1/25/2006 Equities: No Sign of Bottom Yet
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Global Equity Markets
Near-term, models have not pointed to a bottom in equities yet.
The majority of intermediate-term models of market breadth have been showing distribution for months and lend credence to the potential for an intermediate-term decline over the coming weeks/month. Investor sentiment remains quite bullish; as it usually does near market peaks. In our last issue for 2005 I indicated that the year-end may coincide with peaks in many asset classes as most were very overbought. The recent decline has only modestly alleviated these pressures. I mentioned last week the potential for some serious "air pockets" and Friday's action highlights that this is a time for extreme caution. Global Equity Regions
LatAm, Emerging Markets and Asian equities remain overbought. Japan's more severe decline has relieved it of the previously overbought condition. Strength overseas remains powerful and impressive. The US market is the weakest; particularly as you climb the capitalization scale.
Equity Style & Sector Trends
Small-cap & Mid-cap Growth stocks have been the leaders of the lows. Mid-Cap Growth stocks continue to retain their position as #1 equity style in our models.
Investment Grade Bonds
Trend models remain on BUY for Investment Grade Bonds.
The picture for short and intermediate-term bond prices looks less robust and yields on short-dated bonds should continue higher leading to a further flattening of the yield curve. High Yield Bonds
Domestic High Yield Bonds began to weaken modestly last week though Emerging Market Debt remained strong. A correction in the general equity market will put pressure on these two areas. Both domestic and Emerging Market Debt remain on a BUY.
Gold & Gold Equities
Neither the XAU nor HUI (unhedged) indices of Gold stocks have been able to keep pace with gold bullion which is often a harbinger of a correction in gold/gold shares. Valuation and technical models also continue to suggest high risk levels for gold and gold equities. FLAT.
Inflation Complex (Crude Oil, GSCI & CRB Index)
Models remain on a BUY for the CRB Index and GSCI Total Return suggesting a continued escalation in inflationary pressures.
Real Estate/REITs
REITs remain on a BUY but have lost their position as a leading sector among our complex of asset classes.If you have any questions about our research or Absolute Return Portfolios do not hesitate to call. We can be reached toll-free at 877-632-7491. Absolute Return Portfolio Management LLC provides absolute return oriented portfolio management and institutional research on global macro trends including equity style rotation, global regional equity trends, short-selling and market neutral strategies as well as fixed income strategies. Contact us for information on account minimums and institutional research offerings. These reports express our opinions and suggestions, provided only as a supplement to your own further research and decisions. We take care to assure accuracy of contents but accuracy is not guaranteed. Past performance does not imply future results. The publisher shall have no liability of whatever nature in respect of any claim, damages, loss or expense arising out of or in connection with the reliance by you on the contents of our website, any promotion, published material, alert or update. ALL RIGHTS RESERVED. |