Although stock markets have been rising since the beginning of the year, investors should not relax their focus. Indeed, there are quite a few headwinds, and analysts are racing ahead with predictions of a recession that increasingly seems inevitable. What is the opinion of JP Morgan strategist Marko Kolanovic on the current situation? According to him, we are now experiencing the calm before the storm. Why?

In 2023, stock markets face many uncertainties and challenges that may affect their performance. One of the main experts who monitor and analyse market trends is Marko Kolanovic, a strategist at JPMorgan. Kolanovic has had a significant impact on the investment community due to his accurate forecasts and ability to identify key factors affecting the markets. In this article, we will focus on Kolanovic's views and predictions regarding the stock markets in 2023.

JPMorgan strategist Mark Kolanovich warns of a potential decline in equities in 2023. This is due to banking turmoil, oil shock and slowing growth. European equities are currently trading near all-time highs and US equities are recovering from recent losses. However, Kolanovic expects a reversal in risk sentiment and the market could retest last year's lows in the coming months.

Banking turmoil and oil shock

The banking sector is undergoing turbulence that may affect the overall performance of equity markets. The collapse of several banks in the US and overseas shows that the sector is facing significant challenges.

Although central banks are still communicating, there is reason to obscure the fight against inflation and suppress the market's assumption of a cut, so the original source of stress, rates higher for longer, may re-enter the picture.

Traders have increased bets that banking system stress will force the Federal Reserve (Fed) to put the brakes on its tightening campaign. Kolanovich warns that the original source of stress, rates higher for an extended period of time, may once again come into play. If the Fed stops raising interest rates, it could calm markets temporarily, but in the long run it could lead to higher inflation and other problems.

At the same time, rising tensions in the Middle East have caused oil prices to spike, which could have a negative impact on the global economy.

Slowing economic growth

Economic growth is slowing due to concerns about inflation and rising interest rates. These developments may cause investors to become more cautious and reduce their investment in equities. Kolanovic believes that the slowdown in growth may lead to a further decline in the stock markets.

In recent weeks, there has been an influx of capital into equities, largely driven by systematic investors, a short squeeze and a decline in the VIX volatility index. Kolanovic sees the current market environment as the "calm before the storm". However, if market conditions deteriorate, there could be a sharp increase in volatility and a decline in equity markets.

In response to the weak economic outlook for the year, Kolanovic has reduced his equity allocation. Despite rising interest rates and a series of bank collapses in the US and overseas, equities have remained resilient. The S&P 500 rose 7% in the first quarter, and the Nasdaq 100 index moved up 20% thanks to gains in technology stocks. However, these gains may be temporary if economic conditions deteriorate.

Citigroup Inc. strategists note that net positioning has clearly increased for the S&P 500 index over the past week, with $15 billion of shorts remaining to be settled. This development could further increase nervousness in the markets and accelerate a potential decline in equities. Investors should monitor market positions and betas as these may signal upcoming changes in market trends.

Conclusion

In summary, Kolanovich predicts a tumultuous year in the equity markets and recommends investment caution in the face of banking turmoil, oil shock and slowing growth. The market is expected to retest last year's lows in the coming months. Investors should closely monitor economic developments, central bank reactions and market sentiment to adapt to changing conditions to protect their investments.

WARNING: I am not a financial advisor, and this material does not serve as a financial or investment recommendation. The content of this material is purely informational.