New highs are ahead for the stock market, top J.P. Morgan strategist Marko Kolanovic told CNBC on Wednesday.
However, a couple of things would need to happen — such as a U.S.-China trade deal and a Brexit that is “not too disruptive” or is even pushed back, Kolanovic said on “Fast Money.”
“If earnings season is not a complete disaster, I think markets will go higher and we could actually see our price target being achieved earlier, maybe even sometime in May or June,” said Kolanovic, J.P. Morgan’s global head of quantitative and derivatives strategy.
Kolanovic, whose calls have moved the stock market in the past, issued a mea culpa earlier this year after his prediction for a 2018 year-end rally didn’t pan out. It turned out to be the worst December for U.S. stocks since the Great Depression, with the major indexes all dropping at least 8.7% for the month.
However, stocks have rallied so far this year. The S&P 500 gained 13.1% in the first quarter — its strongest quarterly performance since 2009 and its best start to a year since 1998.
Stocks closed higher again on Wednesday. The S&P notched a five-day winning streak, gaining 0.2% to end the day at 2,873.40.
Another factor that could drive the market higher is hedge funds jumping back in, Kolanovic said. Right now, their net exposure to equities is at “all-time lows,” he pointed out.
“The rally so far has been about short covering early in on January, a continuation of buybacks and some of the systematic strategies adding exposure,” he explained.
And those systematic investors, who buy stocks according to price trends, are also in the market at below-average historic rates, added Kolanovic.
“We think this is more … fuel for this rally to go — if, again, some of these things do happen, like a trade deal or we don’t, say, blow up on Brexit.”
— CNBC’s Fred Imbert contributed to this report.