Wall Street’s biggest bear, Chief Market Strategist Marko Kolanovic, is leaving JPMorgan Chase & Co. after 19 years. According to internal memos, Kolanovic is departing to pursue new opportunities, as first reported by Bloomberg News. Kolanovic’s exit comes after a challenging two-year period of market calls where he stayed bullish as stocks plummeted in 2022 and turned bearish just as the market began recovering in late 2023. Claudia Jury and Scott Hamilton, global co-heads of sales and research at JPMorgan, announced that Hussein Malik, previously co-head of global research with Kolanovic, will now lead the global research team solo. Dubravko Lakos-Bujas will take over as the new chief market strategist, overseeing the markets strategy group, while Steve Dulake and Nick Rosato will co-lead the newly unified credit and equity research team. Despite Kolanovic’s year-end S&P 500 target of 4,200 for 2024, which was the lowest among major Wall Street banks, many of his peers have raised their targets in response to the index’s rise. Kolanovic’s successor, Lakos-Bujas, has favored large-cap growth stocks but warned of the market’s increasing dependence on these megacap names. Kolanovic’s bearish outlook was based on concerns about a potential U.S. recession due to high interest rates and what he viewed as overly optimistic earnings expectations for U.S. stocks, particularly in the tech sector. He recommended defensive stocks and increasing exposure to commodities like gold. JPMorgan has not commented on whether Kolanovic’s bearish stance influenced his departure. His exit reduces the number of bearish voices among professional investors, though some like Peter Berezin of BCA Research and Barry Bannister of Stifel remain cautious about the market’s future.

After a strong 14.5% rise in the first half of the year, S&P 500 futures indicate a challenging start for the second half of 2024, according to Michael Kramer, founder of Mott Capital Management. Kramer notes that the cautious start to July follows a concerning end to June, making stocks vulnerable to a pullback. Last Friday, the S&P 500 fell 0.4% after hitting a record intraday high, resulting in a bearish engulfing candle—a negative technical signal. A bearish engulfing candle occurs when a trading session’s range surpasses the previous session’s range but closes lower. This was the second such candle in a week, forming a “2b top reversal pattern.” This pattern suggests that an index or stock attempts a new high, fails to maintain it, and then closes below the previous high. Kramer highlights that last week’s high exceeded the previous week’s but ended lower over the five-session period. Since January 2020, this pattern has appeared only eight times, and in seven instances, the S&P 500 fell the following week. The only exception was in January 2021. For the ‘2b top’ pattern to be invalidated, the S&P 500 must close above 5,487.02 this week, according to Kramer. Other indicators also support Kramer’s caution. The CBOE 1-month implied correlation index, an options-based tool measuring market breadth, hit a record low of 5.59%, below the previous low of 6.78% in October 2017. Additionally, Kramer is wary of the VanEck Semiconductor ETF, which is holding at a 20-day moving average of around $255. A break below this level would signal a downward move. Kramer also notes that high-yield credit spreads, a measure of risk in corporate borrowing, are trending higher even as stock prices rise. Similar conditions in January 2020 and fall 2021 preceded significant market pullbacks. Addressing skepticism, Kramer acknowledges that some may find it hard to believe the S&P 500 could drop significantly. However, he argues that caution is warranted given the market’s rapid rise since October 2023, despite high overnight rates and Federal Reserve policies. “Being cautious isn’t about being bearish. It’s about assessing the odds and managing risk,” Kramer concludes.

A strategist warns that a lack of budget restraint from either Biden or Trump could result in more frequent weak Treasury auctions. A significant takeaway from Thursday night’s debate between President Joe Biden and Republican challenger Donald Trump is that the U.S. is unlikely to see fiscal restraint regardless of who wins the November 5th election. Both candidates are likely to extend parts or all of the 2017 Trump tax cuts, which include provisions for households set to expire at the end of 2025. Biden plans to extend these for individuals making under $400,000, while Trump aims for a full extension. However, the ability of either candidate to implement these policies will depend on their control of Congress. The Congressional Budget Office estimates that extending the Trump tax cuts for the next decade would add about $4.6 trillion to the deficit, which currently stands at around $1.2 trillion with two-thirds of the fiscal year completed. On Friday, U.S. government debt sold off, pushing yields on 10-year notes and 30-year bonds to their highest closing levels in over two weeks. “There’s a slim chance of fiscal restraint as both candidates aim to renew parts of the Tax Cuts and Jobs Act,” said Will Compernolle, a macro strategist at FHN Financial in New York. “I’m unsure where the political will to narrow the deficit will come from,” he added, noting that even a divided government that causes gridlock tends to maintain the status quo, which is a widening deficit. A lack of fiscal restraint usually leads to more issuance of U.S. government debt, raising concerns about the $27 trillion Treasury market and the potential for waning investor appetite leading to broader disruptions. Compernolle suggests, “We might see more frequent weak auctions, indicating low demand for higher supply. However, this will likely happen incrementally rather than as major disruptions.” Treasury auctions are a primary method for traders and investors to express their views on the growing government debt. Parts of Wall Street have been unsettled by the possibility that investors’ appetite for this debt might be limited. For instance, a poorly received 30-year auction in November briefly sent the corresponding Treasury yield up significantly and marked a period where weak demand at debt sales negatively impacted stocks. Similar shaky auction results were observed last month. BMO Capital Markets strategists Ian Lyngen and Vail Hartman point out two main risks for the Treasury market. One is a resurgence of inflation, pushing interest-rate expectations into 2025. The other risk is a sweep by either party in the election, allowing greater deficit spending without fiscal checks. “A split control between the White House and Congress would limit further deficit growth, although it could bring the debt ceiling debate back into focus,” Lyngen and Hartman wrote in a note this week. Earlier this month, the Congressional Budget Office updated its projections, expecting the federal budget deficit to reach $1.9 trillion in fiscal 2024, or $2 trillion with certain adjustments, and federal debt held by the public to reach 122% of GDP by 2034.