Recently, JPMorgan’s global head of quantitative and derivatives strategy, Marko Kolanovic, has been making headlines with his warnings of a potential recession and a significant drop in stock prices. Kolanovic, who is known for his accurate predictions in the past, has been on high alert and bracing for a possible 20% plunge in stocks.

Kolanovic’s concerns arise from a combination of factors including the ongoing trade war between the US and China, geopolitical tensions in the Middle East, and the ongoing global economic slowdown. In his latest note to clients, he warned that the probability of a recession over the next 12 months has increased to over 40%.

He believes that the recent inversion of the yield curve, where long-term interest rates fall below short-term rates, is a major red flag signaling an economic downturn. Historically, an inversion of the yield curve has preceded every recession in the past 50 years.

Kolanovic has also pointed out that global central banks may have limited tools to stimulate the economy in case of a recession, as interest rates are already at historically low levels. This could lead to a prolonged period of economic stagnation and market volatility.

In light of these concerns, Kolanovic has recommended that investors take a defensive stance and consider reducing their exposure to equities. He suggests holding more defensive assets such as bonds and gold, as well as increasing cash reserves to weather the potential storm.

While Kolanovic’s warnings may sound alarming, it’s important to note that no one can predict the future with certainty. Markets are inherently unpredictable and can be influenced by numerous variables. However, it’s always wise to heed the advice of experienced and knowledgeable analysts like Kolanovic and take steps to protect your investments in case of a market downturn.

As investors brace themselves for potential challenges ahead, it’s crucial to stay informed and stay alert to market trends and developments. By staying proactive and flexible, investors can position themselves to navigate through uncertain times and potentially emerge stronger on the other side.

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