Rally in equities likely to come to a halt, JPMorgan warns

Yahoo Finance’s Ines Ferre joins the Live show to discuss U.S. inflation and JPMorgan’s yellow warning sign on a recent market rally.

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RACHELLE AKUFFO: The rally in equities we've seen so far this year is likely to come to a halt, JPMorgan is warning. This in thanks to headwinds from bank chaos and oil shock and slowing growth. Yahoo Finance's Ines Ferre is here with the latest. Hey, Ines.

INES FERRE: [INAUDIBLE], Rachelle. Some market watchers are flashing a yellow warning sign when it comes to the market's recent rally. In a client note, JPMorgan analyst Marko Kolanovic reminds investors, quote, "The Fed has made no indication of rate cuts this year, but risk assets are exhibiting an unprecedented rally. European stocks are trading near all-time highs, and US stocks are recovering from recent losses." That's what this analyst has written.

And he also goes on to say, "We expect a reversal in risk sentiment and the market retesting last year's low over the coming months." The analyst also says, "The recent rise in stocks make little sense and was most likely driven by systemic-- systematic investors, a short squeeze, and also a drop in the volatility index, or the VIX, below the 20 level," he goes on to say. Also, Kolanovic saying that the Fed still has ground to cover on fighting inflation and pushing back against the market's assumption of cuts. So the original source of stress, rates higher for longer, can re-enter the picture, Rachelle.

RACHELLE AKUFFO: So, Ines, on the other side of the spectrum, in a more bullish view, Fundstrat's Tom Lee is expecting a strong April for equities. What can you tell us about that forecast?

INES FERRE: Yeah, so Tom Lee and his team of researchers are expecting April to be the strongest month of 2023. Fundstrat says that the S&P 500 could surge more than 4% this month. That's based on historical data, which the investment research firm has analyzed and using what they call "the rule of first five days," when the S&P 500 gained in the first five trading days of the year after it was negative in the prior year. And that's a scenario that's in play this year.

The S&P 500 was up 1.4% in the first five days of trading this year after losing almost 20% last year. And this has happened only seven times since 1950. And the win ratio for stocks in April was 86% during those times. So Tom Lee and his team at Fundstrat also pointing to several factors that are supporting equities. Those include the VIX below 20, as I was mentioning earlier, a banking crisis, which so far appears to be over or subsiding, and regional bank deposits, which saw a huge outflow in March, appear to have stabilized, Rachelle. So two definitely different forecasts there.