“There is a clear disconnect in the huge run-up in U.S. equity valuations and the business cycle,” JPMorgan’s strategist team wrote in a client note last week. “There is a risk that an opposite of the hopeful expectation could play out in coming quarters where growth decelerates, inflation remains firm, and long-term rates don’t move sharply lower.”
Kolanovic’s outlook for equities is more bearish than Wall Street’s frequent bear Michael Wilson from Morgan Stanley, and Goldman, Citi, and BofA are all bullish for the months ahead.
And although the JPMorgan forecaster was wrong with his bullish view in 2022. Stocks dropped almost 20% then and a year later when the index jumped 24%, Kolanovic was bearish.
However, this time he firmly believes he will be on the right side of history, noting that while he may have underestimated the resilience of mega-cap tech stocks before, the over-concentration of holdings in these assets by investors is a risk.
“While timing reversals and rotations is difficult, we are in the camp that hyperbolic moves in price and sentiment are more often violently corrected than not when the exuberance runs its course, and the largest institutional investors are done chasing,” Kolanovic told BNN Bloomberg.