JP Morgan’s Marko Kolanovic rules out early 2023 rally.
Instead, the Institutional Investor Hall-of-Famer is bracing for a correction of 10% or more in the first half of this year, telling investors he’s “outright negative” on the market.
“The fundamentals are deteriorating. And, the market is going up,” the firm’s chief market strategist and co-head of global research told CNBC.fast money” on Tuesday.
Kolanovic cut his firm’s exposure to stocks last week for low weight, In a recent note, he cautioned that the market is currently not pricing in a bearish phase. His base case is hard landing.
“Short-term interest rates have moved a lot in the last six months, and they’ll probably still go up a little bit higher and stay there,” he said. “The consumer took on a lot of debt. Interest rates went up. The consumer was resilient, and that was kind of our thesis last year … But as time goes on, they become less and less resilient.”
Kolanovic, who has been ranked as the number one equity strategist by Institutional Investor for the twelfth time, cites troubling trends in recent key economic data — including ISM services. Retail Sales and as reasons for turning the Philadelphia Fed survey bearish.
“We think the first time things turn south, the worse they get,” Kolanovic said.
He listed positive developments from the COVID-19 lockdown, including China’s reopening and a weak Dollar To excite the market. Kolanovic believes he helped create a narrative that is behind us and that the recession “somehow magically” happened last year.
“I don’t think we can make this economy function at 5% rates,” said Kolanovic, who added that private equity and venture capitalists cannot exist in such an environment. “Something has to give, and the Fed will need to flink.”
And, this could happen in the form of a rate cut this year.
“At some point, they will [the Fed] Backstop it. So where is the big question? it is [the S&P at] 3,600? 3,400? 3,200? We don’t have a lot of conviction. But we think the direction is down,” he said. “Usually there is some contagion or something that is unpredictable.”
kolanovic list treasury bond and cash as viable hiding places for now.