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.
