JPMorgan’s Kolanovic sees correction, hard landing

JPMorgan's Marko Kolanovic explains why he's like this "downright negative" on stocks

JPMorgan’s Marko Kolanovic is foregoing the rally in early 2023.

Instead, the Institutional Investor Hall-of-Famer is bracing for a 10% or more correction in the first half of this year, telling investors he’s “completely negative” on the market.

“Fundamentals are deteriorating. And the market is moving up. So this has to clash at some point,” the company’s chief market strategist and global research co-head told CNBC’s Fast Money on Tuesday.

Kolanovic reduced his company’s equity exposure to underweight last week. In a recent statement, he warned that the market is not currently pricing in a recession. His base case is a hard landing.

“Short-term interest rates have moved a lot in the last six months and they’re likely to go up a bit more and stay there,” he said. “The consumer has gotten heavily into debt. Interest rates have gone up. The consumer has been resilient, and that was kind of our thesis last year… But over time, they’ve become less and less resilient.”

Kolanovic, ranked as the number-one equity strategist by Institutional Investor for the 12th time, cites worrying trends in recent key economic data — including ISM services, retail sales and the Philadelphia Fed Survey — as reasons for the downturn.

“We think things are going south first, getting a lot worse,” Kolanovic said.

However, the tech-heavy Nasdaq is up more than 8% so far this year, and the S&P500 has increased by almost 5%. It closed Tuesday at 4,016.95.

He lists positive developments including China’s reopening of Covid-19 lockdowns and a weaker one dollar for market enthusiasm. Kolanovic believes they helped create a narrative that the worst is behind us and that a recession “kind of magically” happened last year.

“I just don’t think we can keep this economy going with 5% interest rates,” said Kolanovic, noting that private equity and venture capitalists cannot exist in such an environment. “Something will have to give way and the Fed will have to flinch.”

And it could come in the form of a rate cut this year.

“Eventually they will [the Fed] hold it back So the big question is where. Is it [the S&P at] 3,600? 3,400? 3,200? We don’t have a very strong conviction. But we think the direction is down,” he said. “Usually there’s a contagion or something that happens unexpectedly.”

Kolanovic lists government bonds and cash as viable places to hide for now.

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