On 5 October 2023, Marko Kolanovic, the Chief Global Market Strategist and co-head of Global Research at J.P. Morgan, appeared on CNBC’s “Fast Money” to discuss a range of topics, including his views on the stock market, the Federal Reserve’s stance on interest rates, and the performance of mega-cap stocks compared to mid-sized stocks.

Holding a Ph.D. in theoretical high-energy physics from New York University, Kolanovic brings a quantitative lens to market analysis. His team has earned top rankings in Institutional Investor surveys globally, and he personally ranks #1 in Americas Equity Derivatives. Prior to J.P. Morgan, he held key roles at Bear Stearns and Merrill Lynch. Known for his accurate short-term market forecasts, he has been labeled ‘The Man who moves Markets’ by CNBC and ‘Gandalf’ by Bloomberg. In 2020, he joined the Institutional Investor Hall of Fame.

Market Outlook

Kolanovic opened by stating that he has a somewhat negative outlook on the stock market. While he did not explicitly say a recession is inevitable, he did mention that he thinks a recession will “eventually happen.” He also pointed out that the upside versus downside in stocks is not particularly favorable at the moment.

Economic Indicators

Kolanovic noted that the job market is strong but highlighted signs of stress in the consumer sector, such as rising delinquencies in credit cards and auto loans. He suggested that these could be early indicators of economic challenges, although he did not specifically say that consumer sentiment is eroding.

Interest Rates

Kolanovic discussed the current level of interest rates, particularly the 4.7% yield on the ten-year Treasury. He stated that these rates don’t align with historical market multiples and mentioned that they could rise a bit more. However, he did not express explicit concern about the current rate levels.

Market Dynamics

Kolanovic talked about the divergence between the NASDAQ and other markets. He noted that while the NASDAQ and mega-cap stocks have performed well, other markets have been flat or down. He offered two courses of action: either invest in lagging stocks if one believes a recession won’t happen or avoid mega-cap stocks if a recession is expected.

Positioning and Sentiment

Kolanovic emphasized that market positioning matters and has been a significant factor this year. He noted that volatility has been decreasing, which has been a tailwind for the market. However, he did not specifically say that rising volatility is a sign of more challenging times ahead.

Volatility as an Asset Class

Kolanovic briefly touched on the topic of volatility as an asset class. He mentioned that it’s challenging to own just volatility because it’s generally negative. He suggested that investors could use it to generate yield by selling short-term options.