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Kolanovic Sees ‘Plethora’ Of Risks For Buoyant Stocks
If you were wondering, JPMorgan's cross-asset strategy team is still cautious on equities.
That probably goes without saying by now. The bank's harbored the same set of doubts about the rally, the economy and the fraught state of global affairs, for around 18 months. At least.
Those concerns have only grown over that period, even as US equities pressed ever higher on the way to more than two-dozen new records in 2024.
Analysts led by Marko Kolanovic reiterated their defensive stance this week
OTOH, if politics is only reacting to the idiocy of voters but the economy is basically fine or better than fine in some parts (tech…) then it kinda makes sense for equities to ignore political turmoil.
Apple EPS doesn’t care if women are forced to keep pregnancies they don’t want and trans are barred from their preferred bathrooms…
It is impossible for many traders and investors to envision a bear market. The algos running the 0DTE programs don’t care about uncertainty beyond a few minutes, and many PMs and investors can’t (or won’t let themselves) imagine that uncertainties (a/k/a “risks”) may lead to sharp declines in equities. Today’s self-proclaimed “long-term” investors will be challenged to maintain that perspective when the market finally rolls over. Or drops like a rock and doesn’t bounce. Brings to mind Tyson’s oft quoted comment about everyone having a plan until they get punched in the face. And Buffett’s comment about what is revealed when the tides goes out. Greed rules for now but it will be ugly and scary when markets are turning many traders and investors into humans again.
I would also add a Putin / MBS / Netanyahu / Yemen related oil price shock to the list of risk factors…
CRE and bank failure risk are still out there too.
Well, I suppose Kolanovic did call the market’s pandemic bottom….
He’ll be right again — eventually.
Investors aren’t overlooking risks of domestic or geopolitics, volatility in Treasuries, unpredictable bond auctions, accelerating deficit spending, recalcitrant inflation, increasing economic inequality, FED policy mistake, possible recession etc. Because investors are aware of and concerned about all these risks, they are allocating capital to liquid megacap stocks of companies with secular growth and solid earnings visibility supported additionally by dividends and buybacks: NVIDIA, APPLE, MSFT. These 3 stocks have become the safety trade since the April’ 24 downdraft in the indices since they are largely unperturbed by the vagaries of inflation, FED policy etc.. One could easily argue that these three stocks over the last two years have less downside volatility than US Treasury bonds. I think the narrow leadership will persist until after the election.
Interesting idea.