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Party Like It’s 1999

The US Tech sector has just flashed an important warning signal. Our recommended weighting has just dropped below its 52-week moving average. This has happened seven times in the last 25 years and the result is always a significant reduction in exposure. Six times out of seven, the sector has not bottomed until it was deep in underweight territory.  [Read More... ]

Signs of Life in the Eurozone

Our charts for Eurozone equities relative to the rest of the world have suddenly gone vertical. The change started in late June and the charts have improved in each of the last four weeks. It is now supported by improving lead indicators in cyclical sectors, like Materials and Industrials, and deep value sectors like Financials. The latter are key to the rehabilitation theme. Without them, a Eurozone rally will be anaemic; with them it could be surprisingly powerful.   [Read More... ]

Rotation in the US

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.  [Read More... ]

Buying Dips & Selling Bounces

Given the likelihood of a second wave of the pandemic at some stage during the rest of this year, we have gone back through 25 years of data in over 40 countries, to see if there are any lessons about what to do in the immediate aftermath of a very bad sell-off. We find that buying the dip is not always a successful strategy and certainly not as successful as selling the bounce. By far the best strategy is avoiding the really bad weeks completely, which is easier said than done. The uplift from doing this is so significant that it dwarfs any other strategy. Even partial success is worth the effort - and the risk of missing out.  [Read More... ]

Lessons from a Fast Market

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.  [Read More... ]

Re-Configuring the S&P Sectors

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.  [Read More... ]

No Read Across in EM

Concerns about the credit quality of EM Bonds are rising. Some of the countries often cited are frontier, rather than emerging markets, but the concerns are well-founded. For us, the key difference from other bond categories is that the Fed won’t be buying them. We don’t think there is a read-across to EM Equities, which are now less volatile than the US, mainly because the major Asian economies have dealt with the virus better.  [Read More... ]

No Crystal Ball

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.  [Read More... ]


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