JPMorgan’s chief global markets strategist Marko Kolanovic has suggested investors reevaluate their portfolios amid global recession fears, recommending investors reduce their stock holdings and diversify into cash and gold as a precautionary measure.
According to Markets Insider, Kolanovic recently expressed concerns in a memorandum regarding the buoyant rally of stocks this year, which have seen a near 10% rise to date. He said:
Even aside from the debt ceiling issue, we maintain that the risk-reward for equities is poor given elevated risk of recession, stretched valuations, high rates and tightening liquidity, and we favor cash over equities at the former’s ~5% yields.
His comments were accompanied by a note of discord regarding the optimism of the fed funds futures, which anticipate multiple interest rate cuts by year’s end. Such a scenario, Kolanovic argues, is unlikely to herald bullish trends, as these cuts would typically only be introduced as a response to a severe economic downturn or a jolt to the financial markets.
The CME FedWatch Tool, which monitors market anticipation, currently predicts one to two 25 basis-point interest rate cuts by the close of the year. Kolanovic believes that if these reductions fail to materialize, leading to sustained high interest rates, this could depress stock valuations and curb economic growth.
As a result, the JPMorgan executive sees negative implications for the stock market, regardless of the fluctuation of interest rates over the coming months. In response, he augmented the cash allocation in JPMorgan’s model portfolio by 2%, a move financed by scaling back stocks and corporate bonds by 1% each.
The JPMorgan exec also pointed to the value of gold as a refuge during times of uncertainty, particularly given its recent 5% drop in value and the ongoing complexities of debt-ceiling negotiations.
The debt ceiling is the legal limit on how much the U.S. government can borrow to pay its bills. It was reached earlier this year, and the U.S. Treasury has since then been using “extraordinary measures” to keep the government running, but warned that these could be exhausted as early as next month.
If the U.S. Congress fails to raise the debt ceiling by then, it will have to either default on its obligations or cut spending drastically, both of which are expected to have severe consequences for markets and the global economy.
While JPMorgan elieves the debt ceiling will be lifted or suspended, it may occur on the eleventh hour and “drive significantly higher market instability than appreciated by the market currently.”
As CryptoGlobe reported, both Bitcoin and gold have led the charge so far this year. The flagship cryptocurrency is often seen as a digital version of the precious metal that improves upon it, making it easily interchangeable and divisible.
Notably, Poland’s central bank has amassed 14.8 tonnes of gold in April, signaling the nation’s proactive response to economic uncertainties.
According to the report, the net worth of the country’s gold, comprising gold deposits and swapped gold, escalated to a substantial $15.52 billion in April, compared to the preceding value of $14.55 billion.
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