(Bloomberg) -- The recent selloff in stocks set to benefit most from an improving economy has gone too far and a reversal is imminent, according to JPMorgan Chase & Co. chief global markets strategist Marko Kolanovic.
The unwinding of the so-called reflation trade accelerated on Monday with the delta variant of the coronavirus quickly spreading and concerns flaring that the U.S. is reaching peak economic growth. Traders have been piling into growth sectors such as technology that are viewed as safe havens. But Kolanovic sees further gains in those value names that benefit from faster inflation as the global economy recovers from the pandemic.
“The Covid-19 delta variant should not lead to new lockdowns, and despite the rise in cases mortality has significantly declined,” he wrote in a note Monday. “We expect the reflation trade -- cyclical stocks, bond yields, high beta stocks, reflation and reopening themes -- to bounce imminently as delta variant fears subside and inflation surprises persist.”
Although 10-year Treasury yields broke below 1.2% for the first time since February on Monday, Kolanovic argues that the move reflects “overstated growth anxiety.” In fact, he sees low real yields as an indication that the long end of the Treasury curve isn’t much concerned that the Federal Reserve will start tapering earlier than expected.
“A persistency in inflation surprises over the coming months should induce a correction in the currently large mispricing in U.S. real yields, boosting value-oriented sectors,” he wrote.
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