Vermilion Int'l Compass: Global Equity Strategy
Crude Oil Breaking Below 1.5-Year SupportThe latest recessionary signal we are seeing includes WTI and Brent crude oil prices violating 1.5-year supports, which only adds to our prior concerns about a weakening labor market and possible recession in the U.S., considering the Sahm rule and Schannep Recession Indicator (SRI) have both triggered. We also discussed last week (August 29 Int'l Compass) how we were expecting the S&P 500, Japan's TOPIX, and Europe's EURO STOXX 50 to "roll over near current or marginally higher levels," which 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 that could end up being a topping pattern. All have since reacted lower. 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 (Utilities, Health Care, Telecommunications, and Consumer Staples) remain our primary focus in terms of Sector and individual stock recommendations, and we continue to urgently recommend shifting exposure to defensives.
Remain Overweight the U.S. After downgrading Taiwan (TAIEX) last week, our only remaining country overweight is the U.S. (S&P 500).
Crude Oil Prices Breaking Down. WTI and Brent crude oil are both breaking below 1.5-year supports at $71 and $75, respectively. Over the past two years we have welcomed lower crude oil prices on the belief that it would lead to falling inflation. However, we are now at the point where these breakdowns in crude oil prices are providing a recessionary signal, which is on top of the Sahm rule and SRI recession signals and impending yield curve un-inversion... see charts below.
More Risk-Off Signals. Broad global MSCI indexes (local currency) including the ACWI, ACWI ex-U.S., EAFE and EM all remain below resistance from their YTD highs following long-term uptrend violations. There are also false breakouts now in place on the MSCI ACWI ex-U.S. (ACWX-US) and EAFE (EFA-US), which are priced in USD. We continue to expect more consolidation (at best) and possible topping patterns (at worse). Defensive Sectors continue to handily outperform, and a major breakdown in the global Discretionary vs. Staples ratio is a clear risk-off signal that often precedes larger corrections... see pages 2-5.
Actionable Themes: Consumer Staples, Real Estate, Telecommunications, and Utilities. We continue to recommend shifting exposure to global defensive Sectors, which has been our primary focus for the past three months... see pages 3-26.
ITC is a diversified manufacturing and marketing company which is based in India. Co. maintains an operating presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products. While Co. is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery.
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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