US Stock Market Pessimists Say "This Correction Is the Start of a Selling Wave"

[Image source=Kolanovich X]

Marco Kolanovic, JP Morgan's chief analyst (photo), recently attracted attention by claiming that the recent three-week correction in the U.S. stock market marks the "beginning of a sell-off."

According to Bloomberg on the 22nd (local time), Kolanovic stated in a recent client memo that "the correction in the U.S. stock market is not over yet." This is due to increased macroeconomic risks such as rising government bond yields, a stronger dollar, and higher oil prices, which are intensifying selling pressure. Kolanovic said, "Overvaluation of current stock prices, still high inflation, delayed possibility of interest rate cuts, and excessive optimism about corporate earnings are all increasing downside risks in the stock market."

Once regarded as a leading bull on Wall Street, Kolanovic has been betting on a weak market since entering the high-interest-rate era. After maintaining a negative outlook on the U.S. stock market last year, he warned at the end of last year, when expectations for Federal Reserve (Fed) interest rate cuts began to emerge, that "investing in the U.S. stock market could lead everyone to become losers."

Since the beginning of this month, the New York stock market has shown a decline for three consecutive weeks. The S&P 500 index is about 5% lower than its peak on the 28th of last month, and investors are weighing the timing of stock purchases for bottom-fishing. Regarding this, Kolanovic advised cautious investing, saying, "It seems the correction will continue with a further decline of about 10%."

Kolanovic argued that "the current market is similar to last summer when inflation surprises on the upside and hawkish Fed comments led to a correction in risk assets."

While some believe that the first-quarter earnings season for U.S. companies could provide momentum for the market to rise, Kolanovic pointed out, "The market may stabilize temporarily, but this does not mean it has escaped the crisis." This week, 180 S&P 500 companies are scheduled to report earnings, including major big tech firms such as Microsoft (MS), Alphabet, Meta Platforms, and Tesla.

Kolanovic recommended considering purchases of Japanese consumer-related stocks, based on the view that rising real wages in Japan will boost personal consumption.