Report
Dave Nicoski ...
  • Ross LaDuke
EUR 44.96 For Business Accounts Only

Vermilion Int'l Compass: Global Equity Strategy

Shift Now to Defensives

Snap-back rallies have continued in the largest global equity markets (U.S., Japan, and Europe). With that said, Japan's TOPIX is still below 2690-2700 and the EURO STOXX 50 is below 4884, and whether they roll over here or from marginally higher levels, we continue to believe lower highs remain likely in both Japan and Europe. The S&P 500 is testing its YTD highs, something we have been looking for since our August 13, 2024 Compass, and we still believe it could make a marginal new high. It all fits with our ongoing belief (since our July 25, 2024 Int'l Compass) that global equities (ACWI-US) are going through a 1- to 4-month pullback/consolidation (we are now one month in). Our outlook remains neutral on global equities (as of our August 8, 2024 Int'l Compass) after being bullish since early-November 2023. Defensive Sectors (Health Care, Telecommunications, Utilities, and Consumer Staples) remain our primary focus in terms of Sector and individual stock recommendations, and we continue to recommend using this snap-back rally as an opportunity to shift exposure to defensives.

Country Overweights. Our current country overweights include Taiwan and the U.S.
Mixed Signals. Select market dynamics have improved on this snap-back rally, which is not surprising. This includes U.S. and European high yield spreads which have narrowed back below key levels, and defensive Sectors have mildly underperformed over the past two weeks. It is important to note that high yield spreads are still making higher lows since June/July, and defensive Sectors still appear likely to outperform in the months ahead. Additionally, bond market volatility (MOVE index) remains elevated and crude oil prices and the Bloomberg Commodity index (DJP-US) remain exceptionally weak (which has been our expectation since early-May); this is likely due to the rising probability of a U.S. recession. $71 on WTI crude oil and $29.50 on DJP-US are supports to watch; breakdowns could be a sign that a recession is here... see pages 2-4.
Actionable Themes: Utilities, Consumer Staples, Health Care, Telecommunications, Real Estate, and Gold Miners. We want to use this snap-back rally as an opportunity to add exposure to global defensive Sectors... see pages 3-20.
Underlyings
A2A S.p.A.

A2A is a multiutility company. Co. primarily operates in the following sectors: the production, sale and distribution of electricity; the sale and distribution of gas; the production, distribution and sale of heat through district heating networks; waste management (from collection and sweeping to disposal) and the construction and management of integrated waste disposal plants and systems, also making these available for other operators; and integrated water cycle management.

Accordant Group

AWF Madison Group is engaged in the supply of labour to industry.

BRF SA

BRF is a holding company. Through its subsidiaries, Co. is engaged in the production and sale of poultry, pork, beef cuts, and processed food products, pasta, sauce, mayonnaise, frozen vegetables and soybean by-products under several brands. Co.'s processed products include marinated, frozen, whole and cut Chester® rooster and turkey meats, specialty meats, frozen processed meats, frozen prepared entrees, portioned products and sliced products. Co. also sells margarine, sweet specialties, sandwiches, mayonnaise, and animal feed. Co. has an advanced distribution system and uses distribution centers to deliver its products to more than 120 countries.

Fortum Oyj

Fortum is an energy company. Co.'s operations are organised in five divisions: Hydro Power and Technology and Nuclear and Thermal Power, which are engaged in its hydro, nuclear and thermal power generation, services, portfolio management and trading as well as technology and research and development functions; Heat, Electricity Sales and Solutions, which consists of Co.'s combined heat and power production, district heating and business-to-business heating solutions, solar business, electricity sales and related customer offering; Russia, which consists of power and heat generation as well as heat distribution in Russia; and Distribution, which focuses on distribution activities in Sweden.

Iberdrola SA

Iberdrola is a holding company. Through its subsidiaries, Co. operates in four segments: network business, which includes all the energy transmission and distribution activities, and other regulated activity originated in Spain, the U.K., the U.S. and Brazil; deregulated business, which includes electricity generation and sales businesses as well as gas trading and storage businesses carried on by Co. in Spain, Portugal, the U.K. and North America; renewable business, with activities related to renewable energies in Spain, the U.K., the U.S. and the rest of the world; and other businesses, including the engineering and construction businesses and the non-power businesses.

TransAlta Corporation

TransAlta and its subsidiaries are engaged in the production and sale of electric energy. Co. has 3 segments: the Generation segment which owns and operates hydro, wind, geothermal, biomass, natural gas and coal-fired facilities, and mining operations; the Energy Trading segment which is engaged in the wholesale trading of electricity ; and the Corporate segment which provides finance, tax, treasury, legal, regulatory, environmental, health and safety, sustainable development, corporate communications, government and investor relations, information technology, risk management, human resources, internal audit, and other administrative support to the Generation and Energy Trading groups.

Provider
Vermilion Research
Vermilion Research

Vermilion Research delivers timely, actionable, and unique research inputs to professional investors. Our research strategists highlight securities which we believe are at major inflection points, based on our various proprietary technical indicators, and offer asymmetric risk/return profiles. We believe our research methodology, which is not limited by industry sector or market capitalization, enables us to deliver superior investment recommendations.

Our process begins by organizing all actively traded stocks into coherent sectors, then into logical industry groups. We then apply our proprietary relative strength tools to identify developing price trends. Once attractive trends are identified within a selected sectors or groups, we screen for individual stocks which we believe offer the best risk/reward profile. Vermilion offers U.S. and global equity market research products. Vermilion’s research team, which has received numerous awards and accolades, has a combined 70 year of experience in the analysis of investment securities.

Analysts
Dave Nicoski

Ross LaDuke

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