JPMorgan’s Marko Kolanovic is bracing for a 20% sell-off to hit the S&P 500.
According to the Institutional Investor Hall of Fame, high interest rates create a breaking point for stocks — and opting for cash with a 5.5% money market yield and short-term Treasuries is a key protection strategy right now.
“I’m not sure how to avoid that [recession] If we stay at this level of interest rates,” the firm’s chief market strategist and co-head of global research told CNBC’s Fast Money on Thursday.
The S&P 500 closed at 4,258.19 on Thursday and is on the cusp of a five-week losing streak. The index fell more than 5% over the past month.
Kolanovic believes that weakness is not a strong sign that there is already a massive move lower. He notes that a near-term rebound is still possible because much depends on economic reports over the next few months.
“[We’re] “It does not necessarily call for an immediate sharp decline,” he said. “Could there be another 5, 6, 7 percent rise in stocks? Sure…but there’s a downside. There could be a 20 percent drop.”
He warns that the “magnificent seven” stocks, which include Apple, Amazon, Meta, Alphabet, Nvidia, Tesla and Microsoft, are among the most vulnerable to severe losses due to their historical gains amid high interest rates. The group is up 83% so far this year — bearing the bulk of the S&P 500’s gains.
“If there’s a recession, I think it’s great [seven]“We will get to where the rest is,” Kolanovic said, citing affected sectors including consumer staples and public utilities.
In addition, Kolanovic believes that consumers are facing serious financial hardship due to the economic backdrop.
“The job market is still strong. But you’re starting to see the tension [the] Consumer if you look at some kind of delinquency in [credit] He pointed to cards and car loans. “We’re still pretty negative.”
Kolanovic, a chief equity strategist at Institutional Investors, entered the year with a year-end target for the S&P 500 of 4,200. The index closed 2022 at 3,839.50.
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