JPMorgan Strategist Marko Kolanovic stated that the bank has reduced its stocks and private sector bonds in favor of cash due to the disconnect between stock and bond markets due to the Fed’s interest rate path, increased recession risk and unfounded valuations.
While reducing the weight of both stocks and corporate bonds by 1 percent, the bank increased its cash distribution by 2 percent.
In his briefing to bank customers, Kolanovic pointed out that in addition to the debt ceiling impasse, stocks have a weak risk-reward ratio due to recession risks, above-normal valuations and high interest rates.
The Strategist said, “The divergence between the bond markets, which expect the Fed to cut this year, and the stock markets that interpret these possible interest rate cuts as positive to take risks, and the Fed’s hawkish rhetoric remains. “As interest rate cuts will most likely result from risk aversion, this gap will most likely close at the expense of equities, and if interest rates remain high, this will put pressure on economic activity and comparative valuations of companies.”
Bank switched from energy commodities to gold
Citing the recession risk and slowing growth in China, the bank changed its decision in energy commodities and switched to gold after the last wave of sales and debt ceiling discussions.
Kolanovic advised customers to reduce their debt ceiling optimism, emphasizing that stocks are struggling to overcome resistance points. JPMorgan’s portfolio of models has suffered losses in three of the last four months.
Kolanovic was one of Wall Street’s biggest optimists during the wave of stock sell-offs in 2022, but reversed his view this year by cutting his share allocation in January and March, starting in mid-December due to the worsening economic outlook.