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Stock rally will collide with recession, says JPMorgan’s Kolanovic

Stock rally will collide with recession, says JPMorgan’s Kolanovic

“Fundamentals are deteriorating and the market has been going higher. So that has to collide at some point.” the bank’s chief global markets strategist and co-head of global research said in a television interview with CNBC.

He expects a recession in the United States and Europe, as interest rates rise and consumers become less resilient.

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The S&P 500 is on track for the best result for a January month since 2019 after a rebound at the start of the year was fueled by expectations that the Federal Reserve will moderate its interest rate increases. Still, global stocks have outperformed those in the United States as investors flock to cheaper corners and seek exposure to China’s reopening.

Kolanovicwho was one of the most bullish on Wall Street during most of last year’s market sell-off, has since changed his mind and cut his stock allocation in mid-December due to the weak economic outlook this year.

US stocks lag global rally

The bank last week cut its recommended capital allocation on concerns of a recession and excessive tightening of monetary policy by the central bank. Kolanovic expects markets to fall in the coming months due to weak economic data and declining corporate earnings expectations. He joins a group of cautious strategists warning of the risks of chasing the rally.

The global chief investment officer of Credit Suisse Group AG He said it’s too early to increase risks in portfolios and move away from cautious positioning. michael wilson of Morgan Stanley he also expects a challenging 2023, given that the United States would experience an earnings slump before stocks rise in 2024.

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Economic surveys show a downward trend and will not rise again unless the Fed cuts, Kolanovic told CNBC. Eventually, “something will have to give and the Fed will have to back down”since current interest rates are too high to be sustainable for the economy and financial markets in the long term.

The economy will get much worse, which will cause the Federal Reserve to react, which will eventually support stocks, he said. “We’re still hoping there’s some kind of backing.”

Despite the downbeat assessment, JPMorgan strategists expect the S&P 500 to close the year at 4,200 points, up 4.6% from Tuesday’s close.

Source: Gestion

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