4 reasons JPMorgan's quant guru is doubling down on his stock bullishness - and 2 potential risks that could derail it

• There are four main reasons to remain bullish on stocks, JPMorgan chief global markets strategist Marko Kolanovic said in a note on Thursday.
• He pointed to strong earnings results as just one reason why stocks still appear attractive.
• But another leg lower in hyper growth innovation stocks could pose a risk to the broader market, Kolanovic said.
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Investors should remain constructive on the stock market even as the COVID-19 Delta variant continues its spread, according to JPMorgan's Marko Kolanovic, the firm's chief global markets strategist.

In a Thursday note, Kolanovic highlighted four reasons to remain bullish, including: (1) strong second-quarter earnings results, (2) cautious market positioning among investors, (3) signs that the COVID-19 Delta variant is beginning to recede, and (4) a normalization of the correlation between stocks and bonds.

"We believe that bond yields and cyclicals bottomed last week and are now on an upward trajectory for the rest of the year," Kolanovic said. That line of thinking explains why he leans more bullish on the cyclical reflation trade, and is cautious on lockdown beneficiaries often found in the high-growth tech sector.

Kolanovic highlighted that fund exposure to equities are currently around historical average levels, meaning there's more upside potential for investors to increase their allocation to stocks.

Additionally, the correlation between stocks and bonds has eased in recent weeks, with all stock sectors sporting the typical negative correlation to bond prices. That signals that a interest-rate driven volatility spike, like the ones seen in 2018 and 2019, is less likely to occur.

Kolanovic's view that the spread of COVID-19 is beginning to slow is based on the fact that the effective reproduction number of COVID-19 infections is declining in 40 out of 50 states. "This makes us believe that the US inflection [in COVID-19 spread] is days away," Kolanovic explained.

But there are risks abound that could derail the current bull run in stocks, according to the note. Those risks include a sharp rise in bond yields and a sell-off in hyper-growth stock sectors that benefited from the COVID-19 lockdowns.

"While these segments experienced a significant correction early in the year, we believe that there will be another leg lower," Kolanovic warned.

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