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Category Archives: Equity Strategies

Equity Market Insights -Nowhere to Hide

Equity markets get body slammed with small caps taking the biggest hit

  • A brutal week for risk-taking – all major equity asset classes lost money last week
    • Higher rates contributed to this as well as slower expected global growth
  • EM Equities lost the least last week (-2%) but continue being the worst performing equity class YTD (-13.6%)
  • YTD US Large Cap has leapfrogged small caps
    • Small caps are down 10% in the last month
  • Our top-rated asset class at the moment is International Developed Markets (EAFE) but last week was not good for this asset (-3.9%)
  • Year-to-date US equities are vastly out-performing international assets – strong home bias fuelled by strong US growth plus an appreciating US dollar
  • In the US Growth outperformed Value but internationally the opposite was true – Investors keep hoping for Value to play better defense
  • Last week woke up investors to equity risk – our Risk Aversion Index jumped to the very top of the Normal Zone

 


Countries & Region:

  • Carnage all over the place – a global retreat from risky assets
  • Equities vastly under-performed bonds last week despite generally higher global interest rates
  • In the US Growth out-performed Value over the last 5 trading days but in the rest of the world Value outperformed
    • Traditional Value sectors such as Industrials, Materials, and Financials got hit hardest
  • Utilities and Staples, two traditional low beta sectors lost the least

 


Style & Sector:

  • In the US, mega-caps outperformed (lost less, unfortunately)
  • Value once again under-performed Growth –mainly due to losses in the Industrials, Materials and Finance sectors
  • Growth and Momentum keep dominating YTD among US stocks
  • Developed international markets slightly outperformed the US but remain in the red for the year
  • EM LATAM recovered last week driven by Brazilian election results favoring a pro-business candidate

 


This Coming Week:

  • Risk Aversion should stay high and we expect choppy markets this coming week
  • Technicals have deteriorated massively – sure looks like a bear market or at least a very serious correction
  • The battle may not be between growth and value – feels more like momentum versus reversal
  • Tariff wars are taking a bite with the IMF recently citing trade wars as the main reason for a cut in their forecast of global growth
  • Small caps have massively underperformed large caps over the last 3 months – risk is being shunned at the moment
    • Our models still like small caps better
  • Will EM equities recover? Seems to be all about the direction of the US dollar at the moment. Pretty beat up despite stronger fundamentals
  • What form will sanctions take against Saudi Arabia?
    • Maybe they get a free pass but in any case, I would expect the oil market to be materially affected.
    • Q3 reporting starts in the US – looking for commentary on tariffs, slowing growth, and inflationary pressures

 


To read our weekly report including style factor breakdowns please click  here

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

___________________________________________________________________________________

 

Publications:

Weekly Asset Allocation Review – Free

Weekly Equity Themes Review – Free

The Equity Observer (Monthly) – Subscription Required

The Asset Allocation Advisor (Monthly) – Subscription Required

 

Equity Market Insights – Testing Our Faith In Value Investing

Value Investing is Teasing Us

  • Value under-performed Growth last week in the US and abroad – some of this is sector driven
  • Investors are losing faith in Value but should out-perform should the broad market tumble (lower beta)
  • Global equities had a rough week under-performing bonds
  • EM Equities continue under-performing YTD but last week lost the least (-0.3%)
  • Our models have recently turned more cautious about EM stocks despite being much cheaper than their developed market counterparts
  • Our top-rated asset class at the moment is International Developed Markets (EAFE) but last week was not good for this asset (-0.9%)
  • Year-to-date US equities are vastly out-performing international assets – strong home bias fuelled by strong US growth plus an appreciating US dollar
  • Momentum strategies are losing their effectiveness but remain top dog for the year
  • There is no sign of fear among investors – our Risk Aversion Index remains in the Exuberant Zone
  • We remain perplexed by this lack of concern especially as central banks are becoming less stimulative and the possibility of an all-out Global Trade War is rising

 


 

Countries & Region:

  • Poor showing in the last 5 days with Japan being the only major market showing gains
  • Equities under-performed bonds last week
  • Growth out-performed Value over the last 5 trading days in the US as well as internationally
    • Traditional Value sectors such as Materials and Financials gave up some of the gains from prior weeks
  • Energy performed best in the US as well as in global indices

 


Style & Sector:

  • In the US, mega-caps outperformed (lost less, unfortunately)
  • Value once again under-performed Growth –mainly due to losses in the Materials and Finance sectors
  • Growth and Momentum keep dominating YTD among US stocks
  • Asian Developed markets (mostly Japan) boosted international market returns but EAFE was still down for the week
  • EM LATAM recovered last week but trouble continues in the region (Brazil and Argentina)

 


This Coming Week:

  • Risk Aversion continues to surprise on the downside – maybe old historical metrics don’t apply anymore? We don’t agree!
  • Momentum and growth were kings once again last week – can this continue? Will Value only out-perform in a crisis?
  • The battle may not be between growth and value – feels more like momentum versus reversal
  • Tariff wars do not seem to have much of an effect on US stocks – will this persist?
  • Small caps have quietly under-performed large caps over the last 3 months – has anybody noticed? YTD they are still ahead but barely
  • Will EM equities recover? Seems to be all about the direction of the US dollar at the moment

 


To read our weekly report including style factor breakdowns please click  here

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

___________________________________________________________________________________

 

Publications:

Weekly Asset Allocation Review – Free

Weekly Equity Themes Review – Free

The Equity Observer (Monthly) – Subscription Required

The Asset Allocation Advisor (Monthly) – Subscription Required

 

Equity Market Insights – Just When We Thought That Value Was Dead

Just When We Thought That Value Was Dead

  • Global equities once again out-performed bonds over the last 5 trading days
  • Developed Market International Equities provided the best returns last week aided by a nearly 4% return to Japanese equities
  • EM equities, while still on a downtrend, recovered somewhat last week (up 1.9%) but remain down nearly 9% for the year
  • Our models have recently turned more cautious about EM stocks despite being much cheaper than their developed market counterparts
  • Our top-rated asset class at the moment is International Developed Markets (EAFE)
  • Year-to-date US equities are vastly out-performing international assets – strong home bias fuelled by strong US growth plus an appreciating US dollar
  • Value outperformed Growth last week in the US and abroad – some of this is sector driven but we are starting to see signs of a quiet sector rotation going on in the market
  • Momentum strategies are losing their effectiveness but remain top dog for the year
  • There is no sign of fear among investors – our Risk Aversion Index remains in the Exuberant Zone
  • We remain perplexed by this lack of concern especially as central banks are becoming less stimulative and the possibility of an all-out Global Trade War is rising

 


 

Countries & Region:

  • Great last 5 days for global equities with Japan leading the pack
  • Equities vastly out-performed bonds last week
  • International equities and Emerging markets outperformed US equities
  • Growth under-performed Value over the last 5 trading days
  • Traditional Value sectors such as Materials and Financials made a comeback
  • Utilities were the only sector in the red

Style & Sector:

  • In the US, mega-caps outperformed
  • Value for once out-performed Growth –mainly due to a recovery of the Materials and Finance sectors
  • Growth and Momentum keep dominating YTD among US stocks but trailed last 5 days
  • Asian Developed markets (mostly Japan) propelled the MSCI EAFE to a 7% return
  • EM LATAM recovered last week but trouble continues in the area (Brazil and Argentina)

 


This Coming Week:

  • Risk Aversion continues to surprise on the downside – maybe old historical metrics don’t apply anymore? We don’t agree!
  • The bull market in US stocks remains intact but we are seeing evidence of some quiet industry rotation
  • The battle may not be between growth and value – feels more like momentum versus reversal
  • Tariff wars do not seem to have much of an effect on US stocks – will this persist? I
  • Small caps have quietly under-performed large caps over the last 3 months – has anybody noticed? YTD it is a different story
  • Will EM equities recover? Seems to be all about the direction of the US dollar at the moment with Argentina and Turkey inflicting further damage
  • Are Chinese equities going to further lose ground or is this temporary? Is the downtrend due to tariffs or domestic growth issues?

 


To read our weekly report including style factor breakdowns please click  here

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

___________________________________________________________________________________

 

Publications:

Weekly Asset Allocation Review – Free

Weekly Equity Themes Review – Free

The Equity Observer (Monthly) – Subscription Required

The Asset Allocation Advisor (Monthly) – Subscription Required

 

Equity Market Insights – Investors Keep Glamorizing Growth Stocks

It’s Growth Over Value Again

  • Global equities once again out-performed bonds over the last 5 trading days
  • US Large Cap Equities outperformed Developed Market International Equities
  • EM equities, while on a downtrend, recovered somewhat last week (up 0.96%) but remain down 7% for the year
  • The recovery of EM as an asset class depends massively on what direction Chinese stocks take, but contagion concerns from the Turkish Lira and Argentinian Peso have increased significantly
  • Year-to-date US equities are vastly out-performing international assets – strong home bias fuelled by strong US growth plus an appreciating US dollar
  • Growth keeps outperforming Value in the US as well as in International markets
  • In the US last week was all about growth and momentum
  • There is no sign of fear among investors – our Risk Aversion Index remains in the Exuberant Zone. We remain perplexed by this lack of concern especially as central banks are becoming less stimulative and the possibility of an all-out Global Trade War is rising

 


Countries & Region:

  • Good week all around for global equities with Australia having recovered from last week’s loss
  • Among sub-asset classes, US Large Cap and Developed International performed the best
  • Equities once gain beat bonds by a handy margin last week
  • Growth outperformed Value over the last 5 trading days
    • Traditional Value sectors such as Staples and Telecom suffered losses
    • Tech has regained its mojo along with Consumer Discretionary
  • Energy stocks keep recovering – tensions in the Strait of Hormuz will provide further support for oil prices

Style & Sector:

  • In the US, mega-caps outperformed
  • Value once again under-performed Growth – a big portion of this differential is due to sector concentration differences
  • Growth and Momentum keep dominating among US stocks
  • Asian Developed markets (mostly Japan) propelled the MSCI EAFE to a 1.5% return
  • EM LATAM continues to struggle with Argentina becoming a concern (never mind Venezuela)

 


This Coming Week:

  • Risk Aversion continues to surprise on the downside – maybe old historical metrics don’t apply anymore? We don’t agree!
  • The bull market in US stocks remains intact with growth out-performing value – we don’t see anything that is going to change this dynamic
  • Tariff wars do not seem to have much of an effect on US stocks – will this persist? I
  • Is small cap outperformance about tariff “protection” or something else. We think that it is mostly about momentum
  • Will EM equities recover? Seems to be all about the direction of the US dollar at the moment with Argentina and Turkey inflicting further damage
  • Are Chinese equities going to further lose ground or is this temporary? Is the downtrend due to tariffs or domestic growth issues?
  • Not much in the way of important earnings in the US

 


To read our weekly report including style factor breakdowns please click  here

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

___________________________________________________________________________________

 

Publications:

Weekly Asset Allocation Review – Free

Weekly Equity Themes Review – Free

The Equity Observer (Monthly) – Subscription Required

The Asset Allocation Advisor (Monthly) – Subscription Required

 

The Bull Market For US Stocks Remains Alive But What About Internationally?

Weekly Equity Market Highlights

  • Global equities out-performed bonds over the last 5 trading days but the big story is the effect of the US Dollar on international asset class performance
  • EM equities, while on a downtrend, recovered somewhat last week (up 2.6%) but remain down 8% for the year
  • The recovery of EM as an asset class depends massively on what direction Chinese stocks take – China carries a 30% weight in the MSCI EM index
  • Year-to-date US equities are vastly out-performing international assets – strong home bias fuelled by strong US growth plus an appreciating US dollar
  • Growth keeps outperforming Value in the US, but last week the margin was only 10 bp for the Russell 3000
  • In the US last week was all about market cap – the smaller the cap the better
  • There is no sign of fear among investors – our Risk Aversion Index remains in the Exuberant Zone. We remain perplexed by this lack of concern especially as central banks are becoming less stimulative and the possibility of an all-out Global Trade War is rising

 


Countries & Region:

  • Good week all around with Australia being the only down market
  • China recovered nicely but remains in a downtrend for the year
  • EM equities have been on a downtrend this year but got a reprieve last week – up 2.6%
  • Lower beta sectors under-performed last week giving up some of the gains from the previous week
  • Energy stocks keep getting whipsawed but had the best weekly performance – up 2.5%

Style & Sector:

  • In the US, small cap won big last week while low vol and yield strategies under-performed
  • Value and Growth had inline performance but YTD the gap remains quite wide in favor of Growth
  • EM and International Developed equities out-performed US strategies – big US dollar effect
  • EM LATAM continues to struggle with Argentina becoming a concern (never mind Venezuela)

 


This Coming Week:

  • Risk Aversion – expect the RAI to jump into the Neutral Zone
    • Investors keep under-pricing risk
  • Will US stocks keep leaping ahead of the rest of the world? Is this just dependent on the USD?
  • Tariff wars do not seem to have much of an effect on US stocks – will this persist even as Trade negotiations stall?
  • Will EM equities recover? Seems to be all about the direction of China and the the US dollar at the moment
  • Are Chinese equities going to further lose ground or is this temporary? Is the down trend due to tariffs or domestic growth issues?

To read our weekly report including style factor breakdowns please click  here

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

___________________________________________________________________________________

 

Publications:

Weekly Asset Allocation Review – Free

Weekly Equity Themes Review – Free

The Equity Observer (Monthly) – Subscription Required

The Asset Allocation Advisor (Monthly) – Subscription Required

 

Yikes – The Asset Class with the Best Long-Term Prospects is Imploding

Weekly Equity Market Highlights

  • Global equities under-performed bonds by a wide margin over the last 5 trading days
  • EM equities, in particular, are taking a huge hit – down almost 6% in the last 5 days
  • We rate EM equities as having the best long-term prospects but yikes, this hurts
  • Chinese stocks are imploding – is this all about a trade war or more significant trade issues?
  • Year-to-date US equities are vastly out-performing international assets – strong home bias plus an appreciating US dollar
  • Earnings season in the US is almost over – a good season was had by most
  • Value lost less than Growth in the US last week – is that out-performance?
  • Low volatility and high yield had gained last week but value indices were down

 


Countries & Region:

  • Tough week all around with the US losing the least
  • EM equities have been on a downward trend this year and it got worse this week with the index down 5.3%
  • China’s equity market continues to be very volatile. Trade war jitters have had a much larger effect on Chinese stocks – stocks were down over 6% in the last 5 days
  • Global sectors had losses except for Utilities and Staples – a tough week overall
  • Energy stocks keep getting whipsawed by the commodity

 


 

 

Style & Sector:

  • In the US, low vol and dividend yield were winners over the last 5 trading days
  • The “Value” comeback seems highly dependent on the path of interest rates
    • When people worry about rising rates “value” stocks take a hit, when they don’t they do well
  • Momentum took a hit last week – this style is quickly losing steam but still remains top dog for 2018
  • EM and International Developed equities continue their down trend
  • A big factor in relative performance rankings is the direction of the US dollar

This Coming Week:

  • Risk Aversion – expect the RAI to jump into the Neutral Zone
    • Investors keep under-pricing risk
  • Will value only outperform growth when interest rates in the US drop?
    • Will EM equities recover? The Turkey currency crisis merits some attention. Watch out for contagion effects
  • Are Chinese equities going to implode or is this temporary? Is the down trend due to tariffs or domestic growth issues?

To read our weekly report including style factor breakdowns please click  here

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

___________________________________________________________________________________

Publications:

Weekly Asset Allocation Review – Free

Weekly Equity Themes Review – Free

The Equity Observer (Monthly) – Subscription Required

The Asset Allocation Advisor (Monthly) – Subscription Required

 

Weekly Equity Market Highlights – Where is the Bear?

Weekly Equity Market Highlights

  • Global equities outperformed bonds by a wide margin over the last 5 trading days
  • Where is the Bear? We know it is lurking behind the scenes but conditions still favor equities over bonds
  • Emerging market equities were the best-performing equity sub-asset class – a reversal from some dismal prior weeks
  • Year-to-date US equities are vastly out-performing international assets – strong home bias plus an appreciating US dollar
  • Earnings season in the US is almost over – a good season was had by most
  • Growth keeps outperforming value but most of the real action is at the sector level and highly dependant on the interest rate environment
  • China’s equity market continues to be very volatile – Trade war jitters have had a much larger effect on Chinese stocks

Countries & Region:

  • Large caps dominated in the last week with the S&P 500 up 1%
  • EM equities have been on a downtrend this year but last week was up 1.1% – part of it was currency related
  • China’s equity market continues to be very volatile. Trade war jitters have had a much larger effect on Chinese stocks
  • Telecom had a nice recovery last week with the global sector index up 2.7% – people continue searching for yield
  • Tech resumed its upward march while Energy stocks keep getting whipsawed by the commodity

Style & Sector:

  • In the US, momentum and growth keep leaping ahead
  • The “Value” comeback seems highly dependent on the path of interest rates
    • When people worry about rising rates “value” stocks take a hit, when they don’t they do well
  • Size or market cap behaved perversely – the larger the cap the better the performance
  • EM equities out-performed last week with Asia doing particularly well
  • LATAM gave back some of the gains from last week
  • A big factor in relative performance rankings is the direction of the US dollar

This Coming Week:

  • Risk Aversion – expect the RAI to jump into the Neutral Zone – Investors keep under-pricing risk
  • Market Internals – expected to remain “balanced” -the technicals do not support a bear market
  • Will growth keep outperforming value? Much depends on the direction of interest rates
  • Will EM equities recover? The Turkey currency crisis merits some attention. Watch out for contagion effects
  • More tariffs on the horizon? Will US stocks react to this? Most of the effect thus far has been on non-US stocks

To read our weekly report including style factor breakdowns please click here

Eric J. Weigel

Global Focus Capital LLC

eweigel@gf-cap.com

___________________________________________________________________________________

Publications:

Weekly Asset Allocation Review – Free

Weekly Equity Themes Review – Free

The Equity Observer (Monthly) – Subscription Required

The Asset Allocation Advisor (Monthly) – Subscription Required

 

Never let all the political chatter get in the way of the bull

Global equity markets keep moving ahead despite the massive political noise. After falling in the middle of the pack last year, US equity markets remain in the pole position this year.

Some notable developments last week:

  • The US lagged international developed and emerging markets as the US dollar took a bit of a breather
  • Tech for once did not lead the markets. In fact, it was the worst performing sector. Facebook was the main contributing factor.
  • Value and yield strategies rebounded strongly.
  • Mega caps outperformed in the US.
  • Most stocks were down last week but the cap weighting of broad indices made things look better. The S& P 500 was up 61 bp while the Russell 2000 was down almost 2%.

What we are watching this week:

  • Lots of earnings in the US (Notables: Apple, Pfizer, Caterpillar, Tesla, Eaton)
  • Risk Aversion – expect the RAI to jump into the Neutral Zone. Investors keep under-pricing risk
  • Market Internals – expected to remain “balanced”. The technical do not support a bear market
  • Q: What will US markets do after the strong 4.1% GDP growth? Will the long rate stand up?
  • Will the US dollar give up some ground? The policy of super easy money seems to be coming to an end in JP and Europe
  • Will Facebook rebound?

Interested in reading our full report?

Subscribe to our free weekly Equity Observer to get the report delivered to your email.

Eric J. Weigel

Global Focus Capital LLC

Key Equity Market Insights – Risk Aversion At Work


The Week In Review

  • After a long stretch of not suffering hardly any losses, US investors got a rude awakening to the other side of the return coin – i.e. risk
  • International developed markets had the biggest losses closely followed by Emerging Markets – Japan was down the most of the major markets
  • In the US the biggest hit was experienced by large-cap stocks
  • Stocks in the real estate, telecom and utility sectors have deteriorated the most since the beginning of the year
  • We do not see much rhyme or reason behind last week’s relative style performance – the most liquid stocks got sold the hardest regardless of style – defensive sectors provided little relief
  • While the US equity market is technically in a correction, our proprietary Risk Aversion Index remains in the Neutral Zone -most of the “fear” is emanating from equity market factors and not from bond market or economic health indicators
  • Our view is that this is a technical correction unrelated to market fundamentals. After a historically strong 2017, we see this correction as a reflection of investors wanting to lock in some of their above-average gains from last year

The Daily View

Monday and Thursday were particularly bad for US stockholders

The biggest portion of returns happened from the open to the close

Overnight activity was somewhat muted pointing to the US equity market as the centre of the storm

 

 

The range of intraday price action was incredible wide last week

Except for Wednesday the intraday difference between the daily high and low was greater than 4%

 

 


The Technical Picture

Stocks in the real estate, telecom and utility sectors have deteriorated the most this year – these sectors are all very interest rate sensitive

About 70% of utilities in the Russell 3000 are in the Down Trend Stage

After a great start to 2018 we are now left with only a handful of stocks in the Up Trend Stage – Health Care and Tech have the most “survivors” in the momentum trade

 


What We See For This Week:

  • My view is that this is a technical correction and it will be over soon
  • Investors have been conditioned by 2008, but this is different
    • The global economy is growing
    • Inflation is low and inflationary pressures are contained by plenty of slack capacity
    • Monetary policy has followed a predictable path and remains accommodative
  • Earnings – CSCO, AIG, AMAT, PEP, OXY, MRO
  • Risk Aversion – expect the RAI to remain in the Neutral Zone
  • Expect equity and bond volatility to subside, volatility is mean-reverting
  • Look for rebound candidates in Health Care & Energy sectors

 

To continue reading download the full report here

 

Eric J. Weigel

Managing Partner, Global Focus Capital LLC


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