Monday, July 31, 2017

Another Top Guru Warns of Stock Weakness Ahead, Is He Right?

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I never let my schooling interfere with my education, Mark Twain. Neither should you.

As a rule, any headline containing the words market guru or similar should be read with a healthy dose of skepticism or at least from entertainment perspective. Kolanovic, JP Morgan's market guru and obviously concerned bear, makes the following observation about the growing disconnection of stocks and sectors, a falling correlation between them:

“Over the past year, correlation of stocks and sectors declined at an unprecedented speed and magnitude,” Kolanovic wrote in a note to clients.

“A similar decorrelation occurred on only 2 other occasions over the last 30 years: in 1993 and 2000. Both of those episodes led to subsequent market weakness and an increase in volatility (in 1994, and 2001). The current decline in market correlations started following the US elections and was largely driven by macro (rather than stock specific) forces.”


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Headline: JP Morgan's top market guru just identified a chilling pattern in the stock market

Stocks have been getting slammed on Thursday afternoon.

Near 1:30 p.m. ET, the tech-heavy Nasdaq (^IXIC) was down as much as 1.2%, while the S&P 500 (^GSPC) and Dow (^DJI) — after having traded higher earlier in the session — were moving to their lows of the day.

Volatility as measured by the CBOE’s VIX index (^VIX) was also spiking.

The decline in the market appears to have coincided with the publishing and circulation of a research note from JP Morgan strategist Marko Kolanovic, who among other things noted that the recent decline in stock correlations we’ve seen mirrors action investors saw before big sell-offs in 194 and 2001.

“Over the past year, correlation of stocks and sectors declined at an unprecedented speed and magnitude,” Kolanovic wrote in a note to clients.


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