Santa’s Merry Massacre

Friday, December 2nd, 2022

What Santa gives the New Year can take away

Recent strength is US and global equities is entirely consistent with normal seasonality, particularly the outperformance of the Eurozone. If normal seasonal patterns prevail, we would expect many of the recent trends to reverse in the New Year as follows: US equities will give up recent gains, Eurozone equities will underperform, US Technology will suffer further declines and the US dollar will strengthen once again. All of this would be consistent with normal seasonality, as is our new call that the bottom of the bear market will not come until Q3 2023 at the earliest.

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China vs US Exceptionalism

Friday, August 27th, 2021

Exposure to some sectors may be justified but timing is critical

Our recommended exposure to Chinese equities is effectively zero, but EM Equities (of which China is by far the largest part) are critical to the success of any global balanced portfolio. So, we have looked at individual Chinese sectors to see which ones have been the most successful diversifiers compared to their US counterpart. The good news is that it is easy to identify those which fail the test badly: Financials, Industrials, Telecom and Small Caps. The bad news is that only Technology has offered successful diversification over the whole of our test period, but now is not a good entry point. There may also be opportunities in Consumer Staples and Healthcare, but, again, we prefer to wait for a better entry point.

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Rotation in the US

Friday, July 10th, 2020

US sector signals suggest a reappraisal during results season

Our US equity sector model has been unusually quiet of late, but we are picking up signals that this is about to change. The lead indicator for the scale of potential changes is close to a one-year high and the level of conviction attached to this reading is at a two-year high. We expect the rotation to start at the bottom and work upwards. Energy and Materials look interesting, while Staples, Utilities and, possibly, Healthcare look challenged.

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Hyper-stability is destabilizing

Thursday, September 12th, 2019

Are we in a quant crash and what does it mean?

This week has seen a sudden upsurge in factor rotation at the individual stock level in the US. It may be too soon to call this a quant crash and we would be wary of attributing this to some macro-economic story, like a change in Treasury yields. The best explanation may be that it was so darn quiet immediately beforehand – something which our equity sector models show very clearly.

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Rhyming or Repeating

Thursday, August 15th, 2019

Our asset allocation models look like August 2018

Our asset allocation models suggest that we may be close to an episode when individual threats to equity returns combine to create a “super-risk”. These episodes are too complex to forecast with any certainty, because financial market participants will respond differently than they did a year ago, when we last saw this pattern. In the short term, investors should prepare to go to maximum underweight in equities.

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Message from the Black Box

Thursday, May 2nd, 2019

July is the next danger period for US equities

Our models are actually very simple but they often look like a black box to outsiders. We have three separate indicators which all suggest that July will be a dangerous period for US equities. All of them are based on the way in which our models have behaved over the last 24 years. Of course, things may be different this time. We will just have to wait and see.

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Alternatives to Santa

Thursday, November 8th, 2018

How not to chase the Christmas rally

Investors should feel free to trade a Christmas rally in equities, provided they can identify when to take profit. Our US sector model is firmly in de-risking mode, which means that an extended rally is unlikely. Investors can profit from this correction by adding exposure to EM Equities, buying either an index ETF or selecting from our list of preferred countries.

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Leadership Potential

Wednesday, May 23rd, 2018

Which sectors thrive when the region is overweight

We can use our sector and regional equity models to work out which sectors tend to lead a region higher, and which tend to conflict with an overweight recommendation. Sectors with the best leadership record (across all developed markets from 1996 onwards) are Financials and Industrials, but surprisingly not Technology. Sectors most in conflict tend to come from the defensives and Energy.

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