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:
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%.