"I am getting increasingly queasy": JPMorgan's strategy chief on why investors should dial back risk amid market distortions

In recent months, the global financial markets have witnessed a surge in economic data and significant rate cuts by the Federal Reserve, fueling bullish sentiment among investors. However, David Kelly, chief global strategist at JPMorgan Asset Management, has expressed growing concerns about the potential risks lurking in the market. In an interview with Business Insider, Kelly emphasized the need for investors to "dial back risk" and rebalance their portfolios to mitigate the impact of market distortions.


Kelly's concerns stem from the market's persistent belief in a soft landing, which has led to increased risk-taking by investors. As the market prices in a soft landing, valuations rise, making any shock to the market more likely to send asset prices tumbling. Kelly warns that markets have become more distorted and risky due to their higher valuations.

Moreover, the average American's wealth has soared in recent years, with the total aggregate wealth of American households growing by about $50 trillion in the last five years. This wealth increase has led many middle-income households to reconsider their retirement plans, but Kelly cautions against taking on more risk than necessary. He advises investors to "dial back risk" and avoid keeping money tied up in high-flying growth stocks.


To navigate the current market landscape, Kelly recommends rebalancing portfolios by funneling funds out of growth stocks and toward value shares, international equities, and alternatives. This strategy aims to reduce exposure to the risks associated with market distortions and maintain a more balanced and diversified investment portfolio.

Kelly acknowledges that the market has been trending toward a soft landing, as evidenced by the strong jobs report released on Friday. However, he remains cautious and expects the Fed to cut an additional 50 basis points over the course of its next two meetings, followed by another 100 basis points next year. By showing confidence and taking its time cutting interest rates, the Fed can help support investor confidence in the market.

In conclusion, David Kelly's advice to investors is clear: dial back risk and rebalance portfolios to mitigate the impact of market distortions. By doing so, investors can better navigate the current market landscape and protect their wealth from potential shocks. As the global financial markets continue to evolve, investors must remain vigilant and adapt their strategies to the changing environment.