This is the time when 'accidents' like Enron and Lehman have happened — this JPMorgan quant prefers bonds over stocks

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In financial markets, the tide is going out when central banks are raising interest rates and growth is slowing. That is to say, right now.

“WorldCom, Enron, Bear Stearns, Lehman’s, accounting irregularities etc. have all occurred when the cycle is slowing and... The old expression is when the tide goes out, you get to see who’s swimming naked.

Chaudhry says JPMorgan’s own quant macro index suggests bond returns are likely to get a bid very soon, as it’s edging further into contraction territory. More than that, bond yields peak when the yield curve inverts. “During June/July, bond yields fell 100bps from 3.5% to 2.5% and a rotation towards bond proxies within equities followed with quality and selected growth stocks outpacing Value and high Risk stocks. We believe, if we are right that an inverted yield curve soon leads to a peak in bond yields then the ‘trailer’ we saw over the summer is very likely to support bond prices, quality stocks and more defensive sector positioning,” he says.

 

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Accident? Fraud you mean…

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