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JPMorgan strategist Marko Kolanovic warns that the current stock market rally is unlikely to last, with headwinds from bank turbulence, an oil shock, and slowing growth poised to send stocks back to their 2022 lows.

Summary

• JPMorgan's Marko Kolanovic warns that the current stock market rally is unlikely to last.
• Kolanovic cites headwinds from bank turbulence, an oil shock, and slowing growth as reasons why stocks are poised to fall.
• Stocks have remained resilient this year despite rising interest rates that have dented corporate profits, slowed growth, and triggered a series of bank collapses in the US and overseas.
• However, Kolanovic predicts that a reversal in risk sentiment is coming, with the market retesting last year's low over the coming months.
• Tech stocks have been outperforming recently, but Kolanovic believes that inflows into stocks over the past few weeks "make little sense" and were largely driven by systemic investors, a short squeeze, and a decline in the Cboe Volatility Index.
• The drop in the VIX below 20 suggests that investors believe the banking crisis is contained in the near term, but Kolanovic characterizes the present market backdrop as "the calm before the storm."
• Kolanovic notes the accordion-like nature of risk sentiment, where restrictive rates produce issues for various carry trades, and the ensuing pullback in yields mitigates some of the stress.
• Although central banks are still communicating, Kolanovic believes there is ground to cover on fighting inflation and pushing back against the market's assumption of cuts, so the original source of stress, rates higher for longer, can reenter the picture.