It’s a lose-lose situation for US stock investors next year, according to Marko Kolanovic, JPMorgan Chase & Co.’s chief market strategist.

He warned clients Thursday that equities and other risk assets won’t be able to sustain any potential rallies without substantial interest-rate cuts by central banks — and he doesn’t anticipate that unless markets drop severely or the economy stalls. For that reason, he said investors should opt for cash or bonds over stocks.

“This is a catch-22 situation,” Kolanovic said in a note. “This would imply that we would need to first see some market declines and volatility during 2024 before easing of monetary conditions and a more sustainable rally.”

Kolanovic, who has remained bearish throughout this year’s stock rally, reiterated his defensive stance, telling clients that bond yields present a “high performance hurdle rate” for other assets and strategies. Treasury yields have broadly retreated. But he estimates that even in the most optimistic economic scenario, equities would outperform bonds or cash by only about 5%. In his expected environment of declining growth or a recession, the strategist said they could underperform cash by around 20%.

“Regardless of whether a recession happens or not, ex-ante, the risk-reward in equities and other risky assets is worse than in cash or bonds,” Kolanovic said.

The strategist’s bearish call for 2023 has so far failed to materialize, with the S&P 500 Index up 19% as the economy remained resilient, even in the face of the Federal Reserve’s aggressive interest-rate increases earlier this year. Kolanovic cut his equity allocation last December, then in January, March and May of this year due to a deteriorating macroeconomic outlook after remaining optimistic through much of 2022’s equity rout.

Even as Wall Street has scaled back its pessimism — with a number of firms including Bank of America Corp., Deutsche Bank AG, and RBC Capital Markets calling for all-time highs next year — strategists at JPMorgan have gone against the grain, releasing the gloomiest 2024 forecast for US stocks among their peers. The firm sees the S&P 500 dropping to 4,200 by the end next year, roughly 8% from its trading level Thursday. The current average target tracked by Bloomberg sees the gauge rising to just above 4,700.

JPMorgan strategists have dug in their heels despite this year’s advance across the US equity market, which has defied Wall Street’s gloomy calls heading into 2023 and humbled many equity pessimists. Even Morgan Stanley’s staunch bear, Mike Wilson, has turned more constructive on equities, predicting the S&P 500 will close at 4,500 by the end of 2024. It’s around 4,585 now.

“Overall, we are not positive on the performance of risky assets and the broader macro outlook over the next 12 months,” Kolanovic wrote Thursday, warning that the interest-rate shock of the past 18 months will eventually catch up with the economy and markets.

This article was provided by Bloomberg News.