JPMorgan Chase & Co.'s Marko Kolanovic said the decline in U.S. stocks over the past three weeks is likely to deepen as macroeconomic risks increase, including rising U.S. Treasury yields, a strong dollar and soaring oil prices. He showed his perspective. .
The bank's chief market strategist said this week's Corporate America earnings release may temporarily stabilize the market, but the stock is not out of the woods.
Kolanovic said complacency with stock valuations, persistently high inflation, diminished expectations for an impending Federal Reserve rate cut, and an overly rosy earnings outlook increase downside risks. He said that this is one of the factors.
“Further correction is likely,” he said in a note to clients Monday, after the S&P 500 index ended last week more than 5% below its March 28 closing high. A market correction is generally defined as a decline of 10% or more. “Market concentration is very high and positioning is extended, which is usually a red flag and puts us at risk of reversal.”
U.S. stocks rallied on Monday ahead of a busy earnings week, with the S&P 500 up 0.9%. Results will be announced from around 180 index members representing more than 40% of market capitalization.
Microsoft Corp., Google parent Alphabet Inc., Metaplatforms Inc. and Tesla Inc. are among the largest companies scheduled to report. The rebound came as the group sent the tech-heavy Nasdaq 100 index to its steepest weekly decline in 17 months on investor concerns that the Fed would keep long-term interest rates high. It happened later.
For Kolanovic, recent trading patterns and current market conditions are similar to last summer's situation, when unexpected inflation upside and hawkish Fed corrections spurred a decline in risk assets. . However, investors now appear to be better positioned. The strategist recommends remaining defensive as the stock price backdrop looks “troubled.” In his model portfolio, the defensive approach includes hedging risk assets with long-term volatility and commodity exposures, excluding gold.
Kolanovic and his team have become part of a small group of bearish contrarians on Wall Street this year. While most of its peers have raised their outlook for U.S. stocks, JPMorgan's staff remains negative on stocks and risk assets in general, and its year-end target for the S&P 500 was the lowest of any large Wall Street bank. Their forecast is 4,200, suggesting a decline of about 16% from Monday's levels by the end of 2024.
The bank's House view on U.S. stocks failed to materialize for the second year in a row, as Kolanovic remained bullish during the 2022 selloff and remained bearish during the S&P 500's 24% rise last year. Ta.
“The multiple economic expansions we've seen in the past few months, extremely low volatility indicators to date, the tightest credit spreads since 2007, and market participation to begin the year could be generally negative for stocks,” Kolanovic said. “The situation, for which we were unable to identify any contributing factors, is beginning to change.” .
Separately on Monday, Kolanovic told clients it's time to consider buying Japanese consumer stocks, with hopes that real wage growth will spur higher consumer spending in Japan and boost consumer-focused stocks. said that he had come.
