EUR 42.67 For Business Accounts Only

Int'l Insights: Bullish Stocks

Int'l Equity Strategy

Market indicators continue to paint a mixed picture as the broad global indexes test major support levels, including $54 on MSCI ACWI ex-US (ACWX-US), $75.25 on MSCI EAFE (EFA-US), and $99 on MSCI ACWI (ACWI-US). These are our lines in the sand, and we are bearish if below them, but constructive if above. We do not have strong conviction as to whether these supports ultimately hold or break, but what we do know is that we want to continue sticking with what has been working, which are cyclical value Sectors (Energy, Financials, and Materials) and to a lesser extent defensives (esp. Consumer Staples). Rising global 10-year yields has allowed for value Sectors to outperform, and we expect this to continue moving forward. Below we summarize the basis for our mixed outlook.

Neutral to Constructive Signals:

Hong Kong's Hang Seng and Brazil's Bovespa display bullish inflections and appear to be bottoming.
Japan's TOPIX remains above 1840-1870 and the DXJ-US is above $58.50. The EURO STOXX 50 remains above long-term base support at 3875. Germany's DAX remains above 14,815.
Global 10-year sovereign yields are hitting multi-year highs in the majority of countries.
Cyclical value MSCI ACWI Sectors including Energy, Financials, and Materials display bullish price and RS trends.
Commodity prices are generally bullish across the board, and even gold is starting to break out – buy.
Relative strength on MSCI EM (EEM-US) and MSCI China (MCHI-US) show signs of bottoming, a risk-on signal.
Concerning Signals:

The US dollar continues to make higher lows and remains above support at 94.60-94.70.
High yield spreads in Europe and the US have widened to 1+ year highs as they move above the December 2021 high.
Defensive MSCI ACWI Sectors including Consumer Staples and Utilities display RS bottoms.
Small-caps are hitting new RS lows outside of the US.
MSCI EM (EEM-US) and MSCI China (MCHI-US) remain in 12-month price downtrends.
Bottom Line: Global equities remain very mixed. With global sovereign yields on the rise, stick with cyclical value Sectors, specifically Energy, Financials, and Materials. Select defensive areas such as Consumer Staples are also attractive, though to a lesser extent than cyclical value.