Equity Strategy: June Chartbook

Speaker: Mislav Matejka, CFA, Head of Global Equity Strategy

The real “pain trade” in the market is clearly the breakout driven by Cyclical Value stocks, exactly like what took place on Friday. As a result, MXWO finally closed above the Q1 high. This could have legs if real yields are up for the right reasons, if China stimulates big, or if manufacturing PMIs inflect higher. The narrative behind the Friday move fits some of the above, but we do not see it getting a confirmation. We think yields will move back down, pricing power is waning, labour market signals are more mixed beneath the surface, with WARNs moving up, any China stimulus is unlikely to be meaningful, PMIs could indeed converge, but with services coming down towards manufacturing in 2H, as M1 suggests, rather than the other way around. Up to Friday move, the internal market leadership was extremely narrow. All S&P500 sectors, apart from Tech complex, were flat/outright down on the year. We are more positive on Tech this year than last, but the Tech rally has been quite exceptional, it is looking overbought, and on the other side we do not expect Cyclicals to bounce sustainably. We see Cyclicals stalling again, as typically happens around the last Fed hike in the cycle. Stay OW Growth vs Value, keep fading Cyclical Value, and reiterate last month’s closure of Eurozone vs US trade.

This podcast was recorded on 05 June 2023.

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