Would You Like Context With Your Kolanovic?

Quite often, I’m compelled to emit a wry chuckle at the headlines emanating from mainstream financial media outlets.

On Monday, for example, CNBC ran the following eye-catcher: “JPMorgan’s trading guru Kolanovic says take profits now on US stocks, add to emerging markets.”

That sounds pretty dramatic. Upon closer examination, it looked to me like a case of “anything to get ‘Kolanovic’ in a headline.”

CNBC’s coverage wasn’t inaccurate, as such. But there’s a difference between a Marko Kolanovic note proper and “JPM View,” which is just a weekly strategy piece summarizing the bank’s cross-asset outlook. It’s a digest of sorts — a compilation. Marko’s name is at the top of it because he’s JPMorgan’s Chief Global Market Strategist and co-head of global research.

That may seem like a trivial distinction, but Kolanovic headlines can move markets on occasion. So, when media outlets suggest (tacitly, inadvertently or otherwise), that he had a eureka moment in the middle of a quiet Monday and subsequently blasted out a note telling clients to take profits “now” in US equities, the potential exists for misinterpretation.

On March 17, in a note from his desk, Marko said it was time to add risk. That was his call. I’m sure it was later summarized in multiple JPMorgan notes, but he was clearly prepared to own it personally (not in the sense of his personal portfolio, but in the sense of having made it himself). And it was a good call. From the minute that note was released to the height of the March rebound, S&P futures were nearly 6% higher.

Four days later, CNBC ran this headline: “JPMorgan’s Kolanovic cuts his S&P 500 forecast, but still expects a big comeback.” Again, it wasn’t inaccurate, per se, but it was needlessly suggestive. In fact, it was Dubravko Lakos-Bujas who cut the bank’s S&P target, and there wasn’t much to it. In essence, the bank was just adjusting their call to match slight downward earnings revisions. It was, in my judgment anyway, blown out of proportion.

The same appeared to be the case on Monday. Kolanovic’s “take profits” call (as CNBC described it) was really just a reiteration of the bank’s pro-risk asset allocation, only with an adjustment to account for the fact that stocks (broadly) have rebounded in line with Kolanovic’s mid-March call. Here’s the actual quote:

We retain a pro-risk view and continue to recommend OWs in equities and commodities and UW in bonds. Prior to the Ukraine war, growth was expected to accelerate to well above trend as we reopen from the Omicron wave and see an unleashing of pent-up consumer and corporate demand. Although growth prospects have been downgraded over the past month, much of this impulse remains and we still see supports from strong labor markets, light investor positioning, healthy consumer and corporate balance sheets, easing policy in China, and fiscal supports in several countries to offset part of the drag from high energy prices. However, markets have recovered a majority of their early-March sell-off and thus no longer look oversold, while risks remain elevated around geopolitics, policy tightening and growth. As such, we take profit on the tactical increase to our equity OW initiated last month. While the US appears to be on an aggressive tightening path, China is expected to ease as soon as this month. As such, we increase our OW of EM vs. DM stocks. We also maintain our large strategic OWs of Commodities and Energy stocks given structural supply/demand drivers and geopolitical risks.

It doesn’t sound so dramatic when you have the context. JPMorgan is still very constructive. In fact, it’s probably not a stretch to suggest the bank is among the most constructive on the Street when it comes to equities.

“We are still bullish with investor sentiment being poor and positioning very low,” the bank said Monday, before emphasizing that “equities risk-reward is not as poor as it is currently fashionable to believe.”

JPMorgan’s strategists conceded the obvious — namely that geopolitical crises often force investors to ponder binary outcomes and that Fed tightening is a headwind. But they also said that “activity momentum ahead of this shock was resilient, even accelerating, in all key regions, labor markets are staying very supportive, the COVID headwind in DM is ending and there is a turn for the better in China’s policy stance.”

As for the Fed, it’s fully priced. I detailed as much over the weekend here. On the inflation front, there are doubtlessly a few more disconcerting prints in the offing, but JPMorgan said price pressures should peak “mechanically” soon.

Finally, the bank noted that “geopolitical shocks historically did not tend to dominate markets for long [and] front-loaded risks set us up for a more normal” second half.

I’m not (necessarily) suggesting I agree with all of the above, but it’s important that market participants have the proper context when it comes to headlines and coverage with the potential to affect investor psychology at delicate junctures.