According to the Institutional Investor hall-of-famer, high interest rates are creating a breaking point for stocks — and choosing cash at a 5.5% return in money market and short-term Treasurys is a key protection strategy right now.
"I'm not sure how we're going to avoid it [recession] if we stay at this level of interest rates," the firm's chief market strategist and global research co-head told CNBC's"Kolanovic believes the weakness isn't a strong sign a monster move lower is already here. He indicates a near-term bounce is still possible because a lot hinges on economic reports over the next few months.
"[We're] not necessarily calling for an immediate sharp pullback," he said."Could there be another five, six, seven percent upside in equities? Of course... But there's a downside. It could be 20% downside.", are among the most vulnerable to steep losses due to their historic gains amid high rates. The group is up 83% so far this year — carrying the bulk of the S&P 500's gains.
Plus, Kolanovic believes consumers are getting dangerously cash strapped due to the economic backdrop. "The job market is still strong. But you are starting to see the stress in [the] consumer if you look at sort of the delinquencies in the [credit] cards and auto loans," he noted."We remain somewhat negative still."