The stock market rally is over as commercial real estate risks begin to compound, JPMorgan's chief market strategist says
"Commercial real estate stresses appear to be compounding, amplified by banking shocks that could complicate their debt roll," Kolanovic warned.
That, combined with multiple geopolitical crises, means the most vulnerable area of the stock market remains unprofitable companies that rely on raising cash via debt and equity sales to fund their business. Those are the same companies that have started 2023 with a sharp move higher. For example, Ark Invest's flagship ETF, which primarily invests in technology companies that often are not yet profitable, is up 20% year-to-date, far outpacing the"With the banking crisis lingering, higher uncertainty justifies a defensive stance," Kolanovic said, adding that economic forecasts still have"a long way to downshift to catch up with markets.
Kolanovic isn't the only one on Wall Street that's concerned about the sky-high debt pile that's coming due for commercial real estate. The sector has been hit hard by falling property values, falling rent prices, and still a sub-50% vacancy rate due to many employees still working from home. "Commercial real estate [is] widely seen as next shoe to drop as lending standards for CRE loans to tighten further,"
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