Sectors

MacroQuant is overweight bonds, underweight equities, and neutral on cash. Within the equity universe, the model is underweight the US and overweight Japan, the UK, and Australia.

Our best calls of the year were long defensives over cyclicals, short Russia and emerging Europe, long aerospace/defense, short Greater China, and long Latin America. Our worst call of the year was long cyber security stocks.

Web 3.0 plays will boom in the coming decade. Play this through a diversified exposure to today’s main blockchain tokens. But the Web 2.0 oligopolies, like Amazon and Meta, are in big trouble.

The S&P 500 is down by 17% year to date, while our portfolio is up 15%. US political analysis is essential for investors but it is best done by geopolitical method rather than Washington punditry.

European asset prices have rebounded sharply since September. Can this trend survive in the face of a weak Chinese economy where deflation prevails?

Excess job vacancies in the US and UK reflect a labour market that cannot efficiently match unemployed workers with vacant jobs. This is because excess job vacancies reflect the shortage of labour supply in the 50 plus age cohort, whose skills are difficult to replace. In economic jargon, the post-pandemic ‘Beveridge curve’ has shifted outwards. Absent an unlikely shift in the Beveridge curve to its pre-pandemic version, killing US wage inflation will mean killing jobs. And killing jobs will mean killing profits. We go through the investment implications.

Airlines have staged an impressive recovery this year, exceeding all expectations. While companies are optimistic, we are cautious. Just as pent-up demand for travel will fade, headwinds from slowing growth and high inflation will intensify. While it is highly likely that Airlines will continue to rally into the yearend, we will stick to our underweight as our three-to-six-month outlook remains negative.

What is the outlook for the European housing market amid rising mortgage rates and the energy crisis? Does housing represent a systemic risk? Can households weather the storm? And what are the opportunities, if any?

Go long the Kensho Space index over a cyclical horizon on the back of growing public and private investment, rising national security interests, declining sector costs, and heightened geopolitical risk.

The messages from the deteriorating fundamental backdrop (tight monetary policy, slowing global growth) and improved credit valuation (elevated 12-month breakeven spreads) are giving conflicting signals on corporate bond strategy. We are putting more weight on the fundamentals and are staying with an overall underweight stance on global investment grade corporates, with a slight bias towards Europe given more attractive spread valuations. At the same time, we see selective opportunities in sectors where risk-adjusted spreads are wide as signaled by our individual country sector valuation models, like US Energy and euro area Financials.