2024 could be ‘a catch-22 situation’ for markets: JPM
JPMorgan (JPM) is warning investors of a “catch-22 situation” for US markets next year.
According to strategist Marko Kolanovic, a market rally will be unsustainable if the Federal Reserve does not cut interest rates.
“This is a catch-22 situation, in which risk assets can’t have a sustainable rally at this level of monetary restriction, and there will likely be no decisive easing unless risky assets correct (or inflation declines due to, for example, weaker demand, thus hurting corporate profits),” Kolanovic wrote in a 2024 outlook report, published on Friday.
“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,” he continued.
Kolanovic, who has been bearish on the rally so far this year, said he prefers bonds and cash to equities and other risk assets, writing in the report, “In a very optimistic economic scenario, we can see equities outperforming bonds (or cash) by ~5%, while in a likely environment of declining growth or a recession, they could underperform cash by ~20%.”
“Regardless of whether a recession happens or not, ex-ante, the risk-reward in equities and other risky assets is worse than in cash or bonds.”
Still, the stock market has continued to outperform in 2023 with the S&P 500 (^GSPC) up 20% since the start of the year. The Dow Jones Industrial Average (^DJI) and tech-heavy Nasdaq Composite (^IXIC) are up about 9% and 38%, respectively, over that same time period.
Treasury yields, meanwhile, rallied to record highs earlier this fall but have since retreated. The yield on the benchmark 10-year note (^TNX) is currently trading near 4.27% after surpassing 5% in October.
