- The resurgence of meme stocks bodes poorly for the stock market as a whole.
- JPMorgan strategist Marko Kolanovic reiterated his pessimistic view on stocks, citing high interest rates and retail investor speculation.
- “It’s possible that things will be different this time, but historically and statistically, that’s unlikely,” Kolanovic said.
The resurgence of meme stocks bodes ill for the stock market, according to Marko Kolanovic, chief global market strategist at JPMorgan.
In a note on Monday, Kolanovic reiterated his bearish view on stocks, even though the S&P 500 is trading within 1% of its all-time high. The strategist has set the lowest price target on Wall Street for the S&P 500 at 4,200, which would imply a 20% downside from current levels.
“It’s possible that things will be different this time around and higher valuations for risky assets might be justified, but historically and statistically this is unlikely,” Kolanovic said.
Kolanovic takes issue with the fact that stock market valuations remain sky-high, with the S&P 500 trading at 21 times forward earnings, compared with an average of 17 over the past 30 years, even as interest rates have hovered near multi-year highs for almost two years.
This, combined with a recent resurgence of speculative retail trading activity in cryptocurrencies and meme stocks, and concerns about economic data, has Kolanovic feeling more confident in his 20-month stock market bearish view.
“What’s different this time is that despite higher interest rates, investors are less concerned about asset valuations, as evidenced by the recent rise in meme stocks and cryptocurrency trading, tech stock valuations, and the divergence between stock and bond performance,” Kolanovic explained.
On the economic front, Kolanovic said recent data suggests an economic slowdown, or even a recession, may not be far off.
“These signals include last week’s Chicago PMI, the increase in unemployment over the past year, the sharp decline in home sales, the first yield curve inversion in nearly two years, and rising consumer delinquency rates,” Kolanovic said.
The Chicago PMI index fell to its lowest level in four years last week, and the unemployment rate has risen from 3.4% last year to 3.9% now.
As for the resurgence of meme stocks, Kolanovic’s point mirrors what’s happened in 2021, with shares of GameStop and AMC Entertainment fluctuating wildly over the past month.
Most of the speculative trading in meme stocks and unprofitable tech companies peaked in February 2021, 11 months before the stock market peaked in January 2022. Peaks in speculative trading activity could spell trouble for the overall stock market in the future.
But FINRA margin liabilities, a measure of speculative trading, have yet to surpass their February 2021 peak of $935 billion.
