(Bloomberg) -- JPMorgan Chase & Co. strategist Marko Kolanovic said Thursday that the latest batch of weak economic data, along with an anticipated decline in earnings expectations, indicate that markets will likely move lower in the coming months.

“We think that recession is currently not priced in equity markets,” a team of strategists led by Kolanovic wrote in a note to clients. “We do not agree with the argument that because a recession is consensus...the market and economic outcome have to be better.” 

Kolanovic sees downside risk for the stock market since the Federal Reserve will likely keep interest rates high for some time as the economy is slowing and corporate earnings are weakening. 

“Whether the terminal rate is higher or lower by a few hikes at this point does not matter in our view, given the absolute level of rates and shock that was introduced to the system in the second half last year,” Kolanovic added. 

Kolanovic pointed to the recent outperformance in US industrials stocks, the Dow Jones Industrial Average and European equities, arguing that an economic downturn isn’t priced into equities since each group is basically unchanged over the past year. He also reiterated that America is heading toward a recession, further aggravated by central bank tightening. 

One of Wall Streets biggest optimists through most of the market selloff last year, Kolanovic has since reversed his view, cutting his equity allocation in mid-December due to a soft economic outlook this year. Earlier this week, the bank reduced its recommended equity allocation once again due to fears of a recession and central-bank overtightening. 

In a separate note Thursday, JPMorgan strategists including Jason Hunter, Alix Tepper Floman and Kolanovic wrote that equity risk is skewed to the downside after the S&P 500 Index rejected a key resistance level around 4,000. A sustained move below the index’s 100-day moving average would likely cause more pain, with support sitting around 3,698 to 3,724.

“We see a retest of the 3,500 medium-term support cluster as a base-case outlook for the first quarter,” the strategists wrote. “Look to the 4,100-4,200 area to cap the market over that period.”

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