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JPMorgan's Kolanovic Warns of Tech Valuations Amid Earnings Week and Fed Decision
Ticker Tea
January 30, 2024
💬 STOCKS MENTIONED:
📝 SUMMARY: Marko Kolanovic, a notable strategist at JPMorgan Chase & Co. ($JPM) , points to this week as crucial for assessing the sustainability of current stock valuations, especially for major tech companies. With the Federal Reserve's upcoming decision and significant earnings reports from Big Tech firms like Apple Inc. ($AAPL), Microsoft Corp. ($MSFT), and Alphabet Inc. ($GOOGL), investors are keenly watching for signs of enduring growth. These companies, part of the "Magnificent Seven" growth companies in the S&P 500 Index, command a considerable premium over the index, driving much of the market's recent advances.
Kolanovic notes that these tech giants, including Amazon.com Inc. ($AMZN), Nvidia Corp. ($NVDA), Meta Platforms Inc. ($META), and Tesla Inc. ($TSLA), have significantly influenced market dynamics, maintaining a 34% premium in forward price-to-earnings compared to the broader index. Their dominance underscores the current narrow, tech-driven market trend, where the U.S. maintains an advantage over the euro zone. Despite this, Kolanovic maintains a preference for quality growth over cyclical value, favoring U.S. stocks.
Amid these market conditions, the Federal Reserve's decision is eagerly anticipated, with JPMorgan predicting rate cuts starting in June. However, Kolanovic warns of potential inflation risks, suggesting that core inflation might remain firmer than expected in the first half of 2024. He believes this scenario is currently underpriced in large-cap equities and credit, especially after the strong rally since late October.
Moreover, Kolanovic highlights the significant divergence between Chinese stocks and those in the developed world, considering it to have reached extreme levels. His bearish outlook on U.S. equities contrasts with the optimism of previous years, expecting the S&P 500 to drop to 4,200 by the end of 2024. This forecast is the lowest among Wall Street firms and indicates a potential 14% decline from its current level.
As the tech sector faces a testing week, investors and analysts alike will be closely monitoring the unfolding scenario, balancing expectations of earnings growth against the backdrop of potential interest rate cuts and inflation concerns.
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