JP Morgan: "The risk of a crisis in the next six to twelve months is increasing"

The combination of high interest rates and the strong growth of the US stock market since the beginning of the year has Marko Kolanovic, chief global market strategist at JP Morgan, on guard, writes Business Insider.

In a note to clients earlier this week, Kolanovic said a crisis is looming in financial markets that may bring a lot of pain over the next six to twelve months. In fact, the strategist JP Morgan was pessimistic (eng. bearish) throughout the year, being worried about the growing geopolitical tensions amid Russia's war with Ukraine and China's difficult relations with the United States. He further pointed out that although there is some delay, the impact of keeping interest rates high for a long time will ultimately be negative for asset prices and the global economy in general.

"As both premises of our cautious outlook (interest rates and geopolitics) have worsened in recent months, while valuations have risen, we now believe there is a greater likelihood of a crisis occurring in the next six to twelve months, which severity may be higher than market participants anticipate", Kolanovic opined.

The tightening of monetary policy by the Fed has a negative impact on consumer credit. At the same time, the commercial real estate sector was hit hard by the work-from-home trend, even before the industry had to refinance its debt at higher borrowing costs. However, these effects of higher interest rates should eventually lead to increased market volatility and have a negative impact on employment, Kolanovic believes.

On the other hand, the AI-fueled technology rally is no help in this situation, as it will likely prove fleeting. In the opinion of strategist JP Morgan, expectations that AI will transform the United States economy in a short period of time are "unrealistic", according to Business Insider.

In order for the strategist to become more bullish about the stock market, two things have to happen, which have nothing to do with artificial intelligence. Kolanovic wants to see a drop in interest rates around the world, as well as an easing of geopolitical tensions in Russia and China.

"We have a negative outlook on the market as we believe there is little chance of any of these scenarios materializing in the near term - essentially we think things would have to get worse before they get better," Kolanovic was quoted as saying. by Business Insider.