JPMorgan’s stock guru Kolanovic sees several negative catalysts for the market

Published Tue, Jan 9 20248:48 AM EST

Top Wall Street strategist Marko Kolanovic said a host of negative forces are forming that may potentially weigh on stock performance after a strong 2023, including more stubborn inflation, rising geopolitical risks and overbought conditions. "The disinflation thesis is likely to be challenged during 1H24 as the disinflation process stalls, equities appear overbought given low implied cash allocations and low short interest, and risks are rising for geopolitics to drive both a risk-off shift and a boost to inflation via increased shipping costs," JPMorgan's Kolanovic said in a note. Stocks closed out a strong 2023 with the S & P 500 climbing for nine weeks in a row at year-end, as investors cheered cooling inflation and the Federal Reserve's outlook that it will ease policy in 2024. The benchmark equity index ended the year up 24%. But Kolanovic, JPMorgan's chief market strategist and co-head of global research, said that optimism on inflation might have been premature. Moreover, he thinks the 2023 year end rally may have made the market so expensive as to mean it's now overbought. .SPX 1Y mountain S & P 500 "Equity markets are now showing overbought conditions, with sentiment moving into complacent territory," he said. Kolanovic also warned that falling bond yields, which have been a positive catalyst for stocks, could become a burden for Corporate America's earnings growth if bonds are a harbinger of a slowing economy. "While [the] market interpreted falling bond yields since Oct. as solely a positive development, we do not think that this will sustain through the year. Lower yields could end up signaling weaker EPS delivery ahead, on softening pricing, sequential activity slowdown and profit margin compression," Kolanovic said. JPMorgan sees the S & P 500 ending 2024 at 4,200, or 12% below current levels, making the bank the biggest bear on Wall Street with the lowest target, according to the CNBC PRO Market Strategist Survey. The average strategist's 2024 forecast for the S & P 500 is 4,892.