JPMorgan Chief Strategist Marko Kolanovic says stocks’ stellar run in 2023 could soon end and now is the opportune time to move more holdings to cash and gold, CNBC reports.

Traders are placing too much optimism on a debt ceiling resolution and pricing in the Federal Reserve cutting interest rates by the end of the year, Kolanovic says.

If rates do come down, it will be because of cracks in the economy that the market will reflect, the strategist wrote in a note Tuesday. If rates remain elevated, they will undermine economic growth.

Traders would be wise to listen more carefully to the hawkish remarks from Federal Reserve officials, Kolanovic says, writing:

“This gap is likely to close at the expense of equities, as rate cuts will likely only transpire from a risk-off event, and if rates stay higher, they would weigh on equity multiples and economic activity.”

Indeed, the S&P 500 is near year-to-date highs, and the Nasdaq has outpaced both the S&P and the Dow Jones Industrial Average, with the tech-heavy benchmark index closing Monday at its highest level since August.

In this scenario, Kolanovic recommends investors become more defensive, specifically by adding more gold and cash to their portfolios.

Noting that he favors these defensive plays over energy, stocks and bonds, Kolanovic says his model portfolio has increased its cash weighting by 2% by selling 1% each of equities and corporate bonds.

Kolanovic’s model portfolio is also 2% higher in gold by decreasing energy exposure by 2%.

“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,” the JPMorgan investment team says.

“Within commodities, we rotate from energy (given recession risks and a potentially fading China growth impulse), to gold following its recent sell-off (on its safe-haven demand as a debt ceiling hedge),” Kolanovic adds.