2024 might be ‘a catch-22 state of affairs’ for markets: JPM
JPMorgan (JPM) is warning traders of a “catch-22 state of affairs” for US markets subsequent yr.
According to strategist Marko Kolanovic, a market rally shall be unsustainable if the Federal Reserve doesn’t minimize rates of interest.
“This is a catch-22 state of affairs, during which danger property can’t have a sustainable rally at this degree of financial restriction, and there’ll seemingly be no decisive easing except dangerous property right (or inflation declines because of, for instance, weaker demand, thus hurting company earnings),” Kolanovic wrote in a 2024 outlook report, revealed on Friday.
“This would indicate that we would wish to first see some market declines and volatility throughout 2024 earlier than easing of financial situations and a extra sustainable rally,” he continued.
Kolanovic, who has been bearish on the rally thus far this yr, mentioned he prefers bonds and money to equities and different danger property, writing within the report, “In a really optimistic financial situation, we will see equities outperforming bonds (or money) by ~5%, whereas in a probable surroundings of declining progress or a recession, they may underperform money by ~20%.”
“Regardless of whether or not a recession occurs or not, ex-ante, the risk-reward in equities and different dangerous property is worse than in money or bonds.”
Still, the inventory market has continued to outperform in 2023 with the S&P 500 (^GSPC) up 20% for the reason that begin of the yr. The Dow Jones Industrial Average (^DJI) and tech-heavy Nasdaq Composite (^IXIC) are up about 9% and 38%, respectively, over that very same time interval.
Treasury yields, in the meantime, rallied to report highs earlier this fall however have since retreated. The yield on the benchmark 10-year word (^TNX) is presently buying and selling close to 4.27% after surpassing 5% in October.
