Equity Strategy: March Chartbook

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

We stay OW International markets vs the US, even as Q1 likely marks the peak overall; Keep unwinding longs in Value vs Growth factor; We are still UW Staples, UW Real Estate and Neutral Healthcare, but the big Cyclical rally is set to run out of steam

Divergences keep building, on one hand between robust equity prices and falling earnings, where Q4 reporting season has not delivered a typical upswing, for the first time, and on the other hand between elevated P/E multiples and rising bond yields. These are likely to contribute to our view that stocks’ highs are in Q1, and will weaken thereafter. The light positioning and the overly bearish sentiment that we were counting on to keep lifting markets in the early part of this year are no longer the case. Positioning has largely normalized, and sentiment is far from negative now, it is hopeful in fact – recession is not a base case anymore for most. Our core view is that the current activity upswing is unlikely to develop into a fully fledged acceleration in 2H. After all, the impact of the policy tightening works with a lag, and central banks are far from even pausing, let alone pivoting. Big picture, we looked for regional convergence over the past year, and encouragingly International markets have done better than the US, with Europe in particular outperforming, in both the local and common FX. We continue to believe that International equities will be trading better than the US, even if, as we suspect, equities do not hold on to the rally seen over the past months. Our key positioning over the past year was to be long Value vs Growth, but we have entered this year Neutral on the Value/Growth trade, advising in October to close the shorts in Tech, and we think the next trade will likely be to go outright UW Value. Sectorwise, we are still outright UW Staples and Real Estate, and only Neutral Healthcare in our portfolio, but look to use the last 6-8 months strong Cyclicals run to reduce the beta of the portfolio as Q1 winds down.

 

This podcast was recorded on 05/03/23

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