United States – Page 4 – Harlyn Research LLP

Lessons from a Fast Market

Friday, June 12th, 2020

China plays a different game and Healthcare suffers

Yesterday’s sell-off was so brutal that it probably marks the start of a different regime in equity markets. We are out of Phase 1 of the recovery and into a second more sceptical and nervous regime. Both the US and the UK broke of out the uptrends in our daily indicator that have been in place since March. The technical situation is better in the Eurozone and Japan, while the level of financial repression is China so severe, in our view, that the indicator has lost most of its signalling power.

Filed under: Categories: China, Eurozone, Government Bonds, Harlyn's Process, Japan, United Kingdom, United States, Volatility

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Re-Configuring the S&P Sectors

Friday, May 29th, 2020

Time to Start Thinking About It

Well-designed sectors make portfolio management easier, but that means that the definitions need to be reviewed and refreshed on a regular basis. We believe we have arrived at that moment in the US. We propose splitting the Tech sector into two, combining Materials with Industrials and Energy with Utilities. We find that it is easier to generate systematic outperformance using the new definitions.

Filed under: Categories: Equities, Harlyn's Process, Risk-Adjusted Returns, Sector Strategy, United States

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No Crystal Ball

Friday, May 1st, 2020

Introducing a new daily indicator

We cannot hope to forecast all the social and economic consequences of the pandemic, but we can construct a model which allows us to observe to their impact on equities in real-time. Our new daily models are based on the same process as our weekly models. They outperformed during three similar crises in 1998, 2002 and 2008. They also suggest that US Equities will not regain their recent highs before the model reaches a point where previous mid-crisis rallies have come to an end.

Filed under: Categories: Harlyn's Process, Market Timing, United States

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Chairman Mao is Coming to Dinner

Friday, February 7th, 2020

Or the fat lady is about to sing (choose your own metaphor)

Apple and Microsoft both look significantly overbought relative to US equities. Other US stocks with similar scores have underperformed by about 15% over the next three months. If this happens to the two largest stocks in the index, US equities will probably fall.

Filed under: Categories: Market Timing, Risk-Adjusted Returns, Technology, United States

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Two Week Warning

Friday, January 24th, 2020

Mean reversion signal getting close to the danger zone

Our standard PRATER process is well-correlated with the subsequent performance of equities vs bonds. However, the relationship decays when we get close to extremes. Here, we can use a modified RSI approach to estimate the potential for mean reversion. Our 25-year data set indicates that equities are particularly vulnerable when they have been accelerating too hard (RSI) in relation to the speed at which they are travelling relative to bonds (PRATER). Presently, they are accelerating too hard, but the difference is not yet critical. At current progress, global equities will enter the danger zone in about two weeks, after which the probability of a high single-digit correction vs bonds rises sharply.

Filed under: Categories: Equities, Government Bonds, Harlyn's Process, Market Timing, United States

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Six Sector Ideas

Thursday, September 26th, 2019

Where to look in advance of the Q3 results season

The macro picture is confused. Our last note argued that we are in the late late-cycle for equities, but we could go on like this for months and there are no new developments to prove or disprove this view. So, our focus shifts to sector selection. We highlight six sector ideas – one from each region we cover – where we think there is potential for a major upgrade or downgrade in the near future.

Filed under: Categories: China, Equities, Eurozone, Japan, Sector Strategy, United Kingdom, United States

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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.

Filed under: Categories: Investment Styles, Rotation, Seasonality, Sector Strategy, United States

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Catch-22 and Japan’s response

Thursday, August 29th, 2019

US Equities are vulnerable almost whatever happens

If investors want to prevent the negative effects that a trade war between the US and China could have on US Equities, they may be forced to sell US Equities. This may be one of the few ways they have of getting President Trump’s attention. Our models are at – or very close to – maximum underweight in equities. If there is a storm coming, Japan may have an important policy tool to mitigate some of the damage.

Filed under: Categories: China, Equities, Japan, United States

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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.

Filed under: Categories: China, Market Timing, Risk-Adjusted Returns, Seasonality, United States

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Credit Wobble

Thursday, May 30th, 2019

High Yield weakness is not caused by the Energy sector

High Yield has peaked in our fixed income models and has fallen sharply against Investment Grade. We have checked our cross-asset sector models and it isn’t caused by a problem in Energy. It looks like a straightforward loss of confidence in the outlook for Industrial High Yield. This is potentially ominous for Equities as well, but we haven’t generated a sell signal just yet.

Filed under: Categories: Corporate Bonds, Energy Prices, United States

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