JPMorgan Analyst Kolanovic Warns US Stock Correction Not Yet Complete

JPMorgan Analyst Kolanovic Warns US Stock Correction Not Yet Complete

(Bloomberg) — The fall in U.S. stocks over the past three weeks marked the start of a selloff that is likely to deepen along with growing macroeconomic risks, including rising Treasury yields, a strong dollar and high oil prices, says JPMorgan Chase & Co. This is Marko Kolanovic.

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While Corporate America’s results this week could temporarily stabilize the market, it doesn’t mean stocks are out of the woods, the bank’s chief market strategist said.

Complacency with stock valuations, inflation remaining too high, diminishing expectations of an imminent Federal Reserve interest rate cut and an overly optimistic earnings outlook are among the factors that Kolanovic said , add to the downside risks.

“The correction is probably still a long way off,” he wrote in a note to clients Monday after the S&P 500 index finished 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 has been very high and broad positioning, which is usually a red flag, is in danger of reversing.”

US stocks rebounded on Monday, with the S&P 500 gaining 0.9%, ahead of a busy earnings week. Results are expected from around 180 members of the index, representing more than 40% of its market capitalization.

Microsoft Corp., Google parent Alphabet Inc., Meta Platforms Inc. and Tesla Inc. are among the biggest names expected to release a report. The rebound comes after the group sent the tech-heavy Nasdaq 100 index to its biggest weekly loss in 17 months amid investor concerns that the Fed will keep rates high for longer.

For Kolanovic, recent trading trends and current market discourse parallel those of last summer, when upward inflation surprises and hawkish Fed revisions led to a decline in risk assets. Except that the positioning of investors now seems higher. The strategist recommends remaining defensive, as the stock market context seems “problematic”. In its model portfolio, a defensive approach involves hedging risky assets with long volatility and commodity exposure, excluding gold.

JPMorgan Analyst Kolanovic Warns US Stock Correction Not Yet Complete

Kolanovic and his team are among a small group of bearish naysayers on Wall Street this year. While most of their peers upgraded their outlook for U.S. stocks, the JPMorgan team remained broadly averse to stocks and risky assets, with the lowest year-end target for the S&P 500 among the major Wall Street banks. At 4,200, their forecast implies a decline of around 16% from Monday’s level before the end of 2024.

The bank’s view on U.S. stocks has failed to materialize for two straight years, with Kolanovic remaining bullish through much of the 2022 rout and then maintaining a bearish stance during the S&P’s 24% rally 500 last year.

“The multiple expansion seen in recent months, extremely low volatility measures until recently, the tightest credit spreads since 2007, and the general failure of market participants earlier in the year to identify possible negative catalysts for stocks are starting to change,” Kolanovic said. .

Separately, Kolanovic told clients on Monday that it was time to consider buying Japanese consumption-related stocks, as real wage growth is expected to boost personal consumption in the country and boost consumer-oriented stocks. consumption.

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