Note Précis November 1 ,2019: Markets and Sector Rotation – We expect capital market volatility to expand through Fixed Income, Currencies and Commodities as well as Equities. It likely favors eclectic sector rotation and security selection over that geographical. Both the European Central Bank and the Federal Reserve appeared to change tack in the summer of 2019. Then, the FOMC statement of October 30, 2019 seems to emphasize a contained approach with Fed Funds rates of 1.75%, to be followed by a so-defined assessment period. Despite internal issues, others stand pat like the Bank of Japan, the Bank of Canada ahead and notably now, the Bank of England. Several appear stressed in emerging areas. Global politics include trade turmoil, China emphasizing command and control, a more assertive Russia and impeachment now in the U.S. political lexicon with turmoil continued in the Levant. These aspects add to the potential for flaring of volatility. In change during the summer of 2019, there appears a drag on lower quality corporate yields being reduced alongside benchmark sovereign yields like 10 year U.S. Treasury Notes.
In the increasingly fractured but critical Financial Services space, legacy credit issues overhang in Europe and Asia in an environment still favoring the most ruthless about restructuring. The same holds for sharply restructured telecommunications within Communications and post its M&A splurge, Healthcare compared to Utilities. The urgent need for business restructuring worldwide in Consumer Staples compared to the strong business profiles of many U.S. based Information Technology seems a headwind to overweighting Europe, irrespective of its aggregate lower valuation. Emerging markets do have growth appeal but as is classical , dependent on global growth improving beyond its currently widely anticipated 3% annual GDP expansion. All these elements can be discerned in this global corporate reporting season. At odds with risk on/off activity based on monetary policy, the mix of equity sector weighting geographically, individual corporate delivery and rotation thereof could become more instrumental than many expect. We also favor above benchmark cash and precious metals exposure. StrategeInvest’s independent consultancy operates as Subodh Kumar & Associates. The views represented are those of the analyst at the date noted. They do not represent investment advice for which the reader should consult their investment and/or tax advisers. Any hyperlinks are for information only and not represented as accurate. E.o.e.