Equities
This week our three screeners identify stocks that are likely to keep delivering deliver earnings surprises in the US, European small caps that are high quality and mean reverting, and Japanese large caps picks across GICS 1 sectors.
Earnings growth should continue to support equity performance this year. However, after blockbuster gains, some profit-taking is likely. We recommend booking profits and increasing exposure to Defensives.
The US High Quality (USHQ) portfolio underperformed its benchmark through June, returning 1.2%, whilst its SPY benchmark returned 5.1%. On a trailing three-month basis, performance was notably weak vs. benchmark, with USHQ underperforming by approx. 600bps.
Acute geopolitical risks, like a massive oil shock, may be abating. But structural geopolitical risk remains high and could upset a blithe market. Cyclical economic risks are underrated as the US slows down and China continues to stumble. Investors should book some profits in anticipation of tariff implementation and a downturn in hard economic data.
Downward pressure on the pound will rise in the coming months. Inflation will go up, so will bond yields. It’s time to book profits on Egyptian domestic bonds.
Trump’s immigration policies are protecting the US economy from a sharp rise in unemployment but steering it into a ‘mini stagflation’. Plus: a new tactical trade is to underweight global technology (IXN).
MacroQuant’s US equity z-score is dangerously close to the -1 threshold. Moves below that threshold have reliably coincided with equity bear markets in the past. As such, MacroQuant recommends an underweight on stocks, offset by an overweight on bonds and cash.
