According to JPMorgan star strategist Marko Kolanovic, the stock valuations reflect the belief that “there will be no downturn in the economy.”
Equity markets continue to rally, ignoring the signals of continuation of interest rate hikes by major central banks and recession concerns.
In the US, the S&P 500 is up more than 19 percent this year, and if it rises by around 200 points, it will completely erase its 2022 bear market losses.
Pessimistic strategists continue to warn against this picture. According to JPMorgan Chase Strategist Marko Kolanovic, the relentless stock rally shows that investors believe growth will continue and global central banks will cut interest rates soon.
Stating that this is a dream, Kolanovic said, “We continue to approach this scenario with suspicion. “We expect restrictive policies to continue and this will increase private sector vulnerability.” Kolanovic stated that the stock valuations reflect his belief that there will be “no downturn” in the economy.
Credit conditions tighten in the US
The US central bank Fed reported that in the second quarter of the year, banks put forward tighter conditions on loans and weak demand for loans continued.
The Fed, which published its survey with banks on Monday, stated that the rate of banks tightening conditions on commercial loans for medium and large enterprises increased to 50.8 percent. This rate was 46 percent in the first quarter.
Although the rate of banks reporting weaker loan demand for commercial loans fell from 55.6 percent to 51.6 percent, it pointed to continued demand weakness.
“Tightening in credit standards has generally intensified,” said Daniel Silver, Economist at JPMorgan. However, historically it is difficult to say that this resulted in a recession. Still, this is a sign that the economy will slow down.”
Fed member Austan Goolsbee is optimistic that a recession will not occur. Chicago Fed President Goolsbee said the U.S. economy “seems to be on a golden path” with inflation lowered without falling into recession. Goolsbee said he has yet to make a decision for the September rate meeting.