JPMorgan’s Marko Kolanovic abstained from early 2023 voting.
Instead, the Institutional Investor Hall is bracing for a 10% or more correction in the first half of this year, telling investors it is “downright negative” on the market.
“Fundamentals are deteriorating. And the market is moving up. So it’s bound to collide at some point,” the firm’s chief market strategist and co-head of global research told CNBC.Fast money” on Tuesday.
Kolanovic reduced his firm’s exposure to stocks last week underweight. In a recent note, he cautioned that the market is not currently in recession. Its base case is a hard landing.
“Short-term interest rates have moved a lot over the last six months and are likely to go a bit higher and stay there,” he said. “The consumer got into 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’re less and less resilient.”
Ranked the number one equity strategist by Institutional Investor for the twelfth time, Kolanovic cites troubling trends in the latest key economic data – including ISM services, Retail sales and the Philadelphia Fed Survey as reasons to turn bearish.
“We think things will turn south first, they will be much worse,” Kolanovic said.
It lists positive developments, including the reopening of China after the Covid-19 lockdown and weaker dollar for market enthusiasm. Kolanovic believes they helped create a story that the worse is behind us, and the recession “somehow magically” happened last year.
“I don’t think we can have this economy working with a 5% rate,” said Kolanovic, who noted that private equity and venture capitalists cannot exist in such an environment. “Something is going to have to give and the Fed is going to have to back down.”
And it could happen this year as a rate cut.
“At some point they will [the Fed] stop it So the big question is where. It is? [the S&P at] 3600? 3400? 3200? We don’t have very strong convictions. But we think the direction is lower,” he said. “Usually there’s some contagion or something that happens unexpectedly.”
Kolanovic lists State bonds and cash as viable places to hide for now.