JPMorgan’s Kolanovic Says Opt for Cash or Bonds Over Stocks

It’s a lose-lose situation for US stock investors next year, according to Marko Kolanovic, JPMorgan Chase & Co.’s chief market strategist.

He warned clients Thursday that equities and other risk assets won’t be able to sustain any potential rallies without substantial interest-rate cuts by central banks — and he doesn’t anticipate that unless markets drop severely or the economy stalls. For that reason, he said investors should opt for cash or bonds over stocks.

“This is a catch-22 situation,” Kolanovic said in a note. “This would imply that we would need to first see some market declines and volatility during 2024 before easing of monetary conditions and a more sustainable rally.”

Kolanovic, who has remained bearish throughout this year’s stock rally, reiterated his defensive stance, telling clients that bond yields present a “high performance hurdle rate” for other assets and strategies. Treasury yields have broadly retreated. But he estimates that even in the most optimistic economic scenario, equities would outperform bonds or cash by only about 5%. In his expected environment of declining growth or a recession, the strategist said they could underperform cash by around 20%.

“Regardless of whether a recession happens or not, ex-ante, the risk-reward in equities and other risky assets is worse than in cash or bonds,” Kolanovic said.

The strategist’s bearish call for 2023 has so far failed to materialize, with the S&P 500 Index up 19% as the economy remained resilient, even in the face of the Federal Reserve’s aggressive interest-rate increases earlier this year. Kolanovic cut his equity allocation last December, then in January, March and May of this year due to a deteriorating macroeconomic outlook after remaining optimistic through much of 2022’s equity rout.

JPMorgan Has Dour US Stock Outlook