Cyclicals vs Defensives
Highlights The path of the least resistance for the U.S. dollar is up; this has far-reaching implications for monetary policy, global growth dynamics and asset prices. Dollar strength reinforces our view to overweight defensives vs. cyclicals and is a headwind to overall S&P 500 profits.…
A Special Report published yesterday showed that while there have been hints of stabilization in global economic growth, there is a dearth of evidence pointing to a meaningful acceleration. Global manufacturing surveys have stabilized, but are oscillating around the boom/bust line rather than…
Cyclical sectors have outperformed defensive sectors since mid-summer, but it is dangerous to draw any macro conclusions from the past few months of market action. Cyclical sector outperformance has been driven solely by the tech sector, as industrials and materials have rolled over while energy…
Highlights It is premature to position for an equity market handoff from liquidity to growth. Cyclical sectors have overshot the mark in recent months. There is scant evidence from macro variables that cyclical sector earnings validation will materialize, especially if the U.S. dollar continues…
History shows that premium valuations for high quality stocks are sustainable when overall final demand is sub-par. Using consumer products as a guide, when real GDP is low and/or volatile, relative P/E multiples tend to reside at the top end of their range. That makes intuitive sense, because…
Consumer products stocks are likely to move to an even larger valuation premium before the cyclical outperformance phase ends.
Stocks remain well bid despite the questionable fundamental rationale for price gains. The run to new highs has been driven by renewed valuation expansion a dubious trend given the lack of profit growth, the likelihood that the Fed will resume hiking interest rates this autumn and the potential…
The GAA Equity Sector Selection Model recommends tilts to the 10 GICS global sectors covered in our sector selection by applying a framework of growth, liquidity, momentum and valuation. Its mandate is to generate alpha in both cyclical upturns and downturns and does so by capturing turns in business cycles.
BCA’s defense index has been on a tear recently. The unfortunate structural increase in terrorist activity will embolden governments around the world to step up defense spending (top panel), at a time when the pressure to move away from austerity toward expansionary fiscal policy is already…
Equity and Treasury market positioning support the notion of a bounce in risk assets, possibly egged on by dollar weakness.