Is the 2008 financial crisis happening again? JPMorgan warns: The risk in the US stock market is not just high interest rates!
Morgan Stanley has stated that due to the resemblance of the US economy to that of 2008, investors should steer clear of US stocks, and that cash is currently the safest place to be.
Morgan Stanley's chief strategist has warned that due to the shadow of the 2008 financial crisis looming over the US economy, investors should steer clear of stocks and high-risk bonds, with cash being the safest option at present.
Morgan Stanley warns of impending recession
Marko Kolanovic, senior market strategist at Morgan Stanley, has issued a warning in his latest report that as interest rates and bond yields rise, the US economy appears to be on the brink of a severe recession.
Kolanovic, who made a series of prescient market predictions in 2015, earning him the nickname "Gandalf", says that both stocks and bonds are unsafe and urges clients to hold onto cash for a relatively risk-free return of over 5%.
Kolanovic says that he sees shadows of the bankruptcies and increased consumer loan defaults of 2008.
However, the monetary policy that has helped the US economy avoid a recession is now losing its effectiveness. Kolanovic's focus now is on the rising cost of borrowing, which has increased even more than pre-financial crisis levels since the Federal Reserve began raising interest rates last year.
More risks for US stocks
Rising interest rates are not the only problem facing US stocks. Kolanovic believes that an expected slowdown in fiscal spending could exacerbate the challenges facing the US economy, while new geopolitical risks could trigger market volatility.
The headwinds facing US stocks have only intensified since earlier this year, and Kolanovic continues to hold his bearish stance.
Kolanovic states that while the situation is not entirely similar, the economic backdrop in the US is "similar" to the years leading up to the financial crisis, as rising interest rates could punish overextended consumers and businesses.
Therefore, the current rate change is approximately five times the magnitude of rate hikes from 2002 to 2008.
He also expresses skepticism about the long-term impact of the artificial intelligence boom. "Can artificial intelligence mitigate the negative effects of inflation and interest rates? We believe not."