JPMorgan’s Marko Kolanovic is bracing for a 20% sell-off to hit the S&P 500.

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 “Fast Money” on Thursday.

The S&P 500 closed at 4,258.19 on Thursday and is on the cusp of a five-week losing streak. The index is down more than 5% over the past month.

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.”

He warns the “Magnificent Seven” stocks, which includes Apple, Amazon, Meta, Alphabet, Nvidia, Tesla and Microsoft, 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.

“If there’s a recession, I think the magnificent [seven]… will catch down where the rest is,” said Kolanovic, citing beaten-up sectors including consumer staples and utilities.

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.”

Kolanovic, Institutional Investor’s top-ranked equity strategist, came into the year with an S&P 500 year-end target of 4,200. The index closed 2022 at 3,839.50.

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