US equities are in for a tumultuous second half of the year as the lagging impacts of aggressive monetary tightening by the Federal Reserve catch up to the economy, according to JPMorgan Chase & Co.’s Marko Kolanovic.

Even as US stocks have defied his bearish call in 2023 so far, the bank’s top markets strategist is reiterating his defensive view, warning that factors such as deteriorating business conditions and slowing consumer demand point to a looming downturn that threatens to thwart this year’s rally.

“In equities, absent pre-emptive Fed easing – vs. Fed dots that imply two more hikes by year-end – we expect a more challenging macro backdrop for stocks in 2H, with softening consumer trends at a time when equities have re-rated sharply,” Kolanovic said Thursday in his mid-year outlook note to clients.

He cautioned that multiple expansion and eroding pricing power make the risk-reward for US equities unattractive, adding another area of concern is “increasing investor complacency” ahead of a potential recession.

“In short, the risk of another unknown unknown resurfacing appears high,” he said.

Kolanovic’s pessimism comes amid a sharpening divergence in views on Wall Street, with some of his sell-side peers dialing back their gloomy outlooks in recent weeks while others stay risk-averse.

Goldman Sachs Group Inc.’s David Kostin and Bank of America Corp.’s Savita Subramanian are among a growing list of strategists who have lifted their forecasts for the S&P 500 Index after the defiant US stock rally in the first half of 2023. Meanwhile, Morgan Stanley’s Mike Wilson has re-asserted his bearish stance along with Kolanovic.

The rally in US stocks has stalled in recent days as investors mull the path forward for interest rates. Still, the S&P 500 remains up 13.7% year-to-date.

Kolanovic was one of Wall Street’s biggest bulls across much of the market rout in 2022, but has since U-turned on a deteriorating economic outlook this year, cutting the bank’s model equity allocation in mid-December, January, March — and in May.

This article was provided by Bloomberg News.