JPMorgan's quant guru breaks down the market's ace in the hole for fighting Trump's trade war — and explains why stocks could surge 12%

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JPMorgan's Marko Kolanovic breaks down a reliable stock-market backstop he says will prevent large losses stemming from the trade war.

every time he wrote new research. No matter how you slice it, Kolanovic is one of Wall Street's foremost quant gurus.," which is the idea that the president only pushes the envelope on trade negotiations when stocks are strong, then makes concessions when the market sells off.

In other words, Kolanovic doesn't think Trump would ever let the market truly fail. He estimates that the furthest Trump would ever let the S&P 500 fall is 3-4% before taking steps to stem the selling.Buy Amazon and Google, sell Apple and Exxon: Here's an in-depth look at Goldman Sachs' newly unveiled strategy for fighting the trade war

As for where the S&P 500 will end the year, Kolanovic reaffirmed JPMorgan's target of 3,000. However, he says a successful trade-war resolution would push that up to 3,200 — or about 12% higher than current levels. But a trade-war agreement alone won't get the market there. Kolanovic notes that there is also buying power lying dormant right now, waiting to be unleashed by the same machines that withdrew it initially. He says this is especially true since many investors pared risk exposure immediately after Trump's initial tweets.

"The reason for our stance is the very low positioning across virtually all types of equity investors, and so far limited technical damage by the recent increase in volatility," Kolanovic said in note late last week."Our base case was, and still is, that the trade war with China will get resolved this year, and we remain cautiously constructive."simply click here to claim your deal and get access to all exclusive Business Insider PRIME content.

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