JPMorgan’s Marko Kolanovic anticipates a 20% decline in the S&P 500, citing the impact of high-interest rates as a breaking point for stocks. Kolanovic, the firm’s chief market strategist, recommends a defensive strategy of choosing cash with a 5.5% return in the money market and short-term Treasuries. He expresses uncertainty about avoiding a recession at the current interest rate levels. The S&P 500 recently closed at 4,258.19, nearing a five-week losing streak, and has seen a more than 5% drop over the past month.
While Kolanovic believes a near-term bounce is possible, he warns of potential downside, estimating it could be as much as 20%. He identifies the “Magnificent Seven” stocks, including Apple, Amazon, Meta, Alphabet, Nvidia, Tesla, and Microsoft, as particularly vulnerable to significant losses due to their historic gains amid high-interest rates, with the group up 83% so far in the year, driving a substantial portion of the S&P 500’s gains.
In the event of a recession, Kolanovic predicts that the “Magnificent Seven” will decline along with other sectors. He points to consumer staples and utilities as potentially affected sectors. Additionally, he raises concerns about consumers facing financial strain due to economic conditions, noting stress in credit cards and auto loans. Despite a still strong job market, Kolanovic remains somewhat negative about the economic outlook.