JPMorgan’s Marko Kalanovic refrains from a rally in early 2023.
Instead, the institutional investor hall of famer is bracing for a correction of 10% or more in the first half of this year, telling investors he is “negatively negative” on the market.
“Fundamentals are deteriorating. And the market is moving up. So at some point it has to collide,” the firm’s chief market strategist and co-head of global research told CNBC.Quick money” on Tuesday.
Last week, Kalanovich reduced his firm’s stake in the stock to lack of weight. In a recent note, he warned that the market is currently not pricing in a recession. Its basic variant is a rigid fit.
“Short-term interest rates have moved a lot over the last six months and they’re probably still going to be a little bit higher and stay there,” he said. “The consumer took on a lot of debt. Interest rates have risen. The consumer has been resilient, and that was kind of our thesis last year… But they’re becoming less resilient as time goes on.”
Kalanovitch, named Institutional Investor’s number one equity strategist for the twelfth time, cited troubling trends in recent key economic data, including the ISM services, retail sales and the Philadelphia Fed survey as reasons to turn bearish.
“We think things are going south at first, it’s going to get much worse,” Kalanovic said.
It lists positive developments, including China’s recovery from the Covid-19 lockdown and weaker dollar for market enthusiasm. Kalanovitch believes they helped create a narrative that the worst was over and the recession “somehow magically” happened last year.
“I just don’t think that at 5% rates we can make this economy function,” said Kalanovich, who noted that private equity and venture capitalists cannot exist in such an environment. “Something will have to give and the Fed will have to shudder.”
And it could happen this year in the form of a rate cut.
“At some point they will [the Fed] stop him. So the big question is where. This [the S&P at] 3600? 3400? 3200? We do not have a very strong conviction. But we believe that the direction is lower, he said. – Usually there is some kind of infection or something that happens unexpectedly.
Kalanovich lists Treasury bonds and cash as viable places to hide for now.
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