2/7/2006 Equities: No signs of tradable bottom yet
- Categorized in: NEWSLETTERS
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| Global Equity Markets
Last week, we correctly assessed the odds of a short-term correction. Presently, there are no signs of a lasting rally. We could see some brief rally attempts but I expect the market to continue working lower. Intermediate-term models deteriorated and once again raise the specter of an intermediate-term decline. Given the very overbought condition of many asset classes, this could usher in a more significant decline than we've seen in many months. Risks are elevated.
Overseas markets continue to outperform domestic markets. Rally attempts are likely to see LatAm and Emerging Market equities in new high ground. However, given the intermediate-term risks, it is better to wait for confirmation of an intermediate-term rally of some durability. By focusing on the strongest domestic equity areas (small & mid-cap growth) you might stand a chance of matching gains in overseas markets. Predominant equity exposure should remain heavily overseas, however. Global Equity Regions
LatAm, Emerging Markets and Asian equities could parallel any near-term market weakness in the US. However, they remain the strongest markets globally. 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 off the lows. Mid-Cap Growth stocks continue to retain their position as #1 equity style in our models though they are modestly lagging small-cap growth YTD. Avoid large-cap growth.
Investment Grade Bonds
Trend models moved back to SELL for Investment Grade Bonds.
Short and intermediate-term bonds look most vulnerable and yields on short-dated bonds should continue higher leading to a further flattening of the yield curve. High Yield Bonds
Domestic High Yield and Emerging Market Debt have weakened a bit the last few days. Credit spreads have become quite narrow again. A correction in the general equity market will put pressure on these two areas. Both domestic and Emerging Market Debt remain on a BUY.
Real Assets (Commodities, Gold and Real Estate)
Real Assets outperformed domestic equities for the sixth straight year in 2005 and 2006 is shaping up, so far, to be an encore.
Commodities - Models remain on a BUY for Crude Oil, the CRB Index and GSCI Total Return suggesting a continued escalation in inflationary pressures. Gold - Models for gold and gold equities remain on a BUY. Real Estate - REITs remain on a BUY but have lost their position as a leading sector among our complex of real 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.
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