Ex-JPMorgan Strategist Warns of 10% Market Correction Amid Trump-Musk Tensions

Former JPMorgan chief market strategist Marko Kolanovic has issued a cautionary forecast, suggesting that the recent fallout between Donald Trump and Elon Musk could trigger a significant stock market correction, potentially in the range of 5% to 10%. Speaking on CNBC, Kolanovic highlighted the symbolic and financial weight of Tesla, one of the most widely held stocks among retail investors, and noted how its decline could create broader tremors across equity markets.

The friction between Trump and Musk, exacerbated by public exchanges on X (formerly Twitter), has already contributed to a sharp downturn in Tesla stock, which plummeted by 14% on Thursday. Trump’s reaction to Musk’s criticism of the GOP’s latest tax and budget proposals intensified the feud, underscoring how political volatility is increasingly influencing stock performance. According to Kolanovic, while this clash may seem like a “sideshow,” the implications for market sentiment, particularly among retail investors, are significant. Tesla’s centrality in the retail trading ecosystem means its fall could cascade into broader selling pressure.

Highlights:

• Kolanovic sees a potential 5%-10% market pullback triggered by Tesla’s decline.

• Tesla’s 14% plunge followed Trump’s public spat with Musk on X.

• Retail investor concentration in Tesla heightens its systemic importance.

Momentum Stocks at Risk as Market Sentiment Wobbles

Kolanovic didn’t stop at Tesla when outlining his concerns. In a post on X, he also flagged other high-beta, retail-heavy stocks such as Palantir Technologies and Super Micro Computer as vulnerable components of the market’s momentum complex. These companies, which have enjoyed outsized gains on retail enthusiasm and speculative fervor, could become focal points of a “momentum crash” if sentiment sours.

Momentum stocks, by their nature, are susceptible to sharp reversals when the macro environment shifts or investor confidence erodes. The sudden collapse in Tesla could ripple into these adjacent equities, triggering automated selling from algorithmic trading systems and momentum-following funds. This scenario could amplify downside pressure in a short period, contributing to an accelerated correction that spreads far beyond the tech sector.

Highlights:

• Kolanovic warns of a potential “momentum crash” centered around popular retail stocks.

• Palantir and Super Micro named as additional vulnerable stocks.

• Automated trading could intensify a swift market downturn.

Economic Uncertainty and Trade Tensions Add to Volatility

Beyond individual stock movements, Kolanovic emphasized the broader macroeconomic risks that continue to loom over the equity markets. Despite the S&P 500 and Nasdaq trading near all-time highs, underlying economic indicators are flashing warning signs. Kolanovic cited the ongoing U.S.-China trade tensions, which have been reignited amid rising protectionist rhetoric and tariff threats from both sides. These geopolitical frictions raise the risk of a global trade slowdown, further straining corporate earnings and investor sentiment.

Adding to the unease is the uncertain trajectory of the U.S. economy. While the May jobs report showed higher-than-expected payroll growth, it was undermined by significant downward revisions to March and April figures. The weak ADP private payrolls data — which showed just 37,000 jobs created versus 110,000 expected — also suggests that the labor market is softening more than headline figures indicate. Kolanovic warned that these inconsistencies could signal deeper structural weaknesses.

Highlights:

• U.S.-China trade tensions continue to weigh on investor confidence.

• ADP’s soft jobs data and past downward revisions hint at labor market fragility.

• Kolanovic sees macroeconomic uncertainty as a major risk factor.

Elevated Valuations and Weak Bond Market Signals Undermine Risk Appetite

Kolanovic expressed concern over current market valuations, which he believes are no longer justified given elevated interest rates and weakening economic data. With the Nasdaq hovering close to record highs and bond yields offering relatively safer returns, the appeal of equities appears diminished. The yield on the 10-year Treasury note remains around 4.4%, creating a challenging environment for risk-seeking investors who expect higher returns from stocks.

The narrow risk-reward dynamic is exacerbated by signs of stress in the bond market. In Kolanovic’s view, equity investors are not being adequately compensated for the risks they are taking, especially when compared to the risk-free rate. This misalignment, he argued, could precipitate a broader reassessment of asset allocations, potentially driving capital out of equities and into safer instruments like bonds or money market funds.

Highlights:

• Kolanovic flags overvaluation in equities given current rate environment.

• Treasury yields around 4.4% reduce relative attractiveness of stocks.

• Bond market signals suggest caution among institutional investors.

Political Interference and Federal Reserve Independence Remain in Focus

Another concern raised by Kolanovic revolves around the growing politicization of the Federal Reserve. Trump has repeatedly pressured Fed Chair Jerome Powell to lower interest rates, raising questions about the central bank’s independence. Market participants are increasingly uneasy about whether the Fed can make decisions based solely on economic data, rather than political considerations.

This tension could manifest in market volatility, particularly if investors perceive that monetary policy is being influenced by electoral considerations rather than inflation and growth targets. The risk is compounded by the 2024 U.S. election cycle, during which policy statements and rate decisions will be scrutinized through a political lens.

Highlights:

• Trump’s public pressure on Powell raises doubts about Fed independence.

• Investors concerned about politicized monetary policy in an election year.

• Market volatility could rise if central bank credibility is questioned.

Correction May Offer Opportunities If Recession Risks Subside

Despite his caution, Kolanovic noted that a potential market correction could offer selective buying opportunities — but only if the broader macro risks recede. Investors would need reassurance that the U.S. economy is not slipping into recession and that inflation is under control before re-engaging with risk assets. For now, however, Kolanovic remains cautious, advising investors to maintain defensive positioning until clearer signals emerge.

His commentary comes amid growing debate over whether current market resilience is sustainable. With tech stocks carrying a disproportionate share of index performance, any shock to this sector — whether triggered by political disputes or earnings disappointments — could unravel the recent rally and expose structural fragilities across portfolios.

Highlights:

• Kolanovic says a correction could present value if recession risk abates.

• Tech’s dominance in index performance raises vulnerability to shocks.

• Investors advised to remain cautious amid ongoing uncertainty.