JP Morgan’s Marko Kolanovic predicts that oil prices will rise – but so will equities.
Kolanovic, who serves as the firm’s chief global strategy strategist and co-global research chief, believes the US economy is strong enough to handle oil prices as high as $ 150 a barrel.
“There could be some potential further peaks in oil, especially given … the situation in Europe and the war. So we would not be surprised,” he told CNBC̵[ads1]7;s “Fast Money” on Tuesday. “But it can be a short-lived peak and eventually, somehow, normalize.”
WTI oil traded around three-month highs, rising 0.77% to $ 119.41 a barrel on Tuesday. Brent oil closed at the $ 120.57 mark. The bullish move came when Shanghai reopened from a two-month Covid-19 barrier, opening the door for higher demand and more upside.
“We think the consumer can handle oil at $ 130, $ 135 because we had it back in 2010 to 2014. Inflation adjusted, it was basically the level. So we think the consumer can handle it,” said Kolanovic, who has received top honors from Institutional Investor for accurate forecasts several years in a row.
His basis is that the United States and the global economy will avoid a recession.
But at a finance conference last week, JPMorgan Chase Chairman and CEO Jamie Dimon told investors he was preparing for an economic “hurricane” that could be a “minor hurricane or Superstorm Sandy.”
Kolanovic claims it is important to be ready for all opportunities.
“We are predicting a certain decline,” he said. “Nobody says there are no problems.”
The company’s official S&P 500 target is 4900. But in a recent note, Kolanovic speculated that the index would end the year around 4 800, still on par with all times reached 4 January. Right now, S&P is 16% below record highs.
“We do not think investors will stay in cash”
“We do not think investors will hold on to cash for the next 12 months, you know, while they wait for this recession,” Kolanovic said. “If we continue to see [the] consumer, especially on the service side, holds up – something we expect – then we believe that investors will gradually return to the stock markets. “
Kolanovic’s top challenge is still energy, a group he has been positive about since 2019.
“In fact, the valuation went lower despite the share price strengthening,” Kolanovic said. “Revenues are growing faster, so multiples are actually lower now in energy than they were a year ago.”
He is also positive about small caps and high-beta technology stocks that have been crushed this year.