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Marko Kolanovic On ‘Groupthink’, Crowding And Why The Rotation Will Continue

"Two strategies that in theory should have little to do with each other" have been "nearly 100% correlated" recently.

For months, JPMorgan's Marko Kolanovic has argued that a rotation away from absurdly crowded defensives and momentum names and into value and cyclicals was in the cards. That rotation came calling in early September, when bond yields rebounded off the rock-bottom levels hit in August, catalyzing one of the most dramatic factor rotations in recent memory. That played out just below the market surface, and produced a series of multi-standard deviation events which flew under the radar for anyone not willing to “look under the hood”, as it were. As documented here on any number of occasions, the inexorable decline in bond yields is reflected in equities. As yields declined over the post-crisis period and central banks persisted in accommodation, investors crowded into bond proxies and other expressions that are tethered, in one way or another, to the vaunted "duration infatuation". That's effectively embedded "bond risk everywhere", to quote SocGen's Sandrine Ungari. Read more: Armageddon Scenarios, Willful Ignorance And ‘Bond Risk Everywhere’ Well, this week, bonds sold off dramatically and that's going to have serious implications across styles and sectors in the equity
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2 comments on “Marko Kolanovic On ‘Groupthink’, Crowding And Why The Rotation Will Continue

  1. vicissitude says:

    Seems as if many if not all of standard market models are broken or worth less than random tarot card readings. As such, finding the right cool story to tell about a new model is always suspect if not self serving. If someone does find new pieces that fit into a new narrative, great, but time after time these theories that are made up on the fly often crash and burn. He appears to be a fine casino analyst, but the game of chance is not predictable, ever.

    Also see: “After Kolanovic’s Dec. 3 note calling for a rally, the Dow swooned 2,498.97 points through the end of the year while the S&P 500 lost more than 10 percent.”

  2. hookandgo says:

    H-Man,

    The money guys are chasing the story. If the story changes, the money guys chase that story and the money flows with that story. If the tariff story changes to tariffs stick, the story changes and markets get crushed but he has a cushion due to the recent run up. Plus more ammo to argue the Fed should cut rates. This market is simply driven by a POTUS tweet for better or ……. Methinks he will play this tariff deal into January to compete with the impeachment news. Once that clears, he announces the tariff deal for whatever phase and life is good again for the markets. As each month goes by, more progress on the tariff deal, more positive effect on the markets. Right now his mission in life is to keep this market alive until the election. If this market tanks before election, he is toast, and he will do anything to avoid being toast. The real danger is that he believes he is somewhat astute at gaming the market. A belief that is a fool’s errand.

    Meanwhile he has to deal with a world that is slowing.

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