• Positive mood on the market recently
• JPMorgan expert warns of “calm before the storm”
• 2022 lows may be tested again
In recent weeks, investors have increasingly entered the markets again. The Dow Jones Industrial gained around 4.76 percent for the month, the Nasdaq Composite even went up 5.28 percent, while the S&P 500 gained around 4.84 percent within one month. But Marko Kolanovic, strategist at US bank JPMorgan, warns against an overly risky mood.
VIX drives the markets
In his view, recent weeks’ inflows into equities make “little sense” and have been largely driven by systematic investors, a short squeeze and a decline in the CBOE Volatility Index VIX, the analyst wrote in a note to investors quoted by Bloomberg. Kolanovic also points to what he sees as a slim chance that the US Federal Reserve will start a rate hike: “The Fed has signaled no intention of cutting interest rates this year, but risky assets are showing an unprecedented rally, with European stocks near all-time highs trading and US stocks are recovering from recent losses,” he continued.
The VIX volatility index had recently fallen below the value of 20, so investors have recently been much less nervous than they were at the beginning of March, when the banking crisis in the USA had caused enormous uncertainty. The market expert is obviously worried that the VIX, which is the indicator for the expected development of the S&P 500, is signaling an easing: he describes the current market environment as “the calm before the storm”.
Market optimist turns skeptical
Kolanovic, who had shown great confidence in 2022 amid price declines, is now apparently becoming more pessimistic and even anticipating a market decline to 2022 low levels: “We expect risk sentiment to reverse and for the market to break the low of the market in the coming months tested again last year,” quoted Bloomberg from JPMorgan’s announcement to investors.
Kolanovic had already become more cautious at the start of the year and had advised investors to avoid US stocks in the first six months of the year. “Things have to get worse before they can get better,” said the investment guru just a few months ago. For the S&P 500, he even predicted a slump of ten percent or more – after the first three months of the year, the broad US stock market is holding up much better than predicted in the pessimistic forecast. At the start of the year, Kolanovic referred to an impending recession and further interest rate hikes by the US Federal Reserve as the reason for his bearish assessment of US stocks, which may weigh on the stock market.
In fact, the Fed has its hawkish monetary policy since then it has continued and the key interest rates have been raised further despite the most recent banking crisis. However, the US monetary authorities had recently announced a change of course and informed the markets: “We are no longer saying that we assume that ongoing interest rate hikes will be appropriate to dampen inflation”.
For Kolanovic, however, there is apparently no reason to reconsider his negative market valuation. “It’s worth noting that risk sentiment is like an accordion, with restrictive interest rates posing a problem for various carry trades and the subsequent drop in yields alleviating some of the stress,” the analyst said. “Although central banks are still communicating, there is still work to be done to fight inflation and resist market-hyped interest rate cuts, allowing the original source of stress, longer interest rates to rise, to come back into play.” he emphasizes.
Editorial office finanzen.net
Image sources: interstid / Shutterstock.com, Rawpixel.com / Shutterstock.com