Chief Investment Officer
What: Momentum stocks “collapsing” vs. Value stock rising – A move which is an equity earthquake
Why: US interest rates have shifted up by 20 bps to 35 bps in a few days – a highly unusual move considering that FOMC is next week and a minimum of 25 bps cut is fully priced in
Action: Creates negative bias in momentum big names (NASDAQ) – UNDERWEIGHT – while we like OVERWEIGHT value stocks (VLUE:BATS)
Comment:
Value stocks = Banks, Mining companies & Energy mainly
Momentum = Technology, Entertainment, consumer stables
Value is cheap – dirt cheap – and now the forceful move up in US interest rates has made “models” buy value and sell momentum as value stocks is similar to being long interest rates (through banks) while rising cost of capital “destroys” high duration assets discounted capital value. Elementary, Dr. Watson?
Read: Our own Peter Garnry has been on the ball: https://www.home.saxo/insights/content-hub/articles/2019/09/11/equities-rebound-on-positive-trade-news
From Peter’s piece today….
FED expected moved over the next six quarter gone from a cut of 80 bps to now only 36 bps….
US yields moved up +25 bps last three days creating “havoc” in Momentum vs. Value
Here is outright VALUE vs. Momentum….!!!
Here we chart TLT:xnas vs VLUE:bats (SaxoTrader)
Value stock is cheap – extremely cheap:
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
