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marko kolanovic S&P 500

Gandalf Sighting! Kolanovic Calls For ‘Year-End Rally’

The thing about wizards is they are "never late, nor are they early." Rather, "they arrive precisely when they mean to."

The thing about wizards is they are “never late, nor are they early.” Rather, “they arrive precisely when they mean to.”

Which is presumably why JPMorgan’s Marko Kolanovic – affectionately known to markets as “Gandalf” – chose the afternoon before the Thanksgiving holiday to release a new note.

That could have been a disaster. If there’s one person on the Street that can move entire markets (i.e. not just single stocks) just by releasing a note, it’s Kolanovic and generally speaking, he tends to scare people. Recall what happened back on July 27 when, just before lunchtime, Marko appeared to trigger a minor panic across markets. Here’s what the VIX did around the time his note started making the rounds:

Gandy

So it’s a relief that today’s missive was upbeat, because God only knows what might happen if he decided to warn of an impending, quant-driven collapse on a day when the only “people” manning the desks are algos and there’s no liquidity.

“Our analysis indicates that the equity market is currently pricing only a ~20-30% probability of tax reform passage, while we estimate the near term probability significantly higher,” Kolanovic writes, before continuing as follows:

We calculate potential upside from current S&P 500 levels to be ~5%, and substantially more for specialized portfolios designed to benefit from tax reform. A potential path for passing the bill could involve a tradeoff between SALT relief and a higher corporate rate. Early timing would surprise many investors, possibly driving a year-end rally.

So there you go, dammit. Gandalf has spoken. Now let’s see if the systematic crowd which Kolanovic is so fond of maligning jumps on that as a reason to lever up further.

And don’t forget, it was just yesterday when Goldman warned (as part of an otherwise bullish outlook) that if tax reform hits a snag, stocks could fall by that same 5%.

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