REUTERS/Xihao Jiang
- JPMorgan has turned cautious on equities after being bullish for months, according to an analyst noted published by Marko Kolanovic on Thursday.
- Kolanovic warned that despite his constructive view on equities since mid-March, equities could trade “drastically lower” on “a complete breakdown of supply chains and international trade.”
- The rising tensions between the US and China could exacerbate the damage already done to supply chains from the coronavirus pandemic.
- Kolanovic is sticking to his forecast of stocks hitting all-time highs in 2021, but would like to see recent political risks show signs of normalization before getting more constructive.
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After being bullish on stocks since mid-March, JPMorgan has dialed down its positive outlook following a near 40% rally in the S&P 500 index, according to a note published on Thursday.
Marko Kolanovic said in the note that there are two main risks that could justify stocks “trading drastically lower” going forward:
First, the politicization of the coronavirus pandemic could lead to delays in reopening the economy, and messages sent by politicians and the media could have a negative impact on consumer behavior.
The second is “a complete breakdown of supply chains and international trade, primarily between the two largest economies (US and China).”
Any rise in trade tensions between the US and China would put additional strain on a global supply chain that has already been damaged by the coronavirus pandemic.
President Trump has focused his ire on China following the coronavirus pandemic and has blamed the country for the initial outbreak.
President Trump has also recently threatened to abandon a trade deal between the two countries and will hold a press conference later Friday focused on China.
Kolanovic wants to see these political risks show signs of normalization, and ultimately thinks the politicizations of the coronavirus “will backfire and will be abandoned, but some self-inflicted damage could perhaps happen first,” he said.
Still, despite the increasing risks for stocks, Kolanovic’s current forecast is for stocks to hit all-time highs in 2021.
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