Results for search of category: Seasonality

China vs US Exceptionalism

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.  [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... ]

Hyper-stability is destabilizing

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.  [Read More... ]

Rhyming or Repeating

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.  [Read More... ]

Message from the Black Box

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.  [Read More... ]

The Endowment Effect

We are in the middle of the pre-announcement period when US companies suspend their buyback programmes, most notably the Tech sector. Our models suggest that they may have recently started to value their own prospects more highly than external investors.  [Read More... ]

Do They Know It’s Christmas

We remain concerned about the bubble in the Chinese Technology sector leading to a global equity correction. This week we examine the seasonality of Chinese equity returns to see if we can get any clues on timing. We find that the recent sell-off is in line with normal seasonal patterns and that the moment of greatest risk appears to be mid-February to early April or early June to mid-July, assuming a sell-off starts in China, not elsewhere.  [Read More... ]

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