Bargaining guru Marko Kolanovic at JP Morgan says stock rebound will continue

For investors still haunted by the massive sell-off of monsters last week, the return of the market is bound to last, according to J.P. Morgan's quantitative guru.

Shares plummeted on Wednesday as the Dow Jones Industrial Average had its worst day in 2019 after the bond market announced a recession. Treasury yields, which have reached historically low levels, have further heightened fears of recession. However, the radical movements of equities and yields were solely motivated by technical flows in an environment characterized by low liquidity, according to Marko Kolanovic, global head of the bank's macro-quantitative strategy and derivatives.

"Despite fundamental risks, the recent movements of stocks and bonds were essentially of a technical nature," Kolanovic said in a note sent Tuesday to his clients. "More than half of the stock movements were motivated by systematic trading rather than fundamental trading."

The strategist estimated that the sell-off of his shares on Wednesday resulted in $ 75 billion in algorithmic sales. About half comes from index-linked delta and gamma hedges, 20% from trend strategies, 15% from volatility targeting strategies and 15% from other products, Kolanovic said.

And he said that more than half of the rise in interest rates, including the reversal of the yield curve, was due to "technical factors" like coverage by banks.

The stock market has been rising for three consecutive sessions after this brutal sale. The Dow jumped nearly 250 points Monday and the S & P 500 is now 3 points behind Wednesday's losses. The strategist said stocks have more leeway this month and could earn an extra 2% next week.

"Even after the stock market has recovered some of last week 's losses, we could still see capital inflows and outperformance by the end of the month," Kolanovic said. "Our model suggests that these flows could result in an additional outperformance of around 1.5% to 2% for stocks next week."

Dr. Kolanovic, who holds a PhD in Theoretical Physics, has correctly described large upward and downward market movements over the past two years, which has earned him Wall Street. He improperly called for a year – end rebound in 2018, when markets plunged last December. However, he was right to ask the market to rebound after this downturn and subsequent downturns this year, citing the influence of technical factors in the market and not the fundamentals.