Kolanovic says there are more than 3 reasons but the big 3 are:

  1. the limbo for debt-ceiling negotiations
  2. elevated risk of recession
  3. hawkish Federal Reserve

Kolanovic recommends:

  • trim allocation to stocks and corporate bonds
  • up stake in cash by 2%
  • rotate out of energy and into gold (citing haven demand and as a debt-ceiling hedge)

Remarks:

  • “Hopes of a swift resolution to the US debt ceiling have somewhat bolstered market sentiment”

(this dissipated Tuesday, of course:

Oh ... Greg seems to have mistaken **** for mud ... or maybe he is just more polite than me :-) )

Back to JPM:

  • Despite last week’s rebound, risk assets are failing to break out of this year’s ranges
  • credit and commodities are trading at the lower end of this year’s ranges
  • divergence remains between rates markets that expect the Fed to cut this year, equity markets that interpret those potential cuts as positive for risk, and the Fed’s more hawkish rhetoric
  • this gap is likely to close at the expense of equities
  • rate cuts will likely only transpire from a risk-off event, and if rates stay higher they should weigh on equity multiples and economic activity
Kolanovic