JPMorgan’s Kolanovic stands out saying stocks will rebound
JPMorgan Chase & Co.’s Marko Kolanovic is emerging as one of the few bulls among top Wall Street strategists to say US stocks will rally in the second half.
Kolanovic, voted No. 1 equity strategist in last year’s survey of institutional investors, has maintained his calls for risky assets this year despite the sharp rout in the first half. He expects equities to rebound on attractive valuations and as the peak of investor decline has likely passed.
“While the outlook for activity remains challenging, we believe the risk-reward ratio for equities looks more attractive in the second half of the year,” Kolanovic wrote in a note dated Aug. 1. “The phase of bad data being interpreted as good is gaining momentum, while the call for peak Federal Reserve policy, peak yields and peak inflation plays out.
His view that much of the bad news from weak economic data is now priced in and that stocks will end the year “significantly higher” contrasts sharply with calls from his counterparts at banks such as Goldman Sachs Group Inc. , Morgan Stanley and Bank of America. Corp.
Goldman’s Cecilia Mariotti wrote in a note Monday that it was still too early for markets to discount the risk of a recession betting on a pivot in the Fed’s hawkish stance on policy. And even after this year’s stock sell-off, recession risks are not fully priced into European equities, according to Goldman.
“As for the repricing of cyclical assets in the US and EU, we believe the market may have been too complacent too soon to mitigate recession risks on expectations of more accommodative monetary policy. “said Mariotti.
U.S. stocks have rebounded sharply over the past month, driving the S&P 500’s best monthly gain since November 2020, as gloomier data raised bets the Fed will slow the pace of interest rate hikes, with signs a second better than feared. the quarter’s earnings season also increased the demand for risk. But the rebound now faces a crucial test as August and September have historically been the worst months for the US benchmark.
Short-term positioning data indicates that Kolanovic may be right to predict a sustained recovery, at least in the short term. Citigroup Inc. strategists, including Chris Montagu, said short positions in most markets faced steep losses after last week’s rally, raising the risk of short positions compressing and a rise in equities due to the forced unwinding of large legacy shorts.
But with economic data still far too uncertain, markets could remain volatile in the months ahead, according to Mark Haefele, chief investment officer at UBS Global Wealth Management. “We caution investors against over-interpreting July’s somewhat more positive picture,” he said on Tuesday.
Morgan Stanley and Bank of America, meanwhile, expect sharp downward revisions to corporate earnings estimates to increase pressure on stocks in the coming months. Morgan Stanley’s Wilson – one of Wall Street’s biggest bears – said Monday that although earnings estimates have started to decline, the bulk of corporate downgrades will not occur until the fourth quarter.