JPMorgan’s Marko Kolanovic says markets are ‘complacent’, still sees poor risk-reward in equities
JPMorgan strategists reiterated an Underweight rating on equities as risk-reward, in their opinion, remains poor at current levels.
They cite “a decelerating economy with a likely recession starting in 4Q23/1Q24, softening consumer trends (excess COVID savings are expected to be exhausted by October, and restarting student loan repayment becomes a $10Bn/month headwind), rising investor positioning, and the significant re-rating of stocks so far this year,” as key headwinds facing the U.S. stock market.
On the other hand, JPMorgan is Overweight cash, while the bank cut its credit allocation. JPMorgan’s base case remains that a U.S. recession is likely to begin near year-end, which is the opposite of the markets pricing in a low probability of recession.
“This benign and complacent pricing of recession risk, along with increasing signs that a credit cycle is emerging, makes us turn more negative on corporate bonds and more positive on government bonds,” strategists added.
They, as well as some other top Wall Street strategists including Morgan Stanley strategists, are yet to see their bearish forecasts for this year materialize amid the AI-driven rally in equities.
