JP Morgan warns investors: Stocks set to decline for remainder of the year

Investing.com – The days are likely to prove that US equity investors’ predictions of an end to downward pressures could be wrong, as recession risks still loom, according to Marko Kolanovic, of JPMorgan (NYSE:).

The strategist said that stocks are set to decline for the remainder of the year, as the full impact of raising interest rates on the economy has not yet appeared, in addition to weak corporate profits expected for the coming period.

It raised the benchmark interest rate by another 25 basis points last week to the highest level since 2007 – a move many traders viewed as the latest increase in the current monetary tightening cycle. Market expectations indicate that investors expect the US central bank to start cutting before the year ends.

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“What the markets refuse to admit is that if interest rate cuts occur this year, it will either be due to the onset of a major recession or crisis in the financial markets,” Kolanovic wrote in a note to clients on Monday.

Kolanovic was one of the biggest bulls on Wall Street during most of the stock market sell-off in 2022, but has since reversed his view, cutting the stock allocation in his portfolio in mid-December, January and March due to the worsening economic outlook this year.

The US banking crisis is also expected to amplify the cumulative effect of the Fed’s hawkish policy, according to Kolanović.

Other headwinds that investors are facing include a narrowing gap between the bond market, the stock market, and the Federal Reserve, as well as the approaching deadline for the United States to raise its debt ceiling.

“Despite earnings surprises that are difficult to explain versus analyst expectations, the big picture remains that revenue and earnings growth remain on a downward trajectory,” Kolanovic said.

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