Asset Allocation Insights – A Dicey Week Gets Investors to Pay Attention to Risk

Investors Pay Attention To Risk Again

Risky assets suffered large losses last week with the exception of REITS up over 3%
Fixed income also experienced losses as interest rates globally moved up yet again
In general, while the losses paled in comparison to the previous week, multi-asset investors continued losing capital
Within equities, US large cap ended up flat with Value strategies outperforming Growth by 1.3%
A 60/40 mix of purely US assets out-performed a global version and remains vastly ahead YTD
In general, higher risk multi-asset strategies under-performed last week but remain ahead YTD

Currencies:

The USD once again regained lost strength last week
The Brazilian Real further recovered as a pro-business President is on deck
EM currencies were mixed with the Peso and Yuan losing additional ground
The British Pound lost about 1.5% last week as Brexit negotiations continue without a clear outcome
The Yuan avoided being labeled a currency manipulator by the US Treasury but the trend is for further depreciation

Commodities:

Commodity indices gave back some of the gains from the previous week as oil prices retreated
Grain prices also retreated further but prices have stabilized from the bottom hit in the summer
Sugar and Coffee showed the most gains aided by an appreciating Brazilian Real
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:

US risky assets keep outperforming YTD but last week was a down week across the board except for REITS
The worst performing asset categories are international equities with EM down almost 15% YTD
The critical variable to watch for this week is the US 10 Year Note – another spike up and risky assets will be under great stress
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 faint signs of industry rotation toward value sectors
- The Momentum trade while still ahead YTD is quickly losing strength
Earning season in the US is back with Amazon, Microsoft, and Google all reporting

The biggest issue for investors is lack of a reasonable hedge to equity risk

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 -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

Asset Allocation Insights – Commodities Roar Back

Commodities Roar Back

Risky assets suffered large losses last week with EM stocks taking the biggest beating
Fixed income also experienced losses as interest rates globally spiked up
Only Commodities as an asset class experienced positive returns
Within equities, US large cap lost the least as Value strategies actually showed slight gains
A 60/40 mix of purely US assets out-performed a global version and remains vastly ahead YTD
In general, higher risk multi-asset strategies under-performed last week but remain ahead YTD

Currencies:

The USD regained lost strength last week
The Brazilian Real spiked up as pro-business President is expected to be elected
EM currencies continue getting pounded with the Rand taking the biggest beating as SA enters a recession
As central banks normalize their policies expect enhanced volatility as market participants balance interest rate differentials with economic growth dynamics
The Yuan has stabilized after a period of depreciation – authorities have refrained so far from using a weaker currency to fight tariffs

Commodities:

Best week this year for commodity prices – potentially a wakeup call as investor update their inflationary expectations
Sugar and coffee prices were up the most boosted by the appreciation of the Brazilian Real
Grain prices recovered from previous week lows but until tariffs with China are not agreed to we should expect to see huge volatility
Oil keeps marching higher as economic growth remains robust and sanctions against Iran take a bite out of supplies
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:

Risky assets keep outperforming YTD but last week was a down week across the board except for commodities
The critical variable to watch for this week is the US 10 Year Note – another spike up and risky assets will be under great stress
Our view is that markets will calm down and that risky assets will recover this week
We are also watching out for any strong jump in inflationary expectations
- An important economic number to watch this week is US CPI on Thursday
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
Value dramatically outperformed Growth last week and we are seeing faint signs of industry rotation toward value sectors
- The Momentum trade while still ahead YTD is quickly losing strength
What will make investors price risk more in line with history?
- A growth scare in the US, maybe? A real inflation scare?
The biggest issue for investors is lack of a reasonable hedge to equity risk

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 – 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

Asset Allocation Insights – International Assets Stage a Comeback

Weekly Asset Allocation Highlights

Risky assets continued recovering last week with International assets out-performing domestic assets
Developed market equities did best this week with EAFE out-performing the US
EM equity and bonds recovered from pretty poor momentum – currency helped last week for a change
A 60/40 mix of purely US assets under-performed a global version but remains vastly ahead YTD
In general, higher risk multi-asset strategies out-performed last week and remain ahead YTD

Currencies:

The USD gave up ground last week – the second week in a row
Foreign central banks are reading their way toward policy normalization
Within EM currencies the pattern was bullish with wide-ranging appreciation versus the USD
- The Rand and Real recovered nicely
Among the major currencies, resource-oriented currencies such as the AUD and CAD appreciated the most
The Yuan has stabilized after a period of depreciation – authorities have refrained so far from using a weaker currency to fight tariffs

Commodities:

Lumber suffered a disastrous week as conditions of over-valuation are being worked through
Grains are getting whipsawed by trade war on/off issues but in general, benefited from the belief that negotiations will take place between China and the US
Coffee recovered along with the Brazilian Real
Oil keeps marching higher as economic growth remains robust and sanctions against Iran take a bite out of supplies
Gold and Silver were stable last week for a change but barring a real crisis continue on a downtrend

This Coming Week:

Risky assets keep outperforming despite political headwinds
The strong USD keeps crushing investors in international assets but should be losing some momentum.
EM equities, in particular, are taking a huge hit both on the asset side as well as currency
Growth is outperforming Value YTD but things may be turning around especially if interest rates remain range bound
Gold and Silver are losing their luster – not providing downside hedge and very driven by trends in short-term rates
What will make investors price risk more in line with history?
- A growth scare in the US, maybe? A real inflation scare? Waiting for Impeachment?
Biggest issue for investors is lack of a reasonable hedge to equity risk

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 – 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

Asset Allocation Insights – The Seesaw Continues But Risky Assets Continue Winning

Weekly Asset Allocation Highlights

Risky assets recovered last week – it seems like every other week we flip around – maybe this week is going to be good for bonds?
Developed market equities did best this week with EAFE out-performing the US
EM equity and bonds recovered from pretty poor momentum – currency helped last week for a change
A 60/40 mix of purely US assets under-performed a global version but remains vastly ahead YTD
In general, higher risk multi-asset strategies out-performed last week and remain ahead YTD

Currencies:

The USD gave up a bit of ground last week
Foreign central banks are reading their way toward policy normalization
Within EM currencies the pattern was mixed – the Rand and Rubble recovered nicely but the Brazilian Real continued its downward slide
Among the major currencies, the euro outperformed
The Yuan has stabilized after a period of depreciation but remains volatile within the “official” range

Commodities:

Grains are getting whipsawed by trade war on/off issues – Corn and soybeans continue being most at risk
Coffee also keeps getting pounded by the depreciating Brazilian Real
Oil is also getting whipsawed by political tensions – up a little last week as curbs on Iranian oil take effect
Gold and Silver were stable last week for a change but barring a real crisis continue on a downtrend

This Coming Week:

Are political issues in Washington of any concern to markets? Is the Manafort plea deal the beginning of the end?
The strong USD keeps crushing investors in international assets but should be losing some momentum.
EM equities, in particular, are taking a huge hit both on the asset side as well as currency -China has a lot to do with this given its weight in the MSCI index (30%)
Growth is outperforming Value YTD but things may be turning around especially if interest rates remain range bound
Global Tech has performed well this year but short-term it is in a break Down phase. More bad news to come or buy the dip? We are holding steady, not buying more.
Gold and Silver are losing their luster – not providing downside hedge and very driven by trends in short-term rates
What will make investors price risk more in line with history? A growth scare in the US, maybe? A real inflation scare? Waiting for Impeachment?

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

Asset Allocation Insights – It was a bad week for all of us, Mr. President

Weekly Asset Allocation Highlights

President Trump wasn’t the only one having a bad week – is this a Fake Correction?
Cash is king once again but our risk aversion index is not picking up any fear
US assets lost less last week if that is any consolation
International equities lost the most value last week
A 60/40 mix of purely US assets out-performed a global version once again
Lower risk multi-asset strategies out-performed last week and are ahead in the last month

Currencies:

The USD was range bound last week but continues in a technical Up Trend phase
Within EM currencies the pattern was mixed
- The Rand continued depreciating while the Brazilian Real regained some ground versus the USD
Within the major currencies, the yen outperformed
The Yuan has stabilized after a period of depreciation but remains volatile within the “official” range

Commodities:

Grains are getting whipsawed by trade war on/off issues
- Corn and soybeans continue being most at risk but regained some ground last week while Wheat continues deteriorating
Oil is also getting whipsawed by political tensions – down over 3% last week after several up weeks
Gold and Silver lost more ground last week and the trend is down especially as ST interest rates keep climbing higher

This Coming Week:

Is cash the new King?
- Bonds and stocks are over-valued but growth still holding up which is positive for stocks but for how long?
- We still prefer risky assets but are lowering risk at the portfolio level.
Are political issues in Washington of any concern to markets? Our risk aversion index is not picking up any concern at the moment.
The strong USD keeps crushing investors in international assets but should be losing some momentum.
International equities keep losing ground to US stocks despite superior fundamentals – becoming the contrarian play of 2018
EM equities, in particular, are taking a huge hit both on the asset side as well as currency
- China has a lot to do with this given its weight in the MSCI index (30%)
Growth is outperforming Value YTD but things may be turning around especially if interest rates remain range bound
Global Tech has performed well this year but short-term it is in a break Down phase. More bad news to come or buy the dip? We are holding steady, not buying more.
Gold and Silver are losing their luster – not providing downside hedge and very driven by trends in short-term rates
What will make investors price risk more in line with history?
- A growth scare in the US, maybe? A real inflation scare? Waiting for Impeachment?

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

Asset Allocation Insights – Rewarding Risk Takers

Weekly Asset Allocation Highlights

Equities had again a big week last week as the market focused on growth again
US assets once again dominated non-US assets as the US dollar regained some lost ground
US REITS have continued their comeback after falling apart earlier in the year
Commodity index composition is playing a big role as divergences among commodities are accentuated
A 60/40 mix of purely US assets slightly out-performed a global version
Higher risk multi-asset strategies out-performed last week

Currencies:

The USD was flat last week
- Down against developed market currencies but up against em currencies
Within EM currencies the pattern was mixed
- The Rand depreciated over 2% while Rubble and Brazilian Real continued in a downtrend
Among the major currencies, the US dollar lost the most ground versus the Swiss Franc
The Yuan has stabilized after a period of depreciation but remains volatile within the “official” range

Commodities:

Grains are getting whipsawed by trade war on/off issues
- Corn and soybeans continue being most at risk
Oil is also getting whipsawed by political tensions but had an up week due to smaller inventories in the US, robust Chinese demand and output curbs in Iran
Gold and Silver lost more ground last week and the trend is down especially as ST interest rates keep climbing higher
The large fall in coffee prices last week was again blamed on the falling Brazilian real

This Coming Week:

Still watching the USD – crushing investors in international assets but should be losing some momentum
International equities keep losing ground to US stocks despite superior fundamentals
EM equities, in particular, are taking a huge hit both on the asset side as well as currency
- China has a lot to do with this given its weight in the MSCI index (30%)
Growth is outperforming Value YTD but things may be turning around especially if interest rates remain range bound
Gold and Silver are losing their luster – not providing downside hedge and very driven by trends in short-term rates
What will make investors price risk more in line with history?
- A growth scare in the US, maybe? A real inflation scare?
Macro Events: Manufacturing (JP, UK, Germany, US), Trade Balance (US, China), lots of Fed Governor Speeches

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

Category Archives: Global Macro

Investors Pay Attention To Risk Again

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

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Value Investing is Teasing Us

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Just When We Thought That Value Was Dead

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