JPMorgan's bearish quant guru says the meme-stock resurgence is a bad sign for markets

• The resurgence in meme-stocks is a bad sign for the broader stock market.
• JPMorgan strategist Marko Kolanovic reiterated his gloomy stock view because of high interest rates and retail speculation.
• "It is possible, but historically and statistically unlikely, that this time is different," Kolanovic said.

The resurgence in meme stocks is a bad sign for the stock market, according to JPMorgan chief global markets strategist Marko Kolanovic. 

In a note on Monday, Kolanovic reiterated his bearish view on stocks even as the S&P 500 trades within 1% of its record high. The strategist has one of the lowest S&P 500 price target on Wall Street at 4,200, representing downside of 20% from current levels.

"It is possible, but historically and statistically unlikely, that this time is different and that high valuations of risk assets are justified," Kolanovic said.

Kolanovic takes issue with the fact that stock market valuations have remained so elevated, with the S&P 500's forward price-to-earnings ratio at 21x compared to its 30-year average of 17x, even as interest rates have hovered around multi-year highs for nearly two years. 

That, combined with the recent return of highly speculative retail-trading activity in cryptocurrencies and meme-stocks, as well as worrying economic data points, gives Kolanovic confidence in what has been a 20-month bearish call on the stock market.

"What is perhaps different this time is that investors have little concern about asset valuations despite the high level of interest rates, and that is evidenced from the recent increase in meme stock and crypto trading activity, valuations of tech stocks, and diverging performance of stocks vs. bonds," Kolanovic explained.

On the economic front, Kolanovic said recent data suggests an economic slowdown or even a recession might not be far away. 

"These signals include last week's Chicago PMI, past year increase of unemployment, sharp drop in home sales, almost 2 years of yield curve inversion, uptick in consumer delinquencies, and several others," Kolanovic said.

The Chicago PMI index slumped to its lowest level in four years last week, while the unemployment rate has increased from 3.4% last year to 3.9% today. 

When it comes to the meme-stock revival, with shares of GameStop and AMC Entertainment experiencing wild swings over the past month, Kolanovic's point is an echo of what happened in 2021.

The bulk of the speculative trading in meme-stocks and unprofitable tech companies peaked in February 2021, a full 11 months before the stock market peaked in January 2022. A peak in speculative trading activity could spell trouble for the broader stock market down the road.

Though one barometer of speculative trading, FINRA margin debt, has yet to eclipse its February 2021 peak of $935 billion.