Equities
Japanese financial assets will finally have unfettered access to outsized returns. This performance will come in fits and starts, but we are comfortable laying our cards down on buying the yen, and Japanese industrial stocks.
The outperformance of the S&P 500 relative to the S&P 500 EW index is likely to continue over the next year, supported by stronger earnings growth. However, extreme levels of market concentration will ultimately halt the outperformance of the mega-caps.
Mexican equity and fixed-income markets will continue outperforming their EM counterparts, regardless of whether global risk assets sell off or not. Also, we recommend a new trade: long Mexican stocks / short the S&P 500.
MacroQuant remains tactically overweight equities, favors an above-benchmark duration stance in fixed-income portfolios, remains bearish on the US dollar, and is bullish on gold.
Stock market valuations are moving as a near-perfect mirror image of the US real interest rate, meaning that the Fed is underpinning the stock market. But if the market stopped believing in AI-driven profits growth, valuations would collapse, irrespective of the Fed’s efforts to underpin them. When might this happen? Plus, two new tactical trades are: long BTC versus gold; and overweight industrials.
The odds have risen that we have reached a “Metaverse Moment” – a situation where investors punish AI companies for increasing capex. This warrants greater caution towards AI stocks specifically, and the broader S&P 500 more generally.
Q3 results were strong but failed to impress investors, and Q4 will likely prove more challenging. Beneath the surface, earnings diverged sharply: Firms catering to affluent consumers maintained solid momentum, while those reliant on the mass market lagged. We remain equal weight Consumer Services and underweight Consumer Staples.
Many key equity indexes have failed to break above major resistance levels, while risky segments have begun to crack. Altogether, this suggests that a major peak in risk assets has probably been made. Short the MSCI EM stock index with a stop loss at 1470.
Indian stocks have further downside in absolute terms as profits disappoint. Their underperformance versus the EM equity benchmark, however, is late, which warrants a shift from underweight to neutral allocation.
This week, our screeners explore opportunities in the Swedish stock market, Canadian gold-exposed and domestic-focused sectors, and ex-tech GenAI names.