Summary of the latest 2023 outlook by JPM’s Marko Kolanovic:
Overall, JPM’s year-ahead outlook for 2023 is one of caution, with an increased risk of a recession and potential market volatility (CBs over tightening). However, they also see opportunities for growth, particularly in the technology sector and in emerging markets. Main point is:
“We expect that the lows we’ve seen this year in equity markets will likely be re-tested in the S&P 500 early next year, and we see an ongoing trend of pullback in risk assets, and a rise in allocation to bonds.”
DB have been spot on when it comes to the latest dollar moves. Their year end 2022 target is right around these levels. They don’t see it regaining the “mighty” status as macro has changed a lot, but they don’t see it falling further. The risk premium is looking a lot more normal here (chart 1). Note that positioning has adjusted quickly over the past weeks and we are in neutral territory (chart 2).
Now you just need to figure out whether or not this was the equities low…
JPM FX vol index continues moving lower, trading at levels not seen since late August. Several of the FX macro risks markets that were focused on only a few weeks ago have now faded as narratives.
..but the most stressed space, bond volatility, refuses to ease much. MOVE vs JOM FX vol index.
TLT has been on fire, but note we are approaching first bigger resistance levels shortly. The 200 day is still higher (at 113.8), but the 112 area is rather big resistance. Second chart shows how elevated RSI is currently.
We peaked in early January. Tier1Alpha writes: “The average bear market lasts around a year and a half, with an average drawdown of 34%, neither of which has occurred to date.”