(Bloomberg) -- JPMorgan Chase & Co. strategist Marko Kolanovic continues to see risks for the stock market, as he reduced the bank’s recommended equity allocation once again on mounting recession fears after US regulators tried to sooth investors following the collapse of Silicon Valley Bank.

In a note to clients Monday, a team of JPMorgan strategists led by Kolanovic strengthened their underweight call for equities broadly — after cutting their equity allocation in mid-December and again in January due to a soft economic outlook for this year. 

“Following the latest US banking headlines, we think we are heading into a ‘bad news is bad news’ trading environment, with markets more sensitive to recession risks,” the strategists wrote.

Kolanovic warned that “carry trades” — a trading strategy that involves borrowing at a low-interest rate and investing in an asset that provides a higher rate of return — “can’t all be bailed out,” pointing to areas like commercial real estate, which came under pressure amid quantitative easing in the pandemic as Americans stayed home but in theory was “a good investment at zero interest rates,” he added.

“While Fed actions reduce the risk of this specific development, we believe there are many carry trades that will be under pressure and it will not be possible to backstop all of them,” Kolanovic wrote.

Although the JPMorgan strategists believe the selloff in large banks was overdone and that there isn’t a banking crisis since “the SVB situation is somewhat unique,” they do expect “increased investor scrutiny of European banks,” he said. 

One of Wall Streets biggest optimists through most of the market selloff last year, Kolanovic has since reversed his view as most of his 2022 calls didn’t work out. His bullish S&P 500 Index price target of 4,800 for 2022 came in about 25% higher than where the equities benchmark ended. The bank’s 2023 year-end target for the S&P of 4,200, suggests a nearly 9% gain from where it currently stands. 

JPM Strategists See UK Stocks Still Attractive on Dividend Yield

One call he got right in 2022 was urging investors to buy the dip in China equities during their October downturn, but that has since stalled over the past month. However, he is betting that its impact will continue to be felt in coming months and quarters, so he is holding an “overweight” in commodities and energy, where China is a major consumer, along with emerging-market equities.

The bank forecasts a 25-basis-point rate hike when the Federal Reserve concludes its two-day meeting on March 22, but Tuesday’s print on consumer prices and the potential for further financial stress make it a “close call,” Kolanovic said. 

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