JPMorgan’s global head of quantitative and derivatives strategy Marko Kolanovic can move markets with a single call.
And if you’re correct often enough, as Kolanovic is, people will take your word as gospel — especially when you have the data to back up your arguments.
Like Warren Buffett, Kolanovic is one of the few who has such power and he’s hot on energy and material stocks.
Per Business Insider:
The growth of his influence closely mirrored the rise of quantitative trading strategies like risk parity, volatility targeting, and commodity trading advisers. As they started to wield more influence over market movements, Kolanovic increased his efforts to quantify the impact they were having.
Ultimately, Kolanovic was not only demystifying the seemingly impenetrable black box that was quant trading — he was also nailing his forecast market moves. That prized combination vaulted him into the elite crust of trusted Wall Street pundits.
Business Insider recently sat down with Kolanovic to get his thoughts on the market as it stands right now. His calls may not directly move major stock indexes minutes after he publishes them to the degree they once did, but the depth of his quantitative analysis remains largely unparalleled.
On a broad basis, Kolanovic is still constructive on stocks, despite their torrid rally since late December. He says investors are still lightly positioned in equities, which means those traders have ample flexibility to seek more exposure and push the market higher.
But the real meat of his recommendations is around the sectors he favors over others. As with his other calls, Kolanovic is focused on a combination of fundamentals and market technicals.
Here’s what the JPMorgan guru had to say about why he likes energy and material stocks, with his rationale divided along those two lines. Viewed in tandem, the explanations offer an intriguing peek inside Kolanovic’s mind. All quotes are attributable to him.
Fundamentals / trade war outlook
“If investors are uncomfortable with how much certain sectors have rallied, they should look at ones that didn’t rally all that much. Some sectors are more levered towards a trade war resolution, like energy and materials. If there’s a trade resolution, you could see another leg up.
“For instance, [in January] energy was roughly flat, although oil was up, as was the market. If the trade war is resolved, we could see another market-wide leg up, and energy could catch up. It’s a bit of a catch-up trade, if you’re positive.”
Market technicals
“If you look at the CFTC speculative interest on oil futures, it’s actually very low. It’s pretty much where it was in 2016, at the lowest point. A big part of that is being driven by management accounts, a big part of which are CTAs. We think CTAs are shorting oil.
“There’s momentum in oil right now — 1- and 3-month turned positive, but 6- and 12-month are still negative. CTAs are quite a bit short oil, and now they’re closing those shorts. If you get another $5 move in oil on a trade deal, that would go a long way to change positioning.
“The same goes for base metals. And it’s related to recent dollar strength, some confluence of fundamental factors on China, plus maybe technical investors jumping into commodities.
“If equities go up, you could have positive forces working in favor of the value factor, equity and commodity angles of energy and materials. So far it hasn’t been moving higher, so perhaps there’s room for a catch-up.”