Stock markets in the U.S. and around the world continue to be overvalued, according to JPMorgan Chief Market Strategist Marko Kolanovic. Additionally, geopolitical risks are intensifying. This suggests that it is a good time for investors to increase their gold allocations.
Medium-term outlook remains negative
In the investment bank’s latest Global Markets Strategy report, Marko Kolanovic notes that although markets have come down from their early October lows, the medium-term outlook remains negative. It also notes that headwinds are strengthening and tail winds are weakening. In this context, the strategist draws attention to the following points:
While still-rich stock valuations face increasing risks from higher real interest rates and the cost of capital, earnings expectations for next year appear overly optimistic. Weakening PMI momentum suggests Q3 earnings growth will likely be negative. In this environment, softening corporate pricing could lead to a squeeze on margins.
We haven’t quite seen the negative effects yet!
Kolanovic points out that most of the negative effects from higher interest rates are yet to come. The strategist states that defaults on consumer loans and corporate bankruptcies have begun to increase. Moreover, he notes that this trend will probably continue unless there is a reduction in interest rates. Based on this, the strategist makes the following assessment:
The exacerbation of geopolitical risks creates another headwind for markets and economic activity. It also increases tail risks. Interest rates are highly restrictive, valuations are expensive, and our outlook is likely to remain cautious as geopolitical risks persist.
JPMorgan is increasing its gold allocation for these reasons!
According to Marko Kolanovic, JPMorgan maintains a defensive allocation in its model portfolio, with UW in stocks and credit and OW in cash and commodities. The bank reversed a cut in the duration of its model portfolio last month. It is also investing more in bonds and commodities, especially gold. The strategist explains this situation as follows:
While it remains unclear whether bonds have bottomed, we are adding 1% to our government bond allocation due to geopolitical risk, cheap valuations and less obvious positioning. We are also increasing our gold allocation within commodities, both as a geopolitical hedge and given an expected pullback in real bond yields.
JPMorgan’s gold price projection
JPMorgan predicts in its report that spot gold prices will be around $1,920 on average in the 4th quarter of 2023. Quarterly estimates for 2024 are $1,950 in the 1st quarter, $2,030 in the 2nd quarter, $2,100 in the 3rd quarter and $2,175 in the 4th quarter.
cryptokoin.comAs you follow from , gold prices continue to strengthen on Thursday. After reaching $1,955.19 today, spot gold retreated slightly. It was last traded at $1,953.60, up 0.27% on the day.
To be informed about the latest developments, follow us twitter‘in, Facebookin and InstagramFollow on and Telegram And YouTube Join our channel!