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JPMorgan's Kolanovic says market is 'very stretched', and a pullback is coming

JPMorgan's Kolanovic sees 2,400 on S&P 500 by year-end

JPMorgan's Marko Kolanovic, who accurately predicted would hit 2,300 on President Donald Trump's election win, now says another big event is about to happen—but this time, it has nothing to do with politics.

A sizable sell-off could be just weeks away, according to Kolanovic, who's the firm's head of quantitative and derivatives research. He puts the time frame between next month's Federal Reserve meeting and the June gathering.

"You could have a 5 percent pullback," he said Thursday on CNBC's "Fast Money."

Kolanovic, who's earned top honors from Institutional Investor, points to complacency and high leverage in the market as warning signs that a significant pause is likely. He finds that fewer investors are buying protection and positioning is "very stretched."

His latest assessment of the market comes as the Dow traded back above the key 20,000 level, with Friday being its best day of the year.

Kolanovic says the impending sell-off won't be sparked by the political discourse surrounding Trump's policies. Rather, the drop would be triggered by disappointing economic data or a policy shift by the Federal Reserve.

"I tend to think what can turn it [the market rally] is a more hawkish Fed," he said. "This week was pretty uneventful or the message was relatively dovish, so nothing happened. But, at some point they will set the stage for hikes and I would be watching either the Fed meetings or data that will drive the Fed like inflation and employment."

Yet, he says the pullback could be the best opportunity of the year for investors to make money.

"Eventually we would recover and then it would be a buying opportunity," said Kolanovic. "Our 2017 view is that we still have upside in equities. 2,400 is our target for the year-end. So, overall we are positive for the market."

He believes there are good reasons for investors to stay constructive, citing Trump's pro-business agenda.

"There are so many political issues and noise. Some people do take it very seriously. My personal view is that it's not going to be the key driver of the market," said Kolanovic, contending that Trump's tax reform agenda will eventually make it through Congress and help push stocks higher.