Analyst Marko Kolanovic cautioned that despite the stock market’s strong performance, volatility is likely, and investors should avoid becoming overly bullish.
A JP Morgan analyst has issued a stark warning about potential volatility in the stock market, despite its record highs this year. Marko Kolanovic, the company’s chief market strategist, predicted in a note on Monday that the S&P 500 could plummet by 20 percent to 4,200 by the year’s end.
Kolanovic cautioned investors against becoming bullish, even as the Dow Jones Industrial Average soared past the 40,000-point mark for the first time last week. This milestone excited many Americans with savings accounts and 401(k)s invested in the stock market. However, Kolanovic’s warning is grounded in several key concerns: persistent restrictive interest rates, weakening lower-income consumer spending, and significant geopolitical uncertainties, as reported by Business Insider.
“With very high equity valuations, we do not see equities as attractive investments at the moment and we don’t see a reason to change our stance,” Kolanovic stated.
Kolanovic stands out among major bank analysts with his bearish outlook. Notably, Morgan Stanley’s Mike Wilson, who was one of the few remaining bearish analysts, turned bullish over the weekend. Kolanovic emphasized that for the S&P 500 earnings to meet investor expectations in 2024, third- and fourth-quarter earnings per share (EPS) growth would need to accelerate by 16 percent compared to the first quarter. He expressed skepticism about this scenario, especially if the current trend of softer economic data continues.
Additionally, Kolanovic expressed doubts about the ability of emerging technologies, such as artificial intelligence, to offset the traditional market challenges that typically hamper economic cycles. “We don’t think that narrow themes like AI chips can compensate for all of those traditional market challenges that historically worked against the cycle,” he said.
U.S. stock indexes have been fluctuating near their record levels, with the S&P 500 remaining almost unchanged in recent trading, following its latest all-time high. The Dow Jones Industrial Average dropped by 30 points, or 0.1 percent, while the Nasdaq composite hovered around its recent record.
The recent breach of the 40,000-point threshold by the Dow Jones Industrial Average provided a psychological boost for investors. Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, remarked, “Breaking the 40,000 barrier is a big psychological boost for the bulls as round numbers hold special significance in people’s hearts and minds.”
Most Americans have some portion of their 401(k) and Individual Retirement Accounts invested in the Dow Jones, S&P 500, and Nasdaq. The New York Federal Reserve’s research indicates a significant shift in retirement planning. Since March 2020, the expected retirement age for workers has dropped, with only 46 percent of Americans under 62 now planning to work past this age, a decline from the traditional retirement age of 65. Before the pandemic, this figure averaged 55 percent and has steadily decreased since then.
The Federal Reserve attributes this trend to a cultural shift and a reassessment of work’s value, coupled with a strong stock market that has boosted household financial confidence. Workers’ 401(k)s have benefited from the buoyant stock market over the past year, driven by a robust labor market and resilient consumer spending despite higher interest rates and inflation.
The Fed’s economists suggest that the trend toward early retirement reflects increased household net wealth, greater confidence in future income and financial health, and optimism about reaching retirement savings goals.
Despite the current market strength, Kolanovic’s warning highlights the precarious balance and the potential for significant downturns. Investors are urged to remain cautious and consider the broader economic factors that could impact their financial strategies in the coming months.
