Latest from BCA Research
The MacroQuant Global Equity and Bond scores increased month-over-month. However, the Equity Score remains at a low level, keeping the sector model tilted toward defensives and Energy vs cyclical sectors. The IT Score also moved from bearish to neutral. This past month, our style indicator transitioned to an overweight Growth stance after a long stay in Value.
As our clients know, we have a bearish long-term view on equities. However, we are well aware of the profitable opportunities that swift and furious bear market rallies present to nimble investors. In this short daily note, we will start by summarizing our long-term views on the market, followed by a discussion of why, in all likelihood, we are at the beginning of the next bear market rally. We will also offer a few ideas of how investors can profit from it.
This week, we present our quarterly review of the BCA Research Global Fixed Income Strategy (GFIS) model bond portfolio for Q3/2022. We also discuss the model portfolio’s expected performance over next 3-6 months after our recent moves to reduce overall duration exposure and increase the underweight to US Treasuries.
MacroQuant is overweight bonds, underweight equities, and neutral on cash. Within the equity universe, the model is overweight Japan, the US, and the UK, underweight the Euro Area countries and China, and neutral the remaining countries. The sector model favors defensives and Energy over cyclical sectors.
This week we present our Portfolio Allocation Summary for October 2022.
We remain bearish on equities. Inflation is a monetary phenomenon that is embedded and perpetuated by a wage-price spiral. The Fed will “keep at it until the job is done.” Economic growth is slowing, and an earnings recession as soon as the end of this year is highly likely. US equities are not cheap and rising rates and slowing earnings growth will take their toll on performance. Don’t fight the Fed!
We share our thoughts about some of the less-discussed topics that came up across three weeks of face-to-face discussions with investors. We retain our conviction that the American consumer’s demise has been greatly exaggerated, and it continues to underpin our constructive near-term view on the US economy.
Inflation is sticky, growth slowing, and central banks will stay hawkish. Not all the bad news is priced in. Stay cautious: Underweight equities, overweight government bonds.
Investors should go long US treasuries and stay overweight defensive versus cyclical sectors, large caps versus small caps, and aerospace/defense stocks. Regionally we favor the US, India, Southeast Asia, and Latin America, while disfavoring China, Taiwan, Hong Kong, eastern Europe, and the Middle East.