The reopening trade has stalled in recent weeks, with a decline in interest rates and the volatility index fueling outperformance in high-growth technology stocks relative to cyclical stocks that are poised to benefit from a reopening of the economy.
But JPMorgan’s Marko Kolanovic said investors are missing a big opportunity to load up on stocks that have significant upside ahead, according to a Tuesday note.
Kolanovic expects the reopening trade to pick up where it left off in March and accelerate into late spring and summer. Sectors poised to benefit from this dynamic include energy, financials, materials, industrials, and small caps, according to the note.
“These developments are not priced in, as we can see a strong reaction on incremental news flow related to reopening and COVID-19,” Kolanovic explained.
A big move is imminent for the reopening trade, based on a decline in COVID-19 cases in the US and Europe, the fast pace of vaccinations, and seasonal tailwinds in the northern hemisphere, according to the note.
“We believe that the reopening and reflation trade will resume with a move that will be bigger than we saw early this year,” Kolanovic said. And a staggered global recovery from the pandemic will prolong the reflation trade and prevent yields from surging too fast, which would be welcomed by the stock market.
“Given our view on reopening, reflation and factors, and the significant pullback in the reopening theme over the last few weeks, we think investors should buy reopening epicenter stocks and sectors,” Kolanovic concluded.
The analysis from JPMorgan is aligned with the views of Fundstrat’s Tom Lee, who has been recommending investors stick to the epicenter trade in recent months on the back of a fully reopened economy.