Why JPMorgan is still bearish on stocks even after the latest record high for the S&P 500

• JPMorgan is staying bearish on the stock market despite the S&P 500's jump to record highs.
• The bank cited "lackluster" earnings results and high valuations as reasons why investors should be cautious.
• JPMorgan has a 4,200 target for the S&P 500, representing potential downside of 13%.

The S&P 500's rally to record highs isn't enough to convince JPMorgan to throw in the towel on its bearish outlook.

The bank said in a note on Friday that "lackluster" earnings results and elevated valuations mean investors should be cautious when it comes to buying stocks at current levels.

While only a handful of S&P 500 companies have reported fourth-quarter results so far, "the quality is questionable," JPMorgan's Dubravko Lakos-Bujas and Marko Kolanovic said.

The strategists said they expect consumer companies will point to dwindling household savings negatively impacting results in their upcoming earnings results, as well as decelerating growth in China.

"We see stocks facing a high bar — during this earnings season, anything short of strong corporate guidance re-affirming current high growth expectations is likely to be penalized," JPMorgan said.

High expectations for artificial intelligence companies could also be setting the stock market up for pain, suggesting that any slight disappointments in earnings results from tech companies would lead to a sharp stock sell-off, according to the note.

"As for Tech and AI more broadly, these stocks are at risk of de-rating if the costly capital investments do not yield the promised incremental earnings stream or productivity boost in coming quarters," Lakos and Kolanovic said.

Another headwind for stocks is the potential for interest rates to stay higher for longer, something the market isn't anticipating as investors are increasingly preparing for interest rate cuts from the Federal Reserve. Any reacceleration in inflation or growth in the economy could challenge the view that interest rates are going to fall anytime soon.

"Recent economic prints and shipping disruptions suggest there is risk to the consensus equity view of a very dovish Fed. For instance, is it farfetched to expect goods inflation to normalize while services inflation stays stubbornly sticky causing core inflation expectations to remain elevated?" JPMorgan asked.

The strategists have a year-end S&P 500 price target of 4,200, representing potential downside of 13% from current levels and one of the most bearish outlooks on Wall Street.