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Category Archives: Investor Sentiment

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

 

Asset Allocation Insights -Rewarding Growth Assets

Weekly Asset Allocation Highlights

  • Equities had a big week last week as the market focused on growth again
  • International assets dominated US assets as the US dollar lost some ground
  • EM stocks, in particular, had a good week, up 2.7%. Very little was currency related
  • European developed market equities also had a big up week (2.5%)
  • REITS had been slowly recuperating but last week they suffered a setback
    • Their behavior has recently become more aligned/correlated with equity markets so the poor performance comes as a surprise
  • A 60/40 mix of purely US assets vastly under-performed a global version
  • Higher risk multi-asset strategies out-performed last week

Currencies:

  • The USD lost some strength last week
  • Within EM currencies the pattern was mixed
    • The Rand appreciated over 2% but the real lost close to 5%
  • The Rubble continues imploding despite a jump in oil prices
  • Among the major currencies, the US dollar lost the most ground versus the Euro followed by the Pound
  • 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 a big up week due to smaller inventories in the US, robust Chinese demand and output curbs in Iran
  • Gold and Silver recovered a bit last week but the trend is down especially as ST interest rates keep climbing higher
  • The large fall in coffee prices last week was blamed on the falling Brazilian real – expect a reversal this week

This Coming Week:

  • 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: Case-Shiller, US GDP, Japanese & German Inflation, rig count in US, Chinese PMI

 

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 – The US Dollar is Killing my Best Ideas

Weekly Asset Allocation Highlights

  • The out-performance of domestic assets continued last week
  • A 60/40 mix of purely US assets vastly out-performed a global version
  • REITS had been slowly recuperating but last week they really took off
    • Their behavior has recently become more aligned/correlated with equity markets
  • International stocks continue under-performing despite cheaper valuations
    • EAFE in local currency is outperforming by 3.33% YTD
    • EM in local currency is outperforming by 5.13% YTD

Currencies:

  • The USD keeps chugging along notching weekly wins
  • EM currencies continue their pattern of depreciation
  • The biggest loser was the SA Rand – concerns over slower economic growth was a driver as well as contagion from the Turkish Lira
  • The rubble has stabilized but for how long?
  • The YEN was up slightly last week as monetary policy is likely to normalize soon in Japan

Commodities:

  • Grains are getting whipsawed by trade war on/off issues
  • Oil is also getting whipsawed by political tensions between the US and Iran – technicals are deteriorating
  • Gold and Silver continue a down-trend with little sign of relief especially as ST interest rates keep climbing higher
  • Lumber prices have become incredibly volatile and subject to trade issues between CA and the US

This Coming Week:

  • Watching the USD – crushing investors in international assets
  • 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
  • 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?

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 – Domestic Assets Keep Outperforming

Weekly Asset Allocation Highlights

  • The out-performance of domestic assets continued last week
  • A 60/40 mix of purely US assets vastly out-performed a global version
  • US small cap stocks had an up week as well as US bonds
  • REITS had been recuperating but last week was a setback despite steady US rates
  • International stocks continue under-performing despite cheaper valuations

Currencies:

  • The USD keeps chugging along notching weekly wins
  • EM currencies continue their pattern of depreciation
  • The rubble had an especially tough week as further US sanctions are taking a bite
  • Among the majors, sterling took the biggest hit despite an increase in ST rates
  • Second big down week in a row for pound

Commodities:

  • Grains are getting whipsawed despite presidential assurances of price supports
  • Oil is also getting whipsawed by political tensions between the US and Iran
  • Gold and Silver continue a downtrend with little sign of relief especially as ST interest rates keep climbing higher
  • Lumber prices are breaking down due to over-valuation and a possible dispute with Canada over newly imposed tariffs

This Coming Week:

  • Q2 earnings in the US almost done – good season for most, good US growth
  • Watching the USD – huge effect on international markets especially
  • International equities keep losing ground to US stocks despite superior fundamentals
  • Growth keeps outperforming Value – turning point might not happen unless expectations for rising rates stabilize
  • Watching agricultural commodities for trade war effects

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 Weekly Insights

Weekly Asset Allocation Highlights

  • The out-performance of domestic assets continued last week
  • A 60/40 mix of purely US assets vastly out-performed a global version
  • US large and small cap stocks had an up week but REITS were the standout performer
  • REITS have been all year moving along with rates but recently their correlation to equities has increased
  • EM stocks continue having a rough year

Currencies:

  • The USD keeps chugging along notching small weekly wins
  • EM currencies continue their pattern of depreciation
  • Among the majors, sterling took the biggest hit despite an increase in ST rates
  • The yuan continues depreciating in a controlled fashion

Commodities:

  • A week of recovery for grains as President Trump has offered assistance
  • Wheat is least affected by global trade fears and has continued on a solid Up Trend
  • Gold and Silver continue a downtrend with little sign of relief especially as ST interest rates keep climbing higher
  • Lumber prices are breaking down due to over-valuation and a possible dispute with Canada over newly imposed tariffs

This Coming Week:

  • Q2 earnings in the US almost done – above average earnings season
  • Watching the USD – expecting some depreciation as other central banks start their normalization plans
  • Expecting momentum as a factor to start losing effectiveness – last week saw a resurgence of value and yield-oriented strategies
  • In the US the key macro number to watch is the CPI – expect a further slow rise
  • GDP releases in Japan and England, in China we are expecting Trade Balance numbers as well as CPI

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

 

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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DISCLAIMER: NOTHING HEREIN SHALL BE CONSTRUED AS INVESTMENT ADVICE, A RECOMMENDATION OR SOLICITATION TO BUY OR SELL ANY SECURITY. PAST PERFORMANCE DOES NOT PREDICT OR GUARANTEE FUTURE SIMILAR RESULTS. SEEK THE ADVICE OF AN INVESTMENT MANAGER, LAWYER AND ACCOUNTANT BEFORE YOU INVEST. DON’T RELY ON ANYTHING HEREIN. DO YOUR OWN HOMEWORK. THIS IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSIDER THE INVESTMENT NEEDS OR SUITABILITY OF ANY INDIVIDUAL. THERE IS NO PROMISE TO CORRECT ANY ERRORS OR OMISSIONS OR NOTIFY THE READER OF ANY SUCH ERRORS

 

Should Inflationary Expectations Be So Sticky?

Capital markets have brought lots of surprises this year. Two developments especially – recovering commodity markets and a falling US dollar – have important implications for future consumer prices.

Capital market participants do not seem overly sensitive to these two developments in terms of expectations of future inflation.   Commodity prices are for the most part an “input” into the type of goods and services consumed.  The US dollar on the other hand acts as a translator of value between goods produced abroad and domestic consumers.

Recent consumer price changes have been muted in the last few years.  Monetary authorities in the US as well as abroad seem particularly troubled by the prospect of deflation and have in some cases even resorted to the use of negative policy rates to revive growth.

The April 14 BLS Report on the CPI-U estimates year-over-year inflation at just 0.9%.  This number is welcome news after near zero inflation for most of 2015, but still lags the historical norm of 3% annual inflation by a wide margin.

CPI BREAKDOWN APRIL 2016A quick glance at the latest report provides interesting clues.  Two of the four main categories of consumption categories – Food, Energy, Commodities Less Food & Energy, and Services – exhibit price depreciation over the last year.

The biggest deflationary force has been the Energy category with a 12.6% price drop.  The other deflationary category is Commodities Less Food & Energy with a -0.4% year-over-year price change.

Federal Reserve members seem concerned with the possibility of deflation in the US, but what about market participants?  We evaluate two measures – the breakeven rates from TIP prices measuring the expected inflation over the next 5 years (orange line) and the so called 5-over-5 rates measuring inflation expectations five years from now over the next five years (green line). To provide context we also illustrate the rolling year-over-year CPI-U inflation.

infl expt april 2016

Capital market participants are expecting an uptick to inflation, but in light of this year’s commodity price increases and the depreciation of the US dollar do these expectations need to be revised? Yes, the market implied inflationary expectations seem low in relation to the resurgence in commodity prices and the depreciation of the US dollar.

Where do we see inflationary expectations heading to?  Our research based on our econometric model of 5 year inflationary expectations calls for steady but moderate upward revisions.

BE5 INFL PREDICTIONSThe latest market-based estimate of 1.61% is expected according to our model to rise to 1.7% by the end of Q2 and to 1.9% by the end of the year.

We are not expecting a huge bump up yet in inflationary expectations in large part due to the fact that rising commodity prices and a depreciating USD have only been in place for a short period of time.

Many strategists are still skeptical that these two trends have legs.  Our view is that even if there is no further change for the remainder of the year inflationary expectations have been too low and will slowly drift up.

What are the implications for investors of slowly rising inflationary expectations?  For now the more direct impact for investors of rising commodity prices and a falling US dollar is being felt through the rise of previously unloved sectors such as Energy and Materials as well as the revival of Emerging Market Equities.

The transmission mechanism from higher commodity prices and changes in the value of the US dollar to actual inflation pressures is not immediate of for that manner always straightforward as many other forces such as demographics and the overall health of the global economy come to bear.

Rising inflationary expectations would according to our risk management methodology benefit holders of risky assets such as equities, commodities and real estate.  Safer assets such as bonds would suffer as we would expect higher inflationary expectations to translate to higher nominal interest rates.  The effect would obviously be greater the longer the duration of the assets.

Click here to download the report: Should Inflationary Expectations Be So Sticky

 

Sincerely,

Eric J. Weigel
Managing Partner and Founder of Global Focus Capital LLC

eweigel@gf-cap.com

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