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

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

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

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