JP Morgan’s Chief Global Market Strategist Marko Kolanovic has asked investors to steer clear of investing in share markets this year, as he predicts a recession on the horizon in the fourth quarter of FY2024 or the first quarter of FY2025. Sounding a note of caution about stock market outlook for the second half of this year, Kolanovic described it as a “challenging backdrop” for shares. Despite the current bullishness in the market, Kolanovic remains cautious.
According to Kolanovic, the monetary tightening implemented over the past year is yet to have its full impact, and a recession may be necessary to bring inflation back to target levels. As the economy decelerates and consumer trends soften, he foresees only slight to moderate growth in H2FY24, which may prompt central banks to tighten their policies further.
While Kolanovic acknowledges that the Consumer Price Index (CPI) for June has slightly increased the Federal Reserve’s chances of achieving a ‘soft landing’ or taming inflation without causing a downturn, he still believes that achieving central bank comfort zones for inflation on a sustained basis without an economic downturn is a challenge.
JP Morgan remains cautious about near-term recession risks, but Kolanovic expresses skepticism about inflation returning to comfortable levels for central banks without an economic downturn in the future. In the European stock market, Kolanovic warns of potential risks in the second half of the year due to further monetary tightening, a potential decline in bond yields, and the possibility of upcoming earnings disappointments.
(With agency inputs.)