Traders work on the floor of the New York Stock Exchange (NYSE) on June 01, 2023 in New York City.Spencer Platt/Getty
The stock market’s latest rally is set to fizzle, according to JPMorgan’s Marko Kolanovic.
He highlighted a number of looming concerns for investors, from valuations to higher-for-longer interest rates.
“We believe that equities will soon revert back to an unattractive risk-reward,” Kolanovic said.
Last week’s stock market rally is about to fizzle, according to JPMorgan’s chief global markets strategist Marko Kolanovic.
The S&P 500 surged 6% last week, representing its strongest weekly gain of the year. The jump was driven in part by a cooler-than-expected October jobs report that sent bond yields plunging. But Kolanovic isn’t buying it because of a barrage of risks that are starting to converge.
“We believe that equities will soon revert back to an unattractive risk-reward as the Fed is set to remain higher for longer, valuations are rich, earnings expectations remain too optimistic, pricing power is waning, profit margins are at risk and the slowdown in topline growth is set to continue,” he said.
On top of that, the idea that bad news for the economy is good news for the stock market is extremely precarious, as a further deterioration in economic data could sound the alarms that an economic recession is imminent.
“It is difficult to distinguish between a healthy slowdown and the initial stages of recession without the benefit of hindsight,” Kolanovic said.
Markets currently expect the Federal Reserve to keep rates steady until the spring, when a cut rather than a hike is being priced in.
While stock market investors would like to see interest rates drop, the reason behind any potential cut is what matters the most.
A Fed that is easing monetary policies because inflation has been tamed and the economy remains solid would be bullish for stocks, whereas the Fed cutting interest rates because of a weakening economy would be bearish.
And if the Fed doesn’t cut or hike interest rates and instead keeps them at current levels, that could be an even bigger…
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