Marko Kolanovic of JPMorgan Chase & Co is sticking to his calls for risky assets in the second half of this year, expecting stocks to rebound, according to an article in Bloomberg. That expectation makes him one of the few bullish strategists on Wall Street right now.
While acknowledging that the outlook is still “challenging,” Kolanovic wrote in a recent note the second half is looking more positive for risk-reward on equities as most of the bad news has now been factored in. That stance is in marked contrast to many other major institutions; also in a recent note, Cecilia Mariotti of Goldman Sachs wrote that even with the Fed’s recent policy pivot, it was much too early to dismiss the risk of a recession, and indeed that risk has not been completely priced into European equities.
Though U.S. stocks have rallied over the last month, the real test of that rebound is coming this month and next as August and September are usually the worst months for the S&P 500. But according to data on short positions that is cited by Bloomberg, it is possible that a recovery is coming, as Kolanovic predicts. Most markets are seeing sharp losses in short positions after the most recent rally, which could bring on a short squeeze and an upside for equities. But with so much still unknown, many advisors are cautioning investors to not put too much stock into July’s rosier picture and to be prepared for more volatility ahead.
Morgan Stanley and Bank of America are also contradicting Kolanovic’s call, as they expect that significantly lower corporate earnings—particularly in the 4th quarter—will increase pressure on stocks. Michael Hartnett of BofA warned that it was way too early to start positioning for a bull market, pointing to the “true lows” for the S&P 500 that were 13% under it last close.
But Kolanovic stands firm in his positive outlook, the article reports. He highlights the increased presence of higher quality companies in the S&P 500 as a reason why “valuations look better than fairly valued.” He also maintains that as the Fed’s policy shifts and downgraded corporate earnings start rolling in, investor sentiment will change too. “Risk markets are rallying despite some disappointing data releases, indicating bad news was already anticipated/priced in,” he wrote in his note, adding that he still expects the U.S. economy to avoid a contraction, despite the growing concern of a recession.