The Trump-Musk feud could be one of the catalysts for a coming 10% stock correction, former JPMorgan strategist says

• Marko Kolanovic predicts a stock market pullback could be in the cards.
• Kolanovic thinks Tesla's decline on the Trump-Musk feud could be among the catalysts that spark a decline.
• Other problems he sees for the market include high valuations and economic uncertainty.

Former JPMorgan chief market strategist Marko Kolanovic sees a stock market pullback in the cards, and the Trump-Musk feud could be one of the triggers that sets off a decline.

Speaking on CNBC on Thursday, Kolanovic predicted a coming correction of 5%-10% that could be set off by a drop in Tesla's stock price.

"It's a little bit of a sideshow. It's important for certain companies, and it can spill over," Kolanovic said of the president's fallout with Musk. "Tesla is one of the biggest holdings of retail investors. There's a little ecosystem of stocks around it. I think it could be a little bit of a catalyst."

In a post on X on Thursday, Kolanovic pointed to popular retail stocks such as Tesla, Palantir, and Super Micro as potential triggers of a momentum crash. Tesla stock plunged 14% on Thursday as Trump responded to Musk's criticisms of the big GOP tax and budget bill.

However, Kolanovic also noted that the Trump-Musk fight would be one possible catalyst for a market pullback among many. Uncertainty in the economy and the trade war are also looming problems.

"We're close to all-time highs, but we still have all the problems," Kolanovic said. "We have a trade war, we have signs of an economic slowdown."

Valuations are stretched, he said, with the Nasdaq close to record highs even as rates remain elevated, and Kolanovic sees warning signs in the bond market.

The risk-reward tradeoff for stocks versus bonds looks unattractive, as the 10-year Treasury yield hovers around 4.4%. That means equity investors aren't getting a great return in excess of the risk-free rate.

There's also the lingering concern about Fed independence, with Trump repeatedly pressuring Powell to cut interest rates.

Macro risks are mounting as well. Kolanovic pointed to the weak ADP jobs report earlier this week, which reported 37,000 new jobs compared to economists' expectations of 110,000. While the May jobs report showed higher-than-expected job growth, April and March numbers saw significant downward revisions.

A correction could present a potential buying opportunity, but that's only if recession risks dissipate, Kolanovic said.