JPMorgan‘s chief global strategist, Marko Kolanovic, predicts a challenging year ahead for stock markets in 2024.
What Happened: Kolanovic revealed on Monday that investors should brace themselves for a riskier reward environment than previously anticipated, Business Insider reported. He added that the emerging disinflation narrative is likely to face challenges in the first half of the year, and geopolitical tensions could further intensify the risk-off sentiment.
The strategist also noted that “markets appear overbought and sentiment is in complacent territory.” He cited high RSIs, the VIX near lows, and rich valuations as evidence.
Despite the positive impact of falling inflation on markets, Kolanovic warns that its downward trend may stall due to increasing goods prices. Shipping costs are on the rise due to Red Sea attacks on commercial cargo vessels, and major traffic delays in the Panama Canal due to low water levels.
He further mentioned that US core consumer inflation will likely remain steady at 3%, exceeding the Federal Reserve’s 2% target. Kolanovic also suggested that the low yields in the bond market could signal low growth ahead, compelling stock investors to reassess their risk appetite.
He concluded, “All of these points suggest a much less attractive risk-reward than what lower bond yields/central banks easing, and up to now resilient growth, would suggest at face value.”
Why It Matters: Kolanovic’s stance on the 2024 market outlook aligns with his previous pessimistic forecasts. In November, last year, he predicted a chilling scenario for the S&P 500, foreseeing an 8% drop.
Meanwhile, in December, he expressed a preference for cash over stocks in 2024, citing improbable swift interest rate cuts by the Federal Reserve. Furthermore, he also revealed that 99% of U.S. consumers might face a worse financial crunch than pre-pandemic levels, indicating a potential strain on the economy and markets.
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