In a recent reveal, JP Morgan’s Marko Kolanovic suggests a lean towards cash over stocks in 2024, attributing the shift to the improbability of swift interest rate cuts by the Federal Reserve.
What Happened: Kolanovic’s outlook is based on the over-optimism of investors in sidestepping a possible economic recession in 2024. He cites high equity valuations, tight credit spreads, and low market volatility as signs of a non-conducive environment for hefty investments in stocks, reported Business Insider.
JPMorgan JPM, strategist, Kolanovic consistently holds a bearish view on risky assets and the overall macroeconomic environment, influenced by factors such as interest rate shocks, dwindling consumer strength, geopolitical challenges, and high risky asset valuations.
“We remain cautious on risky assets and the broader macro outlook due to the interest rate shock (over the past 18 months) that should negatively impact economic activity, fading consumer strength, geopolitical headwinds, and expensive risky asset valuations,” said Kolanovic, according to the report.
Despite a bullish stock market in 2023, Kolanovic forecasts a transition in 2024, with a potential decrease in inflation and economic demand, which could adversely impact equity prices.
Kolanovic is skeptical about the Fed’s likelihood of aggressively reducing interest rates in 2024, given the challenge in significantly reducing the current 3% inflation rate to the Fed’s 2% target. This suggests that rate cuts may occur less frequently than initially expected in 2024.
For U.S. stocks, Kolanovic predicts minimal, if not negative gains, due to subdued earnings growth, a shift in corporate pricing trends, and a potential resurgence of market volatility.
Why It Matters: JP Morgan has projected a grim outlook for the U.S. stock market in 2024, forecasting the S&P 500 to drop to 4,200 points next year, implying an 8% fall from current levels, according to a previous Benzinga report. This underlines Kolanovic’s bearish stance, which investors must consider when planning their 2024 strategies.
In his most recent note, the JP Morgan analyst said, “Even in an optimistic scenario, we believe upside is limited for risky assets.”
In 2023, Wall Street saw notable market gains. However, as we approach 2024, various forecasts present a mixed picture for the stock market. For instance, BCA Research predicts a significant downturn for the S&P 500 in 2024, expecting a recession in both the U.S. and the euro area.
Further, Wall Street is recalibrating its 2024 interest rate forecasts following a substantial dovish pivot from the Federal Reserve. This change indicates potential rate cuts, leading to a significant shift in market dynamics.
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