The market has been rising since it hit “rock bottom” in December and there’s enough momentum in the United States economy alone to carry the cycle as global growth slows, top J.P. Morgan strategist Marko Kolanovic told CNBC on Wednesday.
Kolanovic, whose calls have moved the stock market in the past, credited shifting policy in the Federal Reserve, progressing trade negotiations between the U.S. and China, and declining volatility for investors’ willingness to put more money to work. Investors are more comfortable taking on more risk when the market is not up and down as much as 10 percent on a regular basis, the bank’s global head of quantitative and derivatives strategy said.
“Obviously we had a really strong rally now — January and February, so far — so we do not think it can continue that pace,” he said on “Fast Money.” “We do not think that it can go up every day, but we do think it can go up more … because positioning is still relatively low.”
The investment bank has a price target of 3,000 for the S&P 500, which is up more than 18 percent since Christmas Eve. That target is nearly 8 percent higher from Wednesday’s close. The index, which is still in correction territory, added about 5 points to complete its third positive session in a row and seventh in eight.
As investors ponder how slowing global growth might affect the economy, Kolanovic said his firm’s “bet” is that a recession will not hit the U.S. because the economy has enough momentum to weather the trends. Still, stockholders should expect to see a slowdown in gains this year, he said.
On Wednesday, Fed minutes released from its January meeting warned that there is potential downside risk in “the possibilities of a sharper-than-expected slowdown in global economic growth, particularly in China and Europe, a rapid waning of fiscal policy stimulus, or a further tightening of financial market conditions.” But the central bank also hinted that it could stop reducing the balance sheet.
“[The economy’s] slowing down, but … we think it’s way above the stall speed,” he said. “So we think U.S. can hold us, hold the cycle for maybe a few more quarters.”
While China grapples with “signs of inflection,” Kolanovic said the country has taken measures to address concerns. Additionally, Chinese and American trade officials appear to be closer to landing a trade agreement that would stave off a tariff hike on billions of dollars worth of imports from China. President Donald Trump has suggested that he may push back a March 2 trade deadline.
The U.S. economy can sustain until China’s economy “makes a turn,” and the world’s two largest economies could buffer a disappointing European economy that is “slowing down more than expected,” Kolanovic said.
“If this trade deal for some reason is falling apart, we would probably have to change our view entirely,” he said.
But if negotiations lead to a positive outcome, Kolanovic says, markets could see a sharp reversal from fourth-quarter losses.
