JPMorgan’s Kolanovic warns of possible ‘Minsky moment’ ahead
Add up the recent bank failures, geopolitical shocks and uncertainty about central bank policy and you get the potential for a "Minsky moment" in markets, according to JPMorgan Chase. Marko Kolanovic, the firm's chief market strategist and co-head of global research, warned that the current conditions of unsustainable speculation and easy policy are ripe for a market collapse. "The possibility of a Minsky moment in markets and geopolitics has increased," he wrote in a client note Monday. "Even if central bankers successfully contain contagion, credit conditions look set to tighten more rapidly because of pressure from both markets and regulators." The term was coined by economist Paul McCulley and named after economist Hyman Minsky. Those comments come with the global banking system in crisis , Chinese leaders visiting Russia and central banks such as the U.S. Federal Reserve and the European Central Bank continuing to tighten rather than loosen policy. For investors, that means a tough time for stocks to eke out any gains and the likelihood that fixed income spreads will continue to widen as credit deteriorates. "Cracks are beginning to emerge in US credit fundamentals, and Euro credit spreads will likely continue to widen unless we see meaningful policy intervention," Kolanovic wrote. "The outbreak of financial market stress is set to have a material effect on monetary policy for some time to come, as risks to the outlook have changed." For now, markets expect the Fed to follow the ECB's 0.5 percentage point hike last week with a quarter-point increase of its own this week. Kolanovic said his firm is sticking its call that stocks likely will see their peak this year in the first quarter and is advising clients to sell into rallies like the one Monday that saw the Dow Jones Industrial Average and S & P 500 post solid gains. He added that the "next trade" is underweight value stocks with a bias toward defensive names.
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