JPMorgan (JPM) is warning investors of a 'catch-22 situation' for U.S. stocks next year. JPMorgan Chief Market Strategist Marko Kolanovic said, "This is a catch-22 situation... This would imply that we would need to first see some market declines and volatility during 2024 before easing of monetary conditions and a more sustainable rally."
BRAD SMITH: We're also tracking JP Morgan here today. They're warning of rocky circumstances for the US stocks next year. Strategist Marco Kolanovic cautioned clients of a catch-22 situation, saying a rally in equities is unsustainable without significant rate cuts from the Fed, which he doesn't expect without a severe drop in markets here. And so this in the range of strategies that we've seen and heard emerge going into 2024 and much of that really just positioned around what the Fed may or may not do at this point.
SEANA SMITH: Yeah. I think this all hinges on what exactly the Fed is going to do. Nothing really new here from Kolanovic. We know he has tended to be a little bit bearish in terms of his expectations, limited upside that he's seeing for equities next year. And a couple of the scenarios that he did lay out, two stuck out to me.
The most optimistic economic scenario, he only sees equities outperforming bonds and cash by only about 5%. Now, in his expected environment of declining growth or a recession, he's saying that this group could actually underperform cash by around 20%. So clearly, he sees a lot more downside risk ahead for the markets.
A lot of this, a lot of these projections hinging around what the Fed rate cut timeline looks like exactly when we could potentially see a rate cut. The market very optimistic, maybe a little bit too aggressive in pricing in the fact that they see one as early as almost the first quarter of March of next year.
So when you take that into account and compare that to some of the more reserved expectations, there certainly is a wide variety of when that timeline is going to be. And also not only that, but once the Fed does start cutting, how quickly then they will continue to cut is also obviously up for debate.
BRAD SMITH: Yeah. And if you're taking some of the riskier assets off the table, does that then lean into the growth as a reversion type strategy? And that's something that we've heard, at least as we've been asking some of the strategists for their end of year and going into 2024 resolutions for trading. You know I've been hot to trot on that.