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Category Archives: Global Macro

Asset Allocation Insights – Bad and Getting Worse for Equity Investors

Investors Shun Equities

  • A slow week with a bit of cheer for equity investors
  • US small caps recover the most – up 1% for the week but still down 21% over the last three months
  • REITS gave back some gains last week (down 1.7%) and are now also in negative territory for 2018
  • Commodity indices remain driven by lower oil prices with no sign of resurgent inflation
  • Aggressive, domestically focused multi-asset class strategies out-performed less risky options
  • YTD lower risk asset allocation strategies have outperformed especially if allocations involved international equities
  • Within equities, Growth slightly under-performed Value but Growth remains solidly ahead for the year
  • Cash remains the best performing of the major asset classes for the year

Currencies:

  • The USD is losing some strength as budget discussions in Washington remain unresolved and the Fed has indicated being close to done with rate hikes
  • A depreciating USD will boost international asset returns
  • The British Pound continued depreciating due to major uncertainty regarding BREXIT early in 2019
  • The Yen is now in a Break Out phase as investors remain very risk-averse and the Yen is usually considered the “safe” trade
  • Resource-oriented currencies experienced the biggest losses last week relative to the USD as commodity prices remain in a Down Trend
  • In general, FX volatility has increased substantially in the last couple of months

Commodities:

  • Commodity indices continue in a Down Trend as oil markets had another down leg
  • On the flipside, grain prices have been recovering since the summer
  • Natural gas prices were down over 8% due to warmer predicted weather and lower levels of fuel switching than anticipated
  • Gold and Silver had good weeks as investors have become more risk averse and the Fed has indicated only 2 more rate hikes for 2019
  • However, we still view US Treasuries as the best hedging option for equity risk

This Coming Week:

  • The year of risk-off continues with little to offer us hope that risky assets will recover soon – there may be a spike in January but risk is being shunned at the moment
  • While not comfortable, US investors should allocate more money to non-US stocks due to their lower valuations
  • The strong USD will not persist much stronger as the FED appears close to the end in terms of interest rate hikes
  • The Value/Growth discussion is being overshadowed by sector rotation but on a risk-adjusted basis we believe that higher allocations to Value are warranted
  • We are also watching out for any jump in inflationary expectations (which have been trending down). Tariffs are inflationary and will be reflected in higher consumer prices eventually
  • EM equities, in particular, are recovering. We still believe that an allocation is warranted. Our biggest concerns revolve around blowing out interest rate spreads and a slowing global economy
  • Leverage on the balance sheet of companies should be cross-checked for sustainability
  • We still see a risk on/off market next year making it difficult for short-term investors – probably best to extend horizons

__________________________________________________________________________________

To read our full weekly report 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 – Paralyzed by Fear

https://gf-cap.com

“Everything you’ve ever wanted is on the other side of fear”

– Jack Canfield

  • The seesaw continues for risky assets –a punch in the nose
  • Last week was particularly bad as equity markets took a deep dive again
  • Surprisingly, EM stocks have lost the least over the last month but YTD remain the worst of the major equity categories
  • YTD US large caps are now in negative territory
  • International strategies have underperformed both in local market returns and a strong USD

Countries & Region:

  • The carnage continues –all major global markets took a nosedive with the US suffering the most
  • Commodity indices took another down leg last week as oil prices dropped again (-13%)
  • REITS are now down 2% for the year after a brutal -5.8% week
  • In the US Value and Growth both got pounded last week with Value outperforming by 1%
  • In international markets Growth under-performed Value last week by 50 bp.
  • Tech and Energy got hit the hardest last week

Style & Sector:

  • In the US, we saw a strong size effect last week with small caps dramatically under-performing
  • Value performed almost as badly as Growth
  • Within equity styles, Low Vol and Div Yield strategies resulted in smaller losses
  • The Momentum trade has gone in reverse
  • Emerging markets outperformed Developed international markets but remain still 15.5% down for the year

This Coming Week

  • Risk Aversion should stay high and we expect choppy markets this coming week again
  • Equity Technicals have deteriorated to the point that close to ¾ of our stocks are in the Down Trend Phase
  • Political drama in Washington is exacerbating the uncertainty of market participants
  • Brexit is up for next year but prospects of passing Parliament are slim. Could we be staring at Referendum 2.0?
  • 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 under-performed large caps over the last 3 months – risk is being shunned at the moment
  • Surprisingly EM equities have outperformed developed markets in the last month.
  • Our models still favor a reduction in risk in our portfolios with positive active allocations to cash and bonds
  • This too shall pass but market participants are hyper nervous on things companies have no control over
  • The price of higher equity returns is discomfort – volatility has been too low in the last few years

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

Major Equity Markets

Asset Allocation Insights – Risk Is Off The Table

Investors Want No Part Of Risk

  • Another tough week for risky assets with no end in sight
  • US small caps take yet another down leg and are now down 7% for the year
  • REITS gave back some gains last week but remain our best key asset class for 2018 – up 4.1%
  • Commodity indices remain driven by lower oil prices with no sign of resurgent inflation
  • Aggressive, domestically focused multi-asset class strategies under-performed less risky options
  • YTD lower risk asset allocation strategies have outperformed especially if the allocations involved international equities
  • Within equities, Growth outperformed Value as Energy and Financials experienced large loses

Currencies:

  • The USD appreciated yet again last week and remains in a significant Up Trend
  • The British Pound continued depreciating due to major uncertainty regarding whether BREXIT will pass Parliament
  • The Yen continues in a Down Trend especially in light of lower economic growth in Japan
  • In general, FX volatility has increased substantially in the last couple of months

Commodities:

  • Commodity indices continue in a Down Trend as oil markets had another down leg
  • On the flipside, grain prices have been recovering since the summer but surprisingly soybeans were down despite increased Chinese purchases
  • Natural gas prices were down over 16% due to warmer predicted weather and lower levels of fuel switching than anticipated
  • Gold and Silver were slightly down last week but their technical picture has improved recently as risky assets continue cratering
    • We still view US Treasuries as best hedging option for stocks

This Coming Week:

  • The year of risk-off continues with little to offer us hope that risky assets will recover soon
  • While not comfortable, US investors should allocate more money to non-US stocks due to their lower valuations
  • The strong USD will not persist much stronger as the FED appears close to the end in terms of interest rate hikes
  • The Value/Growth discussion is being overshadowed by sector rotation but on a risk-adjusted basis we believe that higher allocations to Value are warranted
  • We are also watching out for any jump in inflationary expectations (which have been trending down)
    • Tariffs are inflationary and will be reflected in higher consumer prices eventually
  • EM equities, in particular, are recovering but will end up in the red this year
    • We still believe that an allocation is warranted
    • Our biggest concerns revolve around blowing out interest rate spreads and a slowing global economy
  • Leverage on the balance sheet of companies should be cross-checked for sustainability
  • We still see a risk on/off market next year making it difficult for short-term investors – probably best to extend horizons

__________________________________________________________________________________

To read our full weekly report 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 – Utilities Shine While Everything Else Gets Destroyed

Utilities are the new cool kids on the block

    • The seesaw continues for risky assets but utilities emerge as the standout performer
    • Last week was particularly bad as equity markets took a deep dive again
    • Surprisingly, EM stocks are up over the last month but YTD remain the worst of the major equity categories
    • YTD US large caps are barely in positive territory but US small caps are now down for the year
      • The S&P 500 is up 0.3% for the year while the Russell 2000 is down 4.6%
      • International strategies have underperformed both in local market returns and a strong USD

Countries & Region:

  • The carnage continues –all major global markets took a nosedive with Germany suffering the most
  • Commodity indices recovered last week as oil prices moved marginally up
  • REITS continue to be the standout performer – up 1.6% last week and over 6% for the year
  • In the US Value and Growth both got pounded last week (down 3.8%)
  • In international markets, Growth outperformed Value last week
    • Utilities continue delivering – only equity sector up last week

 

Style & Sector:

  • In the US, we saw a strong size effect last week with small caps dramatically under-performing
  • Value performed as badly as Growth despite Utilities being up for the week
  • Within equity styles, Low Vol and Div Yield strategies resulted in smaller losses
  • The Momentum trade has gone in reverse and Growth Stocks are key losers but remain ahead YTD
  • Emerging markets outperformed Developed international markets but remain still 13% down for the year
  • EM LATAM continues extremely volatile and was down 2% last week

This Coming Week:

  • Risk Aversion should stay high and we expect choppy markets this coming week again
  • Equity Technicals have deteriorated to the point that over half of our US universe in is a Down Trend Phase
  • The exception are Utilities where 68% of our stocks are in an Up Trend
  • The political drama in Washington is exacerbating the uncertainty of market participants
  • Brexit is up this week – will the Parliament vote for it?
  • 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
  • Surprisingly EM equities have outperformed developed markets in the last month.
  • REITS have performed extremely well and are YTD our best performing asset class
  • Our models still favor a reduction in risk in our portfolios with positive active allocations to cash and bonds

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

 

Asset Allocation Insights – Federal Reserve Words Stop the Bleeding for Now

Federal Reserve Indicates Rates Close to Target

  • Risky assets roar back after last week’s tough week as the Federal Reserve indicates that short-term rates are close to “normal”
  • US large cap, in particular, staged a nice earnings-related recovery
  • REITS continue quietly performing well – up 5.8% for the year (best among our key asset classes)
  • EM stocks also continue their recovery an are up 2.5% over the last month
  • Aggressive, domestically focused multi-asset class strategies outperformed less risky and more internationally focused allocations
  • YTD lower risk asset allocation strategies have outperformed especially if the allocations involved international equities
  • Commodities remained volatile and subject to the direction of oil prices – the trend is still negative

Currencies:

  • The USD appreciated slightly last week and remains in a significant Up Trend
  • The South African Rand continues recovering from oversold conditions
  • The British Pound continued depreciating due to major uncertainty regarding whether BREXIT will pass Parliament
  • The Mexican Peso recovered a bit last week as a new administration is sworn in this week
  • In general, FX volatility has increased substantially in the last couple of months

Commodities:

  • Commodity indices continue in a Down Trend as oil markets had another down leg
  • On the flipside, grain prices have been recovering since the summer with soybeans again up last week
  • Lumber prices continue being extremely volatile and remain in a Down Trend
  • Gold and Silver were slightly down last week and barring a real crisis continue on a downward trend especially in light of higher short-term interest rates

This Coming Week:

  • Home bias keeps winning as multi-asset strategies with international assets have significantly underperformed
  • The strong USD is partly to blame and the end may be near as the Fed indicates rates close to “normal”
  • We still foresee one further rate hike in the US in December but fixed income market conditions have stabilized
  • Our view is that volatility is here to stay
    • In fact, we see current asset class volatility as normal
  • We are also watching out for any strong jump in inflationary expectations (which have been trending down)
    • Tariffs are inflationary and will be reflected in higher consumer prices eventually
  • EM equities, in particular, are recovering but will end up in the red this year
    • We still believe that an allocation is warranted
  • Growth outperformed Value last week but we are seeing signs of industry rotation toward value sectors
    • The Momentum trade while still ahead YTD is losing strength despite a bif up week
  • The G20 meeting concludes – the US and China are still at odds over tariffs but maybe rational minds will prevail?

__________________________________________________________________________________

To read our full weekly report 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 Highlights – Momentum and Growth Get Mauled

Growth loses its edge as Momentum reverses

  • The last month has been brutal for equity investors
    • Higher rates contributed to this as well as slower expected global growth due to an escalation of tariffs
    • Surprisingly, EM stocks are up over the last month but YTD remain the worst of the major equity categories
  • YTD US large caps are barely in positive territory but US small caps are now down for the year
    • The S&P 500 is up 0.2% for the year while the Russell 2000 is down 2%
    • International strategies have underperformed both in local market returns and a strong USD

Countries & Region:

  • The carnage continues –US growth stocks took a huge pounding last week
  • Commodity indices took a beating last week (due to oil primarily) while the Real Estate market kept recovering
  • In the US Value out-performed Growth over the last 5 trading by over 130 bp
  • In international markets Value and Growth performed in line with each other
    • Traditional Value sectors such as Utilities and Staples outperformed along with Health Care
  • Technology and Energy were the two largest losers last week

Style & Sector:

  • In the US, we saw a strong size effect last week with mega-caps under-performing
  • Value once again out-performed Growth as the Utilities, Health Care and Real Estate performed well
  • The Momentum trade has gone in reverse and Growth Stocks are key losers but remain ahead YTD
  • Developed international markets were down the least last week but remain down 10% for the year

This Coming Week:

  • Risk Aversion should stay high and we expect choppy markets this coming week again
  • Equity Technicals have deteriorated to the point that over half of our US universe in is a Down Trend Phase
  • Tax loss selling is likely to intensify in the next few weeks
  • 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 under-performed large caps over the last 3 months – risk is being shunned at the moment
  • Surprisingly EM equities have outperformed developed markets in the last month.
  • REITS have performed extremely well and are YTD our best performing asset class
  • Q3 reporting is heavy 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

 

Asset Allocation Insights – Stocks and Bonds Make Better Friends Under Duress

Stocks & Bonds – Friends Under Duress

  • Last week again showed why you need both stocks and bonds in your portfolio – when one zigs the other one zags
  • The search for assets that effectively diversify equity and interest rate risk is key especially given over-valued stocka nd bond markets
  • Yet another tough week for risky assets with 2 exceptions: Emerging Mkt equities and REITS
  • The outperformance of EM equities was driven by a bounce back in the Chinese market (up 2.8% last week)
  • Conservative (bond heavy) multi-asset class strategies outperformed riskier (heavier equity) allocations
  • YTD lower risk asset allocation strategies have also outperformed especially if the allocations involved international equities
  • Commodities remained volatile and subject to the direction of oil prices – the trend is increasingly negative
  • Within equities, US Midcaps outperformed last week with Value stocks trouncing Growth stocks by 1.1% over the last 5 days
  • A 60/40 mix of purely US assets under-performed last week a global version but remains vastly ahead YTD

Currencies:

  • The USD appreciated slightly last week and remains in a significant Up Trend
  • The South African Rand continues recovering from oversold conditions
  • The British Pound got pounded due to major uncertainty regarding whether BREXIT will pass Parliament
  • Theresa May can’t seem to win even when she resolves major uncertainties (Irish border this week, deal with EU)
  • The Mexican Peso continues its depreciation versus the USD and is firmly in a Down Trend Stage policy
  • In general, FX volatility has increased substantially in the last couple of months

Commodities:

  • Commodity indices had a bad week due to the continued downward trend in oil prices
  • Oil prices dropped 7% last week and are down over 18% over the last 60 days
  • On the flipside, grain prices have been recovering since the summer with soybeans again up last week
  • Lumber prices continue being extremely volatile and remain in a Down Trend
  • Gold and Silver were stable last week for a change but barring a real crisis continue on a downtrend especially in light of higher short-term interest rates

This Coming Week:

  • Home bias keeps winning as multi-asset strategies with international assets have significantly underperformed
  • The strong USD is partly to blame but we do not see a significant reversal anytime soon as US monetary policy is being normalized
  • We still foresee one further rate hike in the US in December but fixed income market conditions have stabilized
  • Our view is that volatility is here to stay
    • In fact, we see current asset class volatility as normal
  • We are also watching out for any strong jump in inflationary expectations
    • Tariffs are inflationary and will be reflected in higher consumer prices eventually
  • EM equities, in particular, are taking a huge hit both on the asset side as well as currency – this is turning out to be a lost year for EM investors
    • We still believe that an allocation is warranted
  • Value dramatically outperformed Growth last week and we are seeing signs of industry rotation toward value sectors
    • The Momentum trade while still ahead YTD is quickly losing strength
  • Q3 reporting is semi-heavy in the US – looking for commentary on tariffs, slowing growth, and inflationary pressures

To read our full weekly report 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 – Strong Signs of Sector and Style Rotation

It’s Happening- Signs of Sector and Style Rotation

  • Value sectors are gaining momentum while Growth sectors such as Tech is losing steam quickly
  • Similarly, strategies such as low volatility are gaining ground at the expense of pure momentum strategies
  • The last month has been brutal for equity investors but some signs of stability have emerged
    • Higher rates contributed to this as well as slower expected global growth due to an escalation of tariffs
  • YTD US large and small caps are in positive territory
    • The S&P 500 is up 5.7% for the year while the Russell 2000 is up a meager 1.9%
    • International strategies have underperformed due both to local market returns and a strong USD

Countries & Region:

  • The carnage continues among Chinese stocks
  • Commodity indices took a beating last week (due to oil primarily) while the Real Estate market kept recovering
  • In the US Value out-performed Value over the last 5 trading by over 40 bp
  • In international markets Value outperformed Growth by 90 bp
    • Traditional Value sectors such as Utilities and Staples outperformed along with Health Care
  • Health Care and Technology are the two best sectors YTD but Tech has been losing momentum

 

Style & Sector:

  • In the US, we saw a strong size effect last week with mega-caps outperforming
  • Value once again out-performed Growth as the Utilities, Health Care and Real Estate performed well
  • Growth and Momentum keep dominating YTD among US stocks but the lead is shrinking
  • Developed international markets were flat last week but EM equities took yet another hit
  • EM LATAM continues extremely volatile and driven by politics

This Coming Week:

  • Risk Aversion should stay high and we expect choppy markets this coming week again
  • Equity Technicals have deteriorated but have recovered from the ugliness of prior weeks
  • Tax loss selling is likely to intensify in the next few weeks
  • 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 under-performed large caps over the last 3 months – risk is being shunned at the moment
  • Will EM equities recover? Seems to be all about the direction of the US dollar at the moment. Pretty beat up despite stronger fundamentals
  • REITS have performed extremely well and are YTD only slightly behind US equities
  • Q3 reporting is heavy 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

 

Asset Allocation Insights – A Reprieve for Equity Investors but Tariffs Loom Large

A Reprieve for Equity Investors but Tariffs Loom Large

  • Equities recovered last week and fixed income only suffered mild losses last week
  • The best performing asset class last week was Emerging Market Equities
  • Multi-asset class investors enjoyed above-average returns due to the spike in equity values
  • Commodities remained volatile and subject to the direction of oil prices
  • Within equities, US large cap ended up over 2% with Value strategies outperforming Growth by 2%
  • A 60/40 mix of purely US assets under-performed a global version but remains vastly ahead YTD

Currencies:

  • The USD slightly appreciated last week after the significant gain it had the week before
  • The South African Rand recovered over 1% as interest rates provide some support for the beleaguered currency
  • The British Pound gained almost 2% as BREXIT negotiations regained momentum and Sterling monetary policy becomes more normalized
  • The Mexican Peso tumbled as a left-leaning new President encounters economic difficulties and political fallout from US immigration policy

Commodities:

  • Commodity indices had a bad week due to the continued downtrend in oil prices
  • Oil prices dropped nearly 7% last week and are down over 15% over the last 20 days
  • On the flipside, grain prices have been recovering since the summer with soybeans, corn and wheat prices all up last week
  • Lumber prices continue being extremely volatile – lumber was up last week almost 10% but remains in a severe downtrend
  • Gold and Silver were stable last week for a change but barring a real crisis continue on a downward trend especially in light of higher short-term interest rates

This Coming Week:

  • Home bias keeps winning as multi-asset strategies with international assets have significantly underperformed
  • The strong USD is partly to blame but we do not see a significant reversal anytime soon as US monetary policy is being normalized
  • We still foresee one further rate hike in the US in December but fixed income market conditions have stabilized
  • Our view is that volatility is here to stay
    • In fact, we see current asset class volatility as normal
  • We are also watching out for any strong jump in inflationary expectations
    • Tariffs are inflationary and will be reflected in higher consumer prices eventually
  • EM equities, in particular, are taking a huge hit both on the asset side as well as currency – this is turning out to be a lost year for EM investors
    • We still believe that an allocation is warranted

To read our full weekly report 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

 

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