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A top JPMorgan Chase & Co. analyst who has been warning clients to stay away from stocks all year is doubling down and advising them to increase their allocations to cash and gold.
JPMorgan Chief Global Markets Strategist Marko Kolanovic advised clients to modestly reduce their exposure to U.S. stocks and corporate debt and up their holdings of cash and short-dated Treasury bills that carry yields north of 5%.
“Even aside from the debt ceiling issue, we maintain that the risk-reward for equities is poor given elevated risk of recession, stretched valuations, high rates and tightening liquidity, and we favor cash over equities at the former’s ~5% yields,” a team led by Kolanovic said in a note shared with MarketWatch.
Kolanovic and his team also recommended traders shift exposure away from crude oil, which has sunk this year on recession fears, and buy more gold, which has rallied since late last year, although it has reversed some of its year-to-date gains over the past few weeks.
“Within commodities, we rotate from energy (given recession risks and a potentially fading China growth impulse), to gold following its recent selloff (on its safe-haven demand and as a debt ceiling hedge),” the analysts said.
Gold futures expiring in June
GCM23,
have fallen to $1,975 after trading as high as $2,085 earlier this month.
See: Even a mild recession could cause stocks to crater by 15% or more, JPMorgan’s Kolanovic says
Since the start of the year, Kolanovic has pushed back against expectations that looming interest-rate cuts from the Federal Reserve could help to boost stocks. In his view, rate cuts would require a recession strong enough to bring down inflation and the market with it, creating a Catch-22 for investors.
The JPMorgan strategist also argued that stocks are overvalued, a view that is shared by many on Wall Street who have been skeptical of the market’s durability since the start of the year.
The S&P 500 index touched its highest intraday level of the year on Friday when it briefly broke above 4,200, a level that has been a durable ceiling for stocks since August.
The S&P 500
SPX,
is up 8.9% so far this year, according to FactSet data, while the Nasdaq Composite has risen a whopping 21.4% as shares of technology giants like Microsoft Corp.
MSFT,
and semiconductor players like Nvidia Corp.
NVDA,
have benefited from the AI craze.
The forward price-to-earnings ratio for the S&P 500 stood at 18.3 on Tuesday, according to FactSet. That is below the 5-year average of 18.6, but above the 10-year average of 17.3.
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