Developed Countries
Last week, we observed that evidence from the past decade suggests that higher yields are not always a risk to stock prices, as long as the yield increase reflects favorable economic conditions, which also push up the dividend growth rate. Evidence from a…
Japan’s GDP surprised to the upside in Q4, despite a slowdown compared to Q3. Economic activity increased 3% on a quarter-on-quarter basis, easing from a 5.3% q/q increase in Q3, but beating expectations of a 2.4% q/q print. Stronger business spending was the…
BCA Research’s US Investment Strategy service concludes that fiscal stimulus may give rise to upward inflation pressures, but not in the near term. Slack in the market for service employees cannot be absorbed before the end of the year and goods disinflation…
Despite a decline in economic surprises since July, global and US equities continue to power ahead, lifted by record flows. Reflation remains the driving force behind this rally; however, investors should not ignore the many lurking dangers. Reflation is…
Semiconductor equities continue to defy gravity. Semiconductors are a high beta play on the global recovery and the strength of the technology sector. That has made them a prime beneficiary of the reflationary environment that has been crucial to the stocks…
The preliminary release from the University of Michigan’s Survey of Consumers was a significant disappointment, revealing a large decline in sentiment in February. The headline index fell 2.8 points to 76.2, the lowest since August and significantly below…
European equities lagged US ones throughout the bulk of last year, and continue to do so in 2021. Several factors explain this mediocre performance. The euro’s strength tightened monetary conditions in the euro area and is weighing on corporate…
Chinese data is waving a red flag as we highlighted in this Monday’s Strategy Report where we also instituted a 2.5% rolling stop to the cyclicals vs. defensives ratio. Not only are the Chinese authorities trying to engineer a slowdown with the recent reverse repo operations, but also BCA’s China Monetary Indicator and the selloff in the Chinese sovereign bond market are all corroborating the economic deceleration signal (top & middle panels). Railway freight (and infrastructure spending) data also highlight that not everything is as rosy as it appears to the naked eye in the Middle Kingdom, giving us even more reasons to worry about the longevity of the US cyclical/defensive bull market run (bottom panel). Finally, the cyclical/defensive ratio is sitting 14% above its 200-day moving average confirming the dual stretched message that our valuation and technical indicators are emitting (not shown). Bottom Line: We put a 2.5% rolling stop on the cyclicals vs. defensives ratio in order to protect gains north of 17% since inception. Should it get triggered, we will downgrade the ratio from overweight to neutral via trimming the niche materials sector to a benchmark allocation. Stay tuned.
The Treasury Department recently released its financing estimates for the next two quarters. In the release, it indicated plans to reduce its general account (TGA) at the Fed to $800 billion by end-March and $500 billion by end-June. At $1.6 trillion, the TGA…
On the January 12 Insight we recommended investors put on a synthetic long SPY position using March 19th, 2021 long SPY $390/$410 call spread financed by a $340 put for a total debit of $0.8/contract, with a max payout of $20/contract. This options structure enabled us to participate on the melt up and concurrently not deploy a significant amount of capital. Today, this 3-legged option strategy has run a long way to the $6.21/contract mark for a 676% return since inception. Given that these gains accrued in just under a month, we are compelled to monetize them and roll the position over to the June expiry. This time, we are buying June 18th, 2021 long SPY $400/$420 call spread and financing it with a $340 put for a total debit of $0.3/contract. Once again this is a covered position recommendation, meaning that we postpone deploying capital today at $390 on the SPY and would rather go long by June at $340. Were the SPY to continue galloping higher in the next few months we would also participate in the mania via the long call spread segment of this option strategy. Bottom Line: Book healthy gains of $5.41/contract or 676% since inception in our synthetic SPY long position and roll it to June via a $400/$420 call spread financed by a short $340 put for an outflow of $0.3/contract and max payout $20/contract.