Marko Kolanovic, chief global market strategist at JPMorgan Chase, believes the resurgence of meme stocks is a bad sign for U.S. stocks. Even though the S&P 500 is close to its all-time high, Kolanovic reiterated his bearish view on U.S. stocks in a report on Monday. The strategist's target price for the S&P 500 is 4,200 points, the lowest among Wall Street analysts, which means that U.S. stocks have a potential downside of 20% from current levels.
“While it is possible that elevated valuations in risk assets are justified, this is unlikely from a historical and statistical perspective,” Kolanovic said.
Kolanovic expressed concern that stock valuations remain high, with the S&P 500 trading at 21 times expected earnings, well above its 30-year average of 17 times, even though Federal Reserve interest rates have been hovering at multi-year highs for nearly two years.
This, combined with the recent resurgence of highly speculative retail trading activity in cryptocurrencies and meme stocks, as well as worrying U.S. economic data, has confirmed Kolanovic's 20-month-long bearish stance on U.S. stocks.
“Perhaps what is different this time is that despite higher interest rates, investors have shown little concern about asset valuations, as evidenced by recent activity in meme stocks and cryptocurrencies, the market value of technology stocks, and the divergence between U.S. stocks and bonds,” Kolanovich explained.
On the economic front, Kolanovich said recent data suggests a slowdown or even a recession in the U.S. may not be far away. “These signals include last week’s Chicago Purchasing Managers Index (PMI), the rise in unemployment over the past year, the sharp decline in home sales, the nearly two-year inversion of the yield curve, the rise in consumer defaults, and several other indicators,” he said.
Last week, the Chicago PMI fell to its lowest level in four years, while the unemployment rate rose to 3.9% from 3.4% last year.
As for the resurgence of meme stocks, GameStop and AMC's share prices have experienced wild swings over the past month, and Kolanovic's views echo what has happened in 2021. Speculative trading in meme stocks and unprofitable technology companies peaked in February 2021, a full 11 months before the U.S. stock market peaked in January 2022. Peaks in speculative trading activity could be a sign of trouble ahead for U.S. stocks.
However, FINRA margin debt, a measure of speculative trading, has not yet exceeded its peak of $935 billion in February 2021.
The article is forwarded from: Jinshi Data
