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The stock market's near-7% rally in the aftermath of the October CPI report is a chance for investors to shrink their exposure to equities and cash in gains, according to JPMorgan's quant strategist Marko Kolanovic.

The October CPI report showed prices skyrocketed 7.7% on a year-over-year basis, below expectations for a 7.9% surge and well below the high in June of 9.1%. Investors want to see a continued step-down in inflation closer to the Fed's longer-term 2% target so interest rate hikes can ease or potentially even be reversed.

In a Monday note, Kolanovic said that while less severe inflation is constructive for equity prices and increases the chances of a soft landing, the risk remains that the economy enters a full-blown recession if the Fed doesn't quickly pivot away from its current rate-hiking cycle.

"Our optimism is tempered by the still elevated recession risks and risk that the October CPI data proves anomalous and/or fails to reduce central bankers' eagerness to push policy into more restrictive territory," Kolanovic said.

The strategist considered the rally as an opportunity to "moderately reduce" the bank's overweight stance on stocks, while he remains overweight commodities "given potential tailwinds from easing COVID restrictions in China, and as a hedge for geopolitical risks and inflation," the note said.

Despite the trim in equity exposure, Kolanovic still sees upside for stocks heading into December followed by a more challenged outlook in 2023.

"We remain of the view that equities continue to squeeze higher into December but do see an increasingly challenging growth backdrop in 2023, assuming central bank policies remain restrictive. On the demand side, tightening US financial conditions, decline in real wages, strengthening US dollar, softening housing market, and knock-on restrictive central bank policies across the world are disinflationary," he explained.