JP Morgan: The Bubble in Defensive & Tech Stocks ‘Will Likely Collapse’

  • Since the coronavirus outbreak, hedge funds have shifted their allocation to low-volatility and defensive names on a record level, according to JPMorgan’s quant guru Marko Kolanovic.
  • “The bubble we are describing is expressed in equity factors … We caution investors that this bubble will likely collapse, i.e. this time is not ‘different,’” Kolanovic said.
  • Kolanovic added some tech names are trading at “unsustainable valuations” supported by record level of speculative call option activity.
  • JPMorgan reiterated its call to sell out of defensive assets and rotate into cyclical assets such as value stocks, commodity stocks and emerging markets.

A bubble has formed in defensive and low-volatility stocks as coronavirus fears drove a record number of investors to those pockets of the market, according to JPMorgan’s quant guru Marko Kolanovic.

Since the coronavirus outbreak, hedge funds have shifted their allocation into low-volatility and defensive names on a record level, pointed out by Kolanovicthe bank’s global head of macro quantitative and derivatives strategy.

Defensive stocks are generally not tied to economic growth. They include utilities, health care and consumer staples stocks. JPMorgan reiterated its call to sell out of defensive assets and rotate into cyclical assets such as value stocks, commodity stocks and emerging markets.

www.cnbc.com/2020/02/19/jp-morgans-kolanovic-sees-a-bubble-in-defensive-and-tech-stocks.html