Recession Watch

Friday, November 3rd, 2023   Categories: Industrials, Recession, Risk aversion, Sector Strategy, Small Caps

An underweight in Industrials is rare and often spells trouble

We have downgraded the Industrials sector in four regions this week – to neutral in the UK and Pan Europe and to underweight in the Eurozone and Japan. In the last four weeks, it has lost ground in every region. Since the inception of our models, the Industrials sector has had the lowest number of underweight recommendations out of all eleven sectors (including Small Caps) and this is normally an indicator that investors are concerned about the onset of a recession. Small Caps have also seen a big reduction in their recommended weight over the same period, which reinforces these fears. Taken together, Pan Europe and the Eurozone are the worst-affected regions. The US, China and Japan all affected but not as badly. The UK is somewhere between the US and Europe. The narrative that the US will escape, while the rest of the world suffers, is not borne out by recent investor behaviour.