finished the first quarter almost 7% up despite the biggest bank failures since the 2008 crisis and the Federal Reserve pushing ahead with its most aggressive interest-rate increases in decades.

That makes "little sense," according to JPMorgan.

The stock market is unlikely to sustain its recent gains and may slide back toward 2022 lows in the months ahead, strategists at the US bank led by Marko Kolanovic wrote in a note published on Monday. The S&P 500 index of US large-cap shares advanced 6.9% in the three months through March and the Nasdaq Composite rallied 17%.

"The Fed indicated no intention to cut interest rates this year, yet risk assets are exhibiting an unprecedented rally," they wrote. "For a rational investor, we think this makes little sense. We expect a reversal in risk sentiment and the market re-testing last year's low over the coming months. "

While concerns over banking-sector instability seemed to have eased in recent days, that could be a temporary relief and the risk of further turbulence remains high, according to the strategists.

"The banking crisis appears to have quieted down, though we would characterize this as the calm before the storm," he added.

"There is ground to cover on fighting inflation and pushing back against the market's assumption of cuts, so the original source of stress, rates higher for longer, can re-enter the picture," he added.