Remain optimistic but lower expectations as risks rise

  • One of Wall Street’s biggest bulls admits the risks are rising for the stock market this year.
  • JPMorgan’s Marko Kolanovic pointed to rising geopolitical and macroeconomic risks and lowered his S&P 500 price target to 4,900.
  • But Kolanovic is still optimistic and expects the stock market to rise in the second half.

JPMorgan’s quantitative guru Marko Kolanovic has consistently recommended investors buy stocks after the S&P 500 fell more than 10%, arguing that a lot of bad news is already priced into the market.

But that uptrend was tempered slightly on Monday after Kolanovic lowered his S&P 500 year-end price target to 4,900 from 5,050, admitting risks from geopolitics and macro forces are bubbling. Kolanovic now expects the S&P 500 to post earnings per share of $235 for 2022, up from $240 previously. That estimate would still represent 12% year-over-year growth and tops the Wall Street consensus.

The call does not change Kolanovic’s view that investors should always buy stocks, including risky innovative stocks that are favored by Ark Invest’s Cathie Wood. Instead, Kolanovic sees at least 10% upside in the S&P 500 by the end of the year, with much of those gains coming in the second half.

The biggest risk to markets right now is a hawkish

Federal Reserve

which has just kicked off a new round of tightening with interest rates rising for the first time since late 2018. Another risk which Kolanovic has his eyes on.

“With light positioning, weak sentiment and geopolitical risks likely to abate over time, we believe risks are biased to the upside… That said, we have revised down some year-end targets for reflect macro and geopolitical risks, which should subside in the second half of the year,” Kolanovic said.

Kolanovic does not see a recession happening in the United States any time soon, which worries many investors as the yield curve for 2- and 10-year Treasury bills moves closer to inverting.

“We believe this is warranted given the strong economic fundamentals, we expect the 2s10 curve to remain positive this year and moderate the risks of large energy supply disruptions,” Kolanovic explained.

Other risks on the JPMorgan team’s radar include rising COVID-19 cases in China and an intense and protracted war between Russia and Ukraine.

“In this scenario, policy normalization would stop,” Kolanovic said.

“Markets have absorbed significant macroeconomic and geopolitical shocks amid an aggressive central bank pivot…While Fed tightening remains the strongest headwind, we believe the market still has room for improvement. up… We have now erased the long-awaited Fed take-off and the economy is still normalizing from multiple waves of COVID,” Kolanovic concluded.

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