Trim some stock holdings and put them in cash as the market overestimates possible rate cuts, JPMorgan global market chief says

• Investors should start selling stocks and put the proceeds into cash and gold, according to JPMorgan's Marko Kolanovic.
• Kolanovic believes markets are overestimating the likelihood the Fed cuts interest rates this year.
• "We maintain that the risk-reward for equities is poor given elevated risk of recession, stretched valuations, high rates and tightening liquidity."

Investors should begin to sell some of their stocks and put the proceeds into cash and gold as investors overestimate the likelihood for interest rate cuts from the Federal Reserve later this year, according to JPMorgan.

JPMorgan's chief global markets strategist Marko Kolanovic said in a Tuesday note that there are too many risks that could drag down stocks after their solid year-to-date rally of nearly 10%.

"Even aside from the debt ceiling issue, we maintain that the risk-reward for equities is poor given elevated risk of recession, stretched valuations, high rates and tightening liquidity, and we favor cash over equities at the former's ~5% yields," Kolanovic said.

Kolanovic takes issue with the fact that the fed funds futures are pricing in several interest rate cuts by the end of the year, but if that's the case, it likely wouldn't be a bullish outcome because the Fed would only cut rates in response to a risk-off event like a deep recession or shock to financial markets.

According to the CME FedWatch Tool, the market is currently pricing in about one to two 25 basis-point interest rate cuts by the end of the year.

And if interest rates don't get cut and stay elevated, that should weigh on stock valuation multiples and hurt economic growth. So, according to Kolanovic, no matter what happens to interest rates between now and the end of the year, it's a lose-lose scenario for stock market implications.

Kolanovic increased the cash allocation in the bank's model portfolio by 2%, funded by reducing weights to stocks and corporate bonds by 1% each.

Additionally, within commodities Kolanovic suggested investors rotate away from energy due to the risk for economic contraction and fading growth from China, and into gold to take advantage of its recent 5% sell-off and its view as a safe-haven asset amid ongoing debt-ceiling negotiations.

"Our base case remains that the debt ceiling ultimately does get lifted/suspended though the journey to that end could be at the eleventh hour and drive significantly higher market instability than appreciated by the market currently," Kolanovic said.

Other concerns on Kolanovic's radar include the narrowest stock leadership among mega-cap tech stocks, which by some measures is the narrowest leadership seen since the 1990s. Finally, the hype surrounding artificial intelligence that has driven a strong rally in tech stocks recently appears "to be stretched," according to Kolanovic.