According to financial analyst Marko Kolanovic, the markets have now entered a “protracted bear market” with a high chance of a recession ahead. In a recent post on The Last Bear Standing blog, the former J.P. Morgan chief strategist warned that the S&P 500 (SPY) could fall by about 20% from current levels, adding that many investors are underestimating the risks. Indeed, he believes that market optimism is ignoring serious economic, political, and geopolitical challenges.
Kolanovic traced the current issues back to the COVID-19 era, when large-scale stimulus measures postponed an economic reset. He argued that those policies propped up weak businesses and led to inflated valuations, which contributed to the high inflation that had not been seen since the 1970s. Now, Kolanovic says the market is paying the price, and he dismissed the idea that recent losses are just temporary dips or corrections. Instead, he predicted below-average equity returns going forward as this longer unwinding process nears its end.
Interestingly, he identified three main risks weighing on the market: weakening economic growth, rising trade tensions, and overvalued stocks supported by high levels of debt. Kolanovic pointed to low consumer sentiment and factory slowdowns as clear signs of trouble being overlooked by investors. He also called the ongoing U.S.-led trade conflicts a major break from decades of global free trade, and argued that misplaced confidence has created a “market mirage” that hides growing instability.
Is SPY a Buy Right Now?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on the SPDR S&P 500 ETF Trust (SPY) based on 407 Buys, 90 Holds, and seven Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average SPY price target of $650.59 per share implies 18.5% upside potential.
