Estados Unidos

Since downshifting from favoring growth over value to a neutral style bias at the beginning of this year, the growth/value (G/V) ratio has corrected sharply. While this recommendation shift was timely, at issue is whether a major cyclical trend change is underway, or if a resumption of the advance lies ahead, and/or another style switch is appropriate. Before making any decisions, it is critical to understand the driving forces behind the last few months' price action. Growth indexes have a hefty non-cyclical element compared with value benchmarks. In addition, growth is tech-heavy while value is dominated by financials. Thus, the rebound in cyclical sectors alongside the gentle depreciation in the U.S. dollar and oil price recovery provided a good reason for value-oriented stocks to rebound. However, that rally has not been accompanied by any real improvement in the global business cycle. Now that U.S. employment is starting to soften, concerns about the health of the expansion may broaden. Growth indices have a strong track record of outperformance when economic expectations are weak, as proxied by declining global government bond yields (shown inverted, top panel). The surge in the S&P dividend aristocrats index is also consistent with a safety bid rather than a return to 'risk on'. For these and other reasons outlined in yesterday's Weekly Report, we recommend returning to a growth vs. value bias.

While we continue to maintain a defensive over cyclical portfolio structure, yesterday's Weekly Report identified a number of catalysts that could eventually change our view: broad-based and sustained U.S. dollar weakness, particularly against a basket of EM currencies in countries with large current account deficits would, the Chinese manufacturing sector stops deflating, global PMIs firm, global export volumes and prices top contracting, an end to U.S. over global profit dominance and/or inflation expectations turn higher around the world. So far, these potential catalysts have only shown signs of stabilization rather than strength, underscoring that it is premature to position for a recovery in cyclical sector profits. Stay defensive, and please see yesterday's Weekly Report for more details.

Last week's soft employment report reinforced our defensive vs. cyclical portfolio bias, as firms appear to be slowing hiring in response to the broad-based profit squeeze. That is a plus for non-cyclical sectors, as defensive sector profits have steadily outperformed in the last two years, supporting share price outperformance. The opposite is true for cyclical sectors, notwithstanding the bounce earlier this year. At some point, the tide will turn in favor of cyclical sectors, but a number of factors argue against making such a leap of faith at the moment, please see the next Insight.

Assuming last month's weak employment report is not the start of a trend, the market is still discounting too low a probability that the Fed will lift rates this year. This means the Treasury curve should bear-flatten in the coming months, providing an opportunity to move to above-benchmark duration.

Economic disappointment will become the key theme in the second half of the year, driving a return to non-cyclical market leadership and a recovery in the growth vs. value ratio.

Weak employment will push out the timing of rate hikes to something closer to BCA's view of a September increase. It is also supportive of our asset allocation call two weeks ago to overweight Treasuries.

The previous Insight showed that the S&P hotel index was in a sustained downtrend, with bearish technical and valuation indications for future relative performance trends. Fundamental forces also argue for caution. Consumer spending growth at hotels is cooling in absolute terms, and plunging compared with overall personal outlays (third panel), with more downside ahead based on the persistent rise in consumer's marginal propensity to save. With travel budgets under stress, hotels are unable to lift selling prices, and are losing pricing power ground in real terms, i.e. relative to overall inflation. Against a backdrop of booming lodging construction, the odds of additional price concessions are rising. We reiterate our underweight stance. The ticker symbols for the stocks in this index are: BLBG: S5HOTL - CCL, RCL, MAR, HOT, WYN.

Despite whiffs of optimism regarding U.S. consumption trends, S&P hotel index relative performance is in a bear market. The share price ratio is well below its 40-week moving average, which itself is drifting lower, and cyclical momentum is contracting, as measured by the 52-week rate of change. Both valuations and technical momentum remain well above previous bear market troughs, warning that downside risks remain acute, particularly if profit drivers continue to sag, please see the next Insight. The ticker symbols for the stocks in this index are: BLBG: S5HOTL - CCL, RCL, MAR, HOT, WYN.

DXY can test 98 by July, creating a shorting opportunity: it will be hard for the Fed to increase rates more than once without causing an accident. If, it can, it is because global growth is stronger, hampering the USD's prospects. There's some rays of sunshine in Japan and we are closing our long AUD/NZD trade. A few words on the yuan.

All three of Trump's signature policy proposals - increased deficit-financed infrastructure spending, a more restrictive immigration policy, and trade protectionism - are dollar bullish. These policies could cause the U.S. economy to overheat, forcing the Fed to raise real rates more than it otherwise would. Equities could rally in the near term following a Trump victory, but are likely to face stiff longer-term headwinds. Treasurys would still suffer modest losses, while, ironically, the one asset that could suffer the most from a Trump victory is gold.