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JPMorgan: US stocks ‘correction’ far from over

JPMorgan: US stocks ‘correction’ far from over
Ana Zirojevic

Weeks after warning investors that stocks could crack at any moment, after which the United States equities, indeed, started to sell off, analysts at JPMorgan Chase (NYSE: JPM) continue to stand by their bearish prognoses, arguing that the correction in the American stock market is far from over.

As it happens, JPMorgan’s chief market strategist Marko Kolanovic has shared a pessimistic forecast that spells trouble for stocks despite a temporary stabilization in the market triggered by positive earnings results, as he said in a note to clients, according to a report on April 22.

JPMorgan’s S&P 500 index fund forecasts vs. other banks
JPMorgan’s S&P 500 index fund forecasts vs. other banks. Source: Bloomberg

Stock market crash still ongoing?

On top of that, as Kolanovic pointed out, factors building up on the downside risks include high inflation, confidence in stock valuations, declining prospects for imminent Federal Reserve interest-rate cuts, and an overly optimistic profit outlook, adding that he expected a drop of 10% or more:

“The correction likely has further to go. (…) Market concentration has been very high, and positioning extended, which are typically red flags, at risk of a reversal.”

Moreover, he compared these trends with those from last summer, when rising inflation and aggressive Fed revisions sparked a decline in risk assets, stressing that investor positioning today looks higher and advising a defensive approach – hedging risk assets with long volatility and commodity exposure outside of gold.

Furthermore, according to Kolanovic:

“The multiple expansion seen in past months, extremely low volatility metrics up to recently, tightest credit spreads since 2007, and the general inability by market participants earlier in the year to identify any potential negative catalysts for stocks are starting to shift.”

As a reminder, Kolanovic’s colleague Dubravko Lakos-Bujas earlier warned about the massive stock market sell-off, focusing on the risks “hovering in the background” that far outweighed the upside sources and could strike at any moment due to excessive crowding, as Finbold reported on March 28.

Meanwhile, JPMorgan remains on the negative side of the prognoses regarding the future performance of the S&P 500 index funds, predicting they would close the year at 4,200 points, as opposed to many of their peers who boosted their outlooks, including Société Générale suggesting a record 5,500.

For now, the S&P 500 index stands at 5,010.60 points, indicating an increase of 0.87% on the day, a slight decline of 1.07% across the previous week, and a loss of 3.98% on its monthly chart, consistently climbing this year and peaking at new all-time highs (ATHs) last month, as per the latest data on April 23.

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