JPMorgan’s Marko Kolanovic is bracing for a 20% sell-off to hit the S&P 500.
According to the Institutional Investor hall-of-famer, excessive rates of interest are making a breaking level for shares — and selecting money at a 5.5% return in cash market and short-term Treasurys is a key safety technique proper now.
“I’m unsure how we will keep away from it [recession] if we keep at this stage of rates of interest,” the agency’s chief market strategist and international analysis co-head instructed CNBC’s “Fast Money” on Thursday.
The S&P 500 closed at 4,258.19 on Thursday and is on the cusp of a five-week dropping streak. The index is down more than 5% over the past month.
Kolanovic believes the weak spot is not a powerful signal a monster transfer decrease is already right here. He signifies a near-term bounce remains to be attainable as a result of lots hinges on financial studies over the subsequent few months.
“[We’re] not essentially calling for a direct sharp pullback,” he stated. “Could there be one other 5, six, seven % upside in equities? Of course… But there is a draw back. It might be 20% draw back.”
He warns the “Magnificent Seven” shares, which incorporates Apple, Amazon, Meta, Alphabet, Nvidia, Tesla and Microsoft, are among the many most weak to steep losses attributable to their historic positive factors amid excessive charges. The group is up 83% to this point this 12 months — carrying the majority of the S&P 500’s positive factors.
“If there is a recession, I feel the magnificent [seven]… will catch down the place the remainder is,” stated Kolanovic, citing beaten-up sectors together with consumer staples and utilities.
Plus, Kolanovic believes customers are getting dangerously money strapped because of the financial backdrop.
“The job market remains to be sturdy. But you’re beginning to see the stress in [the] shopper in the event you have a look at kind of the delinquencies within the [credit] playing cards and auto loans,” he famous. “We stay considerably detrimental nonetheless.”
Kolanovic, Institutional Investor’s top-ranked equity strategist, got here into the 12 months with an S&P 500 year-end target of 4,200. The index closed 2022 at 3,839.50.