(Bloomberg) - Marko Kolanovic, a steadfast bull on U.S. equities during this year’s selloff, is dialing back his optimism after the market staged a powerful recovery.
The top-ranked strategist at JPMorgan Chase & Co. said investors who followed his team’s recent advice to raise stock holdings should now take profit, and shift some money to government bonds given the big selloff in the asset class.
“Markets have recovered a majority of their early-March sell-off and thus no longer look oversold, while risks remain elevated around geopolitics, policy tightening and growth,” Kolanovic wrote in a note Monday. “As such, we take profit on the tactical increase to our equity OW initiated last month.”
It’s a shift in tone for the strategist, who has consistently diverged with Wall Street bears like Morgan Stanley’s Mike Wilson by urging investors to buy the dip in stocks. On Monday, Wilson said both the bond markets and the S&P 500 are too sanguine about the economic outlook.
Yet despite latest revisions, Kolanovic continues to recommend holding more stocks and fewer bonds than suggested by benchmarks to benefit from sustained economic growth.
The S&P 500 has retraced more than half of its January-February losses. While the rally has stalled into April, the benchmark index now sits 6% above its March trough.
Within the equity universe, the strategist advised investors to favor emerging markets, as the Federal Reserve turns more aggressive in its rate-hiking campaign to tame inflation, while China’s central bank is expected to ease monetary policy as early as this month.
Overall the strategist remains sanguine on the Treasury threat to risk assets.
“If bond yield rises continue, they could eventually become a problem for equities, but we believe current real bond yields at around zero are not high enough to materially challenge equities,” he wrote. “Given low bond positioning, a further big rise in real yields from here seems less likely.”
By Lu Wang
