JPMorgan’s Head Quant Strategist Says This “Once In A Decade” Trade Has Arrived

There’s a massive shift happening in the market, and one strategist says its a “once in a decade” opportunity.

I have a confession to make... 

There are tools pros use to grab quick flow cash trades… now there is a way for you to (ad)

access them!


The market’s shift into value stocks will continue and stocks should move higher in October, especially if the trade talks between the U.S. and China go well at the beginning of next month

That’s according to JPMorgan’s (NYSE: JPM) global head of macro quantitative and derivatives strategy, Marko Kolanovic, who says his view is based on how he sees investor positioning, the underperformance of value names, and the unwinding of technical flows in equities and bonds last month, which drove yields to multi-year and record lows.

The quant guru says stocks can move higher even beyond October, spurred along by central bank easing and fiscal stimulus.

According to Kolanovic, the rotation out of momentum and into value has been setting up for a while, and pointed out that the market has traded virtually flat since January 2018 and most of the gains seen in the S&P 500 in that time have come from defensive sectors, those with bond-like features and “secular growth” tech names.

Many of those names are now being sold and “incorrectly in our view, are deemed to be impermeable to economic woes,” Kolanovic wrote in a note.

“Given that the S&P 500 is heavy in bond proxies and secular growth, we would expect higher upside potential in small caps, cyclicals, value, and Emerging Market stocks than the broad S&P 500,” Kolanovic wrote.

In July, Kolanovic alerted investors to the “largest divergence ever” between growth and value stocks, which at the time were performing even more poorly than they had been in the throes of the dotcom bubble.

At the time, Kolanovic wrote “we think that the unprecedented divergence between various market segments offers a once in a decade opportunity to position for convergence.”

Now, Kolanovic says there’s another extreme divergence, this time with the record performance  gap between large cap and small cap companies. The quant strategist says his small cap momentum indicator—which is based on weighted 1-, 3-, 6-, and 12-month price momentum—reached its maximum negative reading last Friday. At the same time, the momentum indicator for the S&P 500 was at its maximum positive reading. 

According to Kolanovic, the only other time this has happened was in February 1999.

“Many similar indicators suggest the gap is not sustainable between value, cyclicals, SMid and high beta stocks on one side, and momentum, low volatility, and growth on the other side,” Kolanovic said.

“While manufacturing lags both, we see that in the coming months one could expect manufacturing activity to pick up given the increased monetary stimulus, providing support for the market and value stocks,” Kolanovic continued. “We think October negotiations will be the key for future performance of equity markets and more broadly the global economy.”

Kolanovic is “cautiously optimistic” heading into next month’s trade talks, and said that polls indicate that the majority of American voters blame the Trump administration’s trade policies and the president himself for market volatility, and more than half would blame Trump if the economy fell into a recession. 

“If the October negotiations fail, these moves could be unwound, but given the extreme low positioning and style tilt, we think the downside is limited,” Kolanovic concluded.

There are risks inherent in all investments, which may make such investments unsuitable for certain persons. These include, for example, economic, political, currency exchange, rate fluctuations, and limited availability of information on international securities. You may lose all of your money trading and investing. Do NOT enter any trade without fully understanding the worst-case scenarios of that trade. And do NOT trade with money you cannot afford to lose. Past performance of an investment is not necessarily indicative of its future results. No assurance can be given that any implied recommendation will be profitable or will not be subject to losses. Information provided by the Company is not investment advice. The Company is not a registered investment adviser, stock broker, or brokerage. You agree that the Company does not represent, warrant, or take responsibility that any account will or is likely to achieve profit or losses similar to those shown. Examples published by the Company are selected for illustrative purposes only. They are not typical and do not represent the typical results of all stocks within the Company’s software or its individual scans and searches. No independent party has audited any hypothetical performance contained at this Web site, nor has any independent party undertaken to confirm that they reflect the trading method under the assumptions or conditions specified.