JPMorgan's Kolanovic Says Unusual Market Could Mean `Buy in May'

(Bloomberg) -- An “upside-down” market may bode well for U.S. stocks, according to JPMorgan Chase & Co.

Established patterns seem to be out the window as bonds and equities move in tandem; stock prices climb along with volatility; shares fall despite strong earnings; and money is flowing out of U.S. equities during the time of the year inflows are usually the strongest. All that means the standard advice of “sell in May” should be converted to “buy in May,” JPMorgan strategists Marko Kolanovic and Bram Kaplan wrote in a note Tuesday.

Systematic investors are likely to reenter the market after selling $300 billion of equities this year if volatility can stay contained and the market makes modest gains, the strategists wrote. They see three-month price momentum likely turning positive early this month, which could result in as much as $50 billion of buying by trend followers.

Volatility-sensitive investors could bolster their holdings by about $10 billion a week, Kolanovic and Kaplan said. Corporate buybacks are expected to pick up after earnings announcements, adding up to $20 billion of inflows a week at their peak.

The S&P 500 Index fell as much as 0.9 percent Tuesday before paring losses to 0.1 percent as of 2:28 p.m. in New York.

The strategists see risks, of course, including an uptick in volatility, a rise in geopolitical tensions or an escalation of protectionism that could fuel selling by long-term investors or keep buyers on the sidelines. But they think the threat of wild price swings or severe drop in liquidity has receded, and that the worst is over on political risks.

READ: JPMorgan’s Kolanovic Warns of Liquidity Snarls But Stays Bullish (April 3)

“We often hear from clients ‘there is no one to buy equities,’” the strategists wrote. “That is not correct.”

To contact the reporter on this story: Joanna Ossinger in New York at jossinger@bloomberg.net.

To contact the editors responsible for this story: Tracy Alloway at talloway@bloomberg.net, Brendan Walsh, Randall Jensen

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