2024 could be a ‘catch-22 situation’ for markets: JPM
JPMorgan (JPM) is warning investors about a “catch-22 situation” in the U.S. market next year.
Strategist Marko Kolanovic says the market rally will be unsustainable unless the Federal Reserve cuts interest rates.
“This is a Catch-22 situation, with this level of financial restraints not allowing risk assets to rise sustainably and unless risk assets correct (or inflation declines, for example due to falling interest rates). “There will be no significant easing,” Kolanovic said in a 2024 outlook report released on Friday.
“This will likely mean that we will first need to see some decline and volatility in the market during 2024, before an easing of financial conditions and a more sustainable rally.”
Kolanovic, who has been bearish on stock market gains so far this year, prefers bonds and cash over stocks and other risky assets, he wrote in the report, adding, “In a very optimistic economic scenario, stocks would be more likely to sell than bonds (or “There is a potential for the stock to outperform cash.” In an environment of declining growth and a high probability of recession, cash performance could be underperformed by up to 20%. ”
“Regardless of whether a recession occurs, the risk-reward of stocks and other risky assets is worse than cash and bonds ex-ante.”
Still, the stock market continued to outperform in 2023, with the S&P 500 (^GSPC) up 20% since the beginning of the year. The Dow Jones Industrial Average (^DJI) and the tech-heavy Nasdaq Composite (^IXIC) rose about 9% and 38%, respectively, during the same period.
Meanwhile, U.S. Treasury yields rose to record highs earlier this fall, but have since fallen. The benchmark 10-year Treasury yield (^TNX) is currently trading around 4.27% after rising above 5% in October.
