JPMorgan strategist Marko Kolanovic said the risk sentiment that has driven stocks higher this year is about to reverse, with stocks falling amid headwinds from banking turmoil, the impact of OPCE+ production cuts on the oil market and slowing economic growth. Back to 2022 lows.
Kolanovic said in a report to clients on Monday (3rd) that the Federal Reserve (Fed) has expressed no interest in cutting interest rates this year, but risk assets have shown an unprecedented rebound. . The bank predicts that risk sentiment will reverse in the coming months and the market will retest last year’s lows.
Stocks have held up this year despite rising interest rates that have dented corporate profits, slowed economic growth and sparked a string of bank failures.The S&P 500 rose 7% in the first quarter after falling nearly 20% in 2022, while the tech-heavyNasdaq The 100 index is up 20% since January.
But, in Kolanovic’s view, the inflows into stocks over the past few weeks have been “meaningless,” largely driven by systematic investors, short squeezes and a drop in the VIX volatility index.
The VIX index is currently below 20, indicating that investors believe the banking crisis is under control in the short term. However, Kolanovic described the current market situation as “the calm before the storm.”
Kolanovic said: “It is worth noting that risk sentiment is like an accordion, and restrictive interest rates have caused problems for various carry trades, and then lower yields have relieved some of the pressure. Although central banks are still discussing, in the fight against inflation There is still a lot of work to be done in terms of inflation and resistance to market expectations of rate cuts, so rates, the initial source of pressure, will continue to move higher.”
