Investing.com -- Former J.P. Morgan chief strategist Marko Kolanovic issued a warning for U.S. equity markets, saying the S&P 500 could fall as low as the high 3,000s in the event of a full-blown recession, citing “enormous levels of uncertainty” not seen since the 2008 Global Financial Crisis or the COVID-19 pandemic.
In a note published by The Last Bear Standing, Kolanovic wrote, “The probability of a recession is indeed very high, and we may already be in one.”
He pointed to signs, including the prolonged yield curve inversion, weakening consumer conditions, rising defaults, and a deepening global trade war as major warning flags.
Kolanovic argued that markets never truly reset after the 2020 pandemic shock, saying the massive fiscal and monetary stimulus prevented the “purging” of market excesses.
Instead, he says the recovery inflated “inherently worthless assets and shaky businesses with sky-high valuations.”
While markets rallied in 2024 on hopes tied to artificial intelligence and government stimulus, Kolanovic said investors are now ignoring clear signs of fragility.
“Markets ended 2024 with P/E multiple near the highest level since the dot-com bubble burst,” he said. “Even assuming a quick earnings recovery to $300, a multiple of ~15x would place the S&P 500 below 5,000.”
He warned that a deeper contraction could drive the index significantly lower. “If earnings decline (as in a recession) and the multiple drops to ~15x, the S&P 500 could fall to the high 3,000s or low 4,000s,” he wrote. “Even more severe outcomes, though less likely, are also possible.”
With downside risks still “substantial,” Kolanovic cautioned investors to trade carefully: “Current prices assume an optimistic resolution to the significant economic, political, and geopolitical challenges the world faces.”