Three stories to pick up on today, the first on the basic materials sector rebound, then weak Chinese central bank intervention and finishing with surging FAANGs.
The first is a relatively bold call by Charles Ekins of EkinsGuiness (EkinsGuinness.com) who reckons that we might be at a turning point for the basic materials and mining sector. A quick reminder first. Charles used to be at Valutrac and is now running an ETF based, research focused asset manager. I suppose one could call the approach an old school take on the robo adviser – use ETFs to implement a diversified single portfolio. Anyway, Charles is strong on both asset class technicals and fundamentals and so when his signals start flashing, it’s worth taking note.
Ekin’s model has been underweight the Basic Materials Sector for most of the last 18 months (red shading below) as the Sector has been in a relative bear market underperforming versus World Equities. But that’s changing now.
“ Since its relative low in March, the Sector has outperformed World Equities and it now appears to be in a new bull phase which looks to be more convincing and more sustainable than previous relative rallies…. The Basic Materials Sector could well be at the start of a new out-performance phase and our model is likely to continue to add to its weighting in the Sector.”
I have to say this is a very punchy call and I’m not sure I’d be quite so positive…
Next up global macro and central bank loosening – which is, as we all know, going great guns with the US Fed leading the world (unlike Trump) economic policy response, especially around those swap lines, which are rising sharply. Other central banks are also trailing in their wake, but Cross Border Capital (who track this sort of thing) have numbers quantifying just how far behind the curve the Chinese are. That said, according to Cross Border, globally, aggregate amounts outstanding “have grown 14-fold since late-March.”
Last but no means least the excellent John Authers has returned from a weeks break for his usual Points of Return column and runs through key market trends. One stood out for me – the degree to which the US market is polarising around just a few sectors and stocks. According to Authers, the “market cap-weighted version of the S&P 500 is strongly outperforming the equal-weighted version, in which each stock accounts for 0.2% of the index. And the NYSE Fang+ index, featuring the dominant internet groups such as Amazon.com Inc., Apple Inc. and Netflix Inc., continues to beat the average stock to a remarkable extent”.
Like many of us, Authers wonders just how much further this momentum trade has to run. My guess is that it’ll grind to a halt when even the big tech giants start to report challenged profits. That said, there’s no real sign of that happening quite yet.
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