• The inventory market has entered full FOMO territory this yr, in response to JPMorgan’s Marko Kolanovic.
• And investor enthusiasm isn’t just concentrated in tech shares, with broad market valuations showing stretched.
• “There’s complacency being constructed into shares with VIX on the lows of its vary,” Kolanovic mentioned.

The inventory market is overvalued, and it is not simply the tech sector that seems stretched, in response to JPMorgan’s chief international market strategist Marko Kolanovic.

The S&P 500’s ahead price-to-earnings ratio is at present 19.4x, and whenever you again out tech and AI shares, the remaining 65% of the index trades at 17.4x, in response to Kolanovic. That is not low cost, because the historic ahead P/E of the index is 15.3x, which means that present valuations characterize a ten% premium.

“FOMO is in full swing, there may be complacency being constructed into shares with VIX on the lows of its vary,” Kolanovic mentioned in a Monday notice. The CBOE Volatility Index, higher often known as Wall Avenue’s concern gauge, traded slightly below 15 on Tuesday, and was as little as 13 final week.

These stretched valuations may set traders up for disappointment if the economic system exhibits any indicators of slowing within the second half of this yr or early subsequent yr.

For his half, Kolanovic expects a recession to hit the US economic system by the fourth quarter of 2023 or the primary quarter of 2024 on the newest.

“If the exercise momentum does weaken in [the] second half, relative to the present projections of no/comfortable touchdown, shares are unlikely to shrug it off, or look by way of, as they aren’t priced for disappointment anymore, even when one is to completely take out the tech/AI/FAANG teams from the equation,” he mentioned.

Moreover, the inventory market’s resilience within the face of upper rates of interest additionally places the long run outlook for shares in a murky place, which may get even murkier if the Federal Reserve hikes rates of interest a pair extra instances.

“If one seems to be at yield gaps, evaluating dividend yield to bond yield, all key DM markets at the moment are buying and selling much less engaging than their 20-year common, other than Japan… These concerns add to a lot increased positioning and extra optimistic sentiment than was seen initially of the yr,” Kolanovic mentioned.

All of this factors to a comparatively bearish outlook for shares from JPMorgan, because the financial institution expects the S&P 500 to complete the yr at 4,200, representing potential draw back of 5% from present ranges.

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