EUR 46.29 For Business Accounts Only

Vermilion Int'l Compass: Global Equity Strategy

Upgrading Europe to Overweight

We discussed last week (Feb. 27 Int'l Compass) how both ACWI-US and the S&P 500 displayed false breakouts, and to look for near-term pullbacks to range supports at $116 on ACWI-US and 5770-5850 or 5600-5670 on the S&P 500 in the coming weeks, where we would be buyers. The S&P 500 is testing the 5770-5850 range now, while ACWI-US is testing its 200-day MA at $117. It is possible ACWI-US finds support here at the 200-day MA as it has already provided two ideal buy opportunities during this 2+ year bull market (in August 2024 and January 2025). In Europe, we were preparing for a breakout since our January 9th Int'l Compass, and it has been our favorite buy idea since our January 22 Int'l Macro Vision, which is also when we upgraded Germany to overweight. We are now upgrading the broad Europe region (EURO STOXX 50, STOXX Europe 600) to overweight due to continued outperformance and participation from other countries. In terms of global equities (MSCI ACWI), our intermediate-term outlook remains bullish as long as ACWI-US is above $116.

Upgrading Europe to Overweight; Remain Overweight U.S. and Germany. As noted above, we are upgrading Europe (EURO STOXX 50) to overweight. Our two other country overweights include the U.S. (S&P 500) and Germany (DAX), though we are monitoring the U.S. for a potential downgrade to market weight... see charts below.
Market Dynamics Remain Mostly Risk-On; Monitoring Concerns. We continue to see major tops on the U.S. dollar (DXY) and 10-year Treasury yield after breaking below $107.30 and 4.5%, respectively, which is very bullish for global equities. The EURO STOXX 50, MSCI EAFE, and MSCI ACWI ex-US (all local currency) all continue to hold above their major 9-month base breakout levels. As for some potential concerns that we are watching, U.S. high yield spreads and U.S. interest rate volatility (MOVE index) have ticked higher (though remain near multi-year lows), and defensive Sectors display short-term RS bottoms; we are not overly concerned currently, as we have seen these same exact things happen three other times during this 2+ year bull market, and each time produced false alarms/buying opportunities. We will only get concerned when the longer-term trends change... see charts below and page 2.
Actionable Themes: Gold Miners, Financials, Health Care, Industrials, Technology, Communications, and Consumer Staples. We believe the little run of outperformance from defensive Sectors is likely in the late innings (or already done), so we are primarily focusing elsewhere... see pages 3-19.