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JPMorgan Chase & Co.’s chief market strategist, Marko Kolanovic, is trimming risk exposure in the bank’s model portfolio this month amid questions over central-bank monetary policy and a rise in geopolitical tensions.
Kolanovic, who has been Wall Street’s most vocal bull this year, cut the size of both the company’s equity-overweight allocations, or the expectation for stocks to outperform their industry peers in the equity market, and bond-underweight allocations, or the outlook for bonds to underperform peers.
“Recent developments on these fronts — namely, the increasingly hawkish rhetoric from central banks, and escalation of the war in Ukraine — are likely to delay the economic and market recovery,” wrote JPMorgan strategists led by Kolanovic in a Monday note.
The risk cutback follows Kolanovic’s comment earlier this month that the company’s year-end S&P 500
SPX,
target of 4,800 may not be realized until 2023, or until risk factors ease. His price target implies nearly 30% upside from Tuesday’s levels. The large-cap index traded at 3,725 in the afternoon.
“Given the recent escalation in hawkish rhetoric, the likelihood of central banks committing a policy mistake with negative global consequences has increased, and this started showing in various cracks in FX and rates markets,” Kolanovic earlier wrote in a note dated Oct.3. “Even if a mistake is avoided, a delay will likely be introduced for the global market and economic recovery.”
See: Popular U.S. recession gauge is at risk of hitting most-negative level since Reagan era, BMO says
Despite the cautiousness, Kolanovic has maintained a pro-risk stance in the hope that bearish investor sentiment and positioning could limit further declines in stocks and the expectation that Asian economic growth will support a global recovery.
“We expect the global expansion to continue to display resilience through the middle of next year given an unwind of adverse supply shocks, a material slowing in inflation, and a healthy private sector,” Kolanovic said in the note on Monday.
Kolanovic is not the only bull on Wall Street who has grown more cautious as stock-market volatility continues.
MarketWatch reported on Monday that Oppenheimer chief investment strategist John Stoltzfus has just cut his year-end price target for the S&P 500 for the second time in three months. Stoltzfus said he now sees the S&P 500 finishing the year at the 4,000 level, implying roughly 6.9% upside from Tuesday. He added that it would take a “miracle” for stocks to claw their way back to 4,800 given the uncertain outlook for global markets and the economy.
U.S. stocks finished higher on Tuesday as investors focused their attention on strong earnings reports from major Wall Street banks. The S&P 500 and the Dow Jones Industrial Average
DJIA,
each climbed 1.1%, while the Nasdaq Composite
COMP,
advanced 0.9%.
