Vermilion Int'l Compass: Global Equity Strategy
MSCI ACWI, ACWI ex-US, EAFE Testing Key SupportsThe broad global indexes (MSCI ACWI, ACWI ex-US, and EAFE) have pulled back to test key intermediate-term supports, and we expect to see buyers step in near current levels. Market dynamics remain largely healthy and our outlook remains neutral yet constructive overall. We see this pullback as a buying opportunity, however breakdowns would be problematic and would suggest additional downside or consolidation is likely.
Index Overview. We continue to expect more consolidation on the broad global indexes (MSCI ACWI ACWI ex-US, and EAFE). The MSCI ACWI (ACWI-US), ACWI ex-US (ACWX-US), and EAFE (EFA-US) each are testing important intermediate-term support levels of $99, $54, and $76.50-$77, respectively, and we are buyers on this pullback. Europe's EURO STOXX 50 also remains above the critical 3875 support level. As long as the aforementioned support levels are not broken we are constructive overall.
US Dollar. The US dollar (DXY) broke above the $93.50-93.75 resistance level last week, but remains below longer-term resistance at $94.70-95; as long as the DXY is below $95, it is likely to be a risk-on signal for stocks... see page 2.
Market Dynamics Remain Constructive. Defensive sectors such as MSCI ACWI Staples and Utilities remain near YTD relative strength (RS) lows, and RS is devoid of bullish inflections. Global sovereign yields have found a floor and are moving higher. WTI and Brent crude oil display major long-term breakouts. High yield spreads have leveled-out in the US and Europe. Non-US small-caps continue to outperform relative to large-caps. All of the above suggests a risk-on environment for global equities; as long as there is no deterioration in these metrics, we view pullbacks as buying opportunities and we remain constructive overall.
Actionable Themes: Financials (Insurance), Materials, & Industrials. Value Sectors continue to be our favorite buys as interest rates appear to have bottomed around the world. We have focused on Energy and Financials/Banks in recent weeks (and these remain our favorite areas), and today we expand on that to include insurance stocks, and also the Industrials and Materials Sectors... see pages 3-13.
AAR is a provider of products and services to the aviation and government and defense markets. The company reports its activities in two business segments: Aviation Services and Expeditionary Services. The Aviation Services segment provides aftermarket support and services for the commercial aviation and government and defense markets. In this segment, the company also provides inventory management and distribution services, maintenance, repair and overhaul, and engineering services. The Expeditionary Services segment consists of businesses that primarily provide products and services supporting the movement of equipment and personnel by the U.S. and foreign governments and non-governmental organizations.
Air New Zealand is engaged in the transportation of passengers and cargo on an integrated network of scheduled airline services to, from and within New Zealand. Through its subsidiaries, Co. is also engaged in aviation, aircraft leasing and financing, investments, and engineering services. Co.'s geographical segments are New Zealand, Australia and Pacific Islands, United Kingdom and Europe, Asia, and America.
Sun Life Financial is a holding company. Through its subsidiaries, Co. is an international financial services organization providing a range of protection and wealth accumulation products and services to individuals and corporate customers in Canada, the U.S., the U.K., Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China, Australia, Singapore, Vietnam and Bermuda. Co. manages its operations in four business segments: Sun Life Financial Canada, Sun Life Financial United States, MFS Investment Management and Sun Life Financial Asia.
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.
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