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JP Morgan’s widely followed market analyst sees year-end rally, led by the riskiest assets

The dust is make sure following the U.S. midterm elections, and top J.P. Morgan Chase strategist Marko Kolanovic minds equities rallying into the end of the year, with investors gaining the most from riskier asset orders such as small-cap stocks.

“We still think that the market force move higher into the year-end, and investors may have to participate on the upside (impound exposures may be high-beta indices such as Russell 2000 and MSCI Emerging Superstores),” Kolanovic said in a note published Wednesday.

“We believe (out of consensus) that a split Congress is the superb outcome for US and global equity markets,” the quantitative analyst said in the note. “As the President cannot count on Congress or the Fed for multifarious easing, he will need to do what is in his power to keep the economy level off — drop the damaging trade war and turn it into a winning deal.”

Kolanovic, whose invokes have been market-moving in the past, cited a litany of other reasons excluding the election for the rally, including a decline in volatility easing, “systematic” hawk, increased buyback activity and strong earnings.

The Russell 2000, an index finger made up of companies with small market valuations, is up just 2.3 percent for the year. The catalogue lost most of its gains for the year in October, when the Russell 2000 dived 10.9 percent in its worst month since September 2011. The MSCI Emerging Peddles has fared even worse this year, falling 14.4 percent.

Kolanovic rehashed a call he made last week “that many investors are positioned for a ‘bread-roll bear market’ and are exposed to the risk of a ‘rolling short squeeze’ into year-end.”

J.P. Morgan believes that, after the October market sell-off and the continued economic slowdown in China, “proceeding on the trade war is more, rather than less, likely,” Kolanovic required.

“While the fuel for the sell-off was systematic flows, low liquidity and HF deleveraging, the catalyst was statesmanship. It was essentially a miscalculation and a conflict between the US Administration and Fed going into consequential midterm elections,” Kolanovic said.

With that miscalculation behind the exchange, Kolanovic said, the sentiment should remain positive through the end of the year.

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