Marko Kolanovic, the former chief market strategist of JPMorgan Chase (trading at 265.73, up 3.78, or 1.44%), has expressed concerns that the US stock market may be headed for a correction. He posits that the ongoing conflict between Trump and Musk could be one of the contributing factors to a potential decline in stock prices.
Tesla as a Trigger
During an interview last Thursday, Kolanovic predicted that a drop in Tesla’s (trading at 295.14, up 10.44, or 3.67%) stock price could potentially trigger a 5% to 10% correction in the broader US stock market.
When discussing the Trump-Musk relationship, Kolanovic remarked, “This is a minor incident. It’s important for certain companies and could have an impact beyond the immediate situation.” He further explained, “Tesla is one of the companies with the largest number of retail investor holdings. There is a small stock ecosystem surrounding it. I think this could be a catalyst.”
In a post on X, Kolanovic highlighted that stocks popular among retail investors, including Tesla, Palantir, and Advanced Micro Devices, could act as potential triggers for a market downturn.
Multiple Catalysts at Play
However, Kolanovic emphasized that the Trump-Musk conflict might just be one of several catalysts for a market correction. Economic uncertainties and the ongoing trade war also loom large as pressing issues.
“We are approaching the historical peak, but we still have all kinds of problems. We have the trade war, and we have signs of economic slowdown,” Kolanovic stated. He pointed out that stock valuations were elevated, even with interest rates remaining high. With the Nasdaq index (at 19529.9526, up 231.50, or 1.20%) near its record high, Kolanovic detected warning signs in the bond market.
As the 10-year US Treasury bond yield hovers around 4.4%, the risk-reward balance between stocks and bonds appears unattractive. This suggests that stock investors may not be able to achieve a significant return above the risk-free rate.
Persistent concerns also exist regarding the independence of the Federal Reserve. Trump has repeatedly pressured Fed Chair Powell to lower interest rates.
Rising Macro Risks
Macro risks are on the increase, according to Kolanovic. He noted that the weak ADP employment report released last week, which showed only 37,000 new jobs added, fell short of analysts’ expectations of 110,000. Although the May employment report indicated higher-than-expected job growth, the data for April and March were significantly revised downward.
Kolanovic suggested that while a market pullback could present potential buying opportunities, this would only be the case if the risk of a recession subsides.
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