Beneath the calm surface of stocks lie two groups that if played right pose an almost unprecedented opportunity for when the market turns.
Not now, says Marko Kolanovic, JPMorgan Chase & Co.’s quant guru, and probably not until the summer’s over. But when the peace lifts, traders with the wherewithal should put down bets in a convergence trade that is tuned to the relative performance of two otherwise sleepy corners of the market.
One is value stocks, defined as those trading cheap to fundamentals. The other is low-volatility shares, a popular category defined as those trading with muted price swings.
Value companies, which have trailed their growth counterparts and the broader market seemingly forever, now fetch 14.4 times projected earnings. That’s a 33% discount to the other group, which is sometimes called “low beta,” data compiled by Bloomberg show. The gap is near the widest ever, Bloomberg data show.