November 20, 2019 Finance and Tech Publication

JP Morgan’s top quant says the ‘once in a decade’ rotation into value stocks will continue

Traders work on the floor at the New York Stock Exchange.

Brendan McDermid | Reuters

The massive rotation into value stocks that rocked investors two months ago is going to extend into 2020, according to J.P. Morgan’s quant guru Marko Kolanovic.

The quant, whose reports have moved markets in the past, predicted rotation, going so far as to call it a “once in a decade” trade.

Value names staged a comeback in September after years of underperformance as investors bet on economically sensitive, cheap stocks on hopes for a U.S.-China trade deal. The strategist believes the rotation has more room to run on the back of the improving macro environment.

“Our view is that this rotation should continue in Q4 and Q1,” said Kolanovic, the bank’s global head of macro quantitative and derivatives strategy, in a note to clients on Friday. “Since September, we had further easing of monetary policy globally, progress on a trade deal, and most importantly turnaround in various macro indicators.”

The rotation into value and out of momentum has been quite impressive in the past month. The iShares Edge MSCI USA Value Factor ETF, one of the biggest exchange-traded funds focused on value factor, surged more than 11% in the past month, bring year-to-date gains to 20%. The value ETF has also caught up with the iShares Edge MSCI USA Momentum Factor ETF, which is up only about 19% this year.

Progress on U.S.-China trade coupled with better-than-expected U.S. economic data gave stocks a boost this quarter. The S&P 500 and Dow Jones Industrial Average both renewed their records this week.

For investors wondering if the recent rebound in interest rates could derail this cyclical rotation, Kolanovic said rising yields will bolster the move.

“Our view and analysis suggest that yields can increase another ~150 bps before they become a potential problem, and that rising yields will only accelerate the upside in cyclical and value stocks as they reflect improving economic conditions,” Kolanovic said.

The 10-year Treasury note jumped the most since President Donald Trump’s election on Thursday as trade optimism prompted investors to flee safety.

Kolanovic, who has a Ph.D. in theoretical physics, has predicted some big market moves in the last couple of years, gaining him a following on Wall Street. While he incorrectly called for a year-end rally in 2018 as markets plunged last December, he has been right in calling for the market to rebound from that decline.

Related Posts

‘Dark Waters’ movie poses risk for 3M, analyst says

November 20, 2019

November 20, 2019

The new movie “Dark Waters” may be about an attorney’s battle against chemical company DuPont, but the film could shine...

The best-performing hedge funds are piling into these financial shares

November 20, 2019

November 20, 2019

Traders and financial professionals work on the floor of the New York Stock Exchange (NYSE). Drew Angerer | Getty Images...

Why Icahn is making a $400 million bet against malls: Record store closures this year

November 20, 2019

November 20, 2019

Carl Icahn Adam Jeffery | CNBC Activist investor Carl Icahn is poised to win big if the American mall loses....

Goldman Sachs is planning on giving some of its most valuable software to Wall Street for free

November 20, 2019

November 20, 2019

David Solomon, Goldman Sachs Adam Galica | CNBC Goldman Sachs wants to give away some of its most valuable software....

Here are the biggest analyst calls of the day: Johnson & Johnson, Canopy Growth, Intelsat & more

November 20, 2019

November 20, 2019

Johnson & Johnson products on a shelf in a store in New York. Lucas Jackson | Reuters Here are the...

After a 60% drop in 6 months, Bank of America says buy pot stock Canopy

November 20, 2019

November 20, 2019

Canopy Growth Tom Franck | CNBC With shares down more than 60% over the last six months, it’s tough to...

One of the largest coal-fired power plants in the Western US has just closed for good

November 19, 2019

November 19, 2019

FILE – In this Sept. 4, 2011 file photo shows the main plant facility at the Navajo Generating Station, from...

Stock pickers are getting too confident and that may be a bad sign for the rally

November 19, 2019

November 19, 2019

Traders and financial professionals work on the floor of the New York Stock Exchange. Drew Angerer | Getty Images News...

‘Dean of Valuation’ says Saudis got the Aramco valuation right, but he’s still not buying

November 19, 2019

November 19, 2019

NYU Stern professor Aswath Damodaran, known as the “Dean of Valuation” for his company analyses, says that Aramco more or...

Biggest analyst calls of the day: Broadcom, AT&T, MSG Networks & more

November 19, 2019

November 19, 2019

Randall Stephenson Katie Kramer | CNBC Here are the biggest calls on Wall Street on Tuesday: Morgan Stanley upgraded Broadcom...

AT&T downgraded by MoffettNathanson to sell on concern wireless can’t carry the whole company

November 19, 2019

November 19, 2019

Randall Stephenson, chairman and chief executive officer of AT&T Inc., speaks during a Senate Judiciary Subcommittee hearing in Washington, D.C.,...

The world is getting windier and it could mean a big boost for alternative energy

November 18, 2019

November 18, 2019

The world is getting windier, which means a surge in wind-generated power could be coming. A new study led by...

Booming subscription services building revenue for companies, but sapping customers’ wallets

November 18, 2019

November 18, 2019

Wonder where your paycheck is going? You might want to look into your monthly subscriptions. Subscription services are on the...

Subscriptions build revenue for companies but sap customers’ wallets

November 18, 2019

November 18, 2019

Wonder where your paycheck is going? You might want to look into your monthly subscriptions. Subscription services are on the...

Goldman sees the economy surprising in 2020 and these stocks benefiting most from the rebound

November 18, 2019

November 18, 2019

A Kohl’s store in Mount Kisco, New York. Scott Mlyn | CNBC Goldman Sachs believes the U.S. economy is poised...