'I don't know how we'll avoid recession' JP Morgan strategist warns as stock plunge looms
The US has avoided a recession so far since the pandemic but rising interest rates could change that.
Banking experts are warning that a recession could be on the horizon if interest rates remain at their current level.
Marko Kolanovic, JP Morgan’s chief market strategist and global research co-head, is sounding the alarm over a potential 20 percent sell-off to hit the S&P 500.
The strategist believes high-interest rates in the US are resulting in a breaking point for stocks
Furthermore, Mr Kolanovic cites that choosing cash at a 5.5 percent return in the money market and short-term Treasurys remains a key protection strategy.
On Thursday, the S&P 500 closed at 4,258.19 and is on the trajectory of a five-week losing streak.
For context, the index is down more than five percent over the past month which is concerning analysts.
Notably, Mr Kolanovic is signalling out the “Magnificent Seven” stocks as being the most vulnerable to sleep losses due to making historic gains at a time of high-interest rates.
These include Apple, Amazon, Meta, Alphabet, Nvidia, Tesla and Microsoft which are collectively up 83 percent in 2023.
This makes up the vast majority of the S&P 500’s gains which puts them at greater risk if a sell-off were to take place.
Don't miss...
‘Very high’ interest rates causing Americans to spend less
Mortgage rates hit close to eight percent
Biden takes ‘action’ to introduce student loan debt relief
Speaking to CNBC’s Fast Money, JP Morgan’s head strategist broke down his concerns about the likelihood of a recession due to rising interest rates.
He explained: “I’m not sure how we’re going to avoid it [recession] if we stay at this level of interest rates.
“[We’re] not necessarily calling for an immediate sharp pullback. Could there be another five, six, seven percent upside in equities?
“Of course... But there’s a downside. It could be 20 percent downside. If there’s a recession, I think the magnificent [seven]… will catch down where the rest is.
“The job market is still strong. But you are starting to see the stress in [the] consumer if you look at sort of the delinquencies in the cards and auto loans.”
A recession is defined as happening when an economy experiences two consecutive quarters of negative economic growth.
While the US has avoided this fate, many believe that high interest rates could place the economy at risk of a downturn.
Interest rates have been raised by the Federal Reserve in an attempt to mitigate the damage caused by inflation on the economy.
As it stands, the Federal Funds Rate is sitting at a range between 5.25 and 5.5 percent and has remained at this level for two months.
Follow our social media accounts here on facebook.com/ExpressUSNews and @expressusnews.
