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Likely rally this week on buyouts, says Kolanovic




  • US stocks are poised to rebound this week after falling last week, JPMorgan’s Marko Kolanovic said on Monday.
  • He sees poor investor sentiment and the return of corporate buyouts as reasons to expect a recovery.
  • “We expect strong inflows into equities this week thanks to month-end rebalances of fixed-weight portfolios,” Kolanovic said.

Despite significant declines in the stock market last week and today, JPMorgan’s Marko Kolanovic expects a rebound to materialize later this week.

Specifically, he thinks a combination of lackluster investor sentiment, a return to corporate buyouts and favorable seasonal trends will drive the stock market higher from here. And the rally should be big enough to wipe out all of last week’s losses, which amounted to around 5%.

“We see the risks skewed towards a near-term equity rally given weak investor sentiment, weak positioning, systematic strategy buying, seasonality and oversold conditions,” Kolanovic said in a Monday note. , adding that he expects large inflows into equities from the month-end of the rebalancing of fixed-weight portfolios.

Additional tailwinds for the stock market this week include options-related buying after the monthly expiration and a return to the heavy short gamma selling that occurred last week.

“Last week was the peak of the buyout blackout, and going forward, the positive role of buybacks will also increase. This should help the market recover this week and reverse last week’s losses,” a- he predicted. JPMorgan previously estimated corporate takeovers would hit a record $1 trillion this year.

The fact that Kolanovic expects corporate earnings to continue to grow, which is ultimately the main driver of stock prices, also contributes to Kolanovic’s bullishness on stocks. Even after revising its S&P 500 2022 earnings per share estimate down slightly to $230 from $235 due to rising input costs, it still implies about 10% year-over-year growth. ‘other.

To position themselves higher in the stock market, Kolanovic recommends investors take a barbell approach to their portfolio, holding a mix of traditional growth stocks and traditional value stocks that have favorable attributes in most factors.

It’s a rare setup for investors: when value stocks like the energy sector experience blistering earnings growth while fast-growing tech stocks enter value territory on steep declines. This is exactly the argument Fundstrat’s Tom Lee made on Monday for FANG mega-cap stocks.

“Bottom line, if FANG is priced reasonably, it’s not certain that the stocks will have a significant further decline,” Lee said.




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