Int'l Macro Vision: Sector Synopsis
Int'l Equity StrategyOur outlook remains bullish on global equities (MSCI ACWI). We discussed in our latest Int'l Compass (January 9, 2025) how we viewed the pullback as a buying opportunity and we were watching for $116-$117 support to hold on ACWI-US – an important resistance-turned-support level dating back to July 2024. $116 support held perfectly and we expect immediate upside to continue with both ACWI-US and the S&P 500 breaking above their 1+ month bull flag patterns. We are also upgrading Germany to overweight with RS on the DAX breaking out from a 2-year base. This leaves the U.S. (S&P 500) and Germany as our only two country overweights. Germany is leading Europe higher, and the EURO STOXX 50 displays a major 9-month base breakout above 5000-5120 – something we discussed looked increasingly likely and that we wanted to get ahead of as discussed in our January 9 Int'l Compass. Without a doubt, buying Europe is easily our favorite idea currently, following the 9-month base breakout. As long as ACWI-US is above $116, the S&P 500 is above 5650-5670, and the EURO STOXX 50 is above 5030, we see every reason to remain bullish.
In addition to the bullish breakouts on the MSCI ACWI, S&P 500, and EURO STOXX 50, other risk-on signals that support our bullish outlook include: (1) U.S. and European high yield spreads remain at 17-year and 3-year narrows, respectively. (2) U.S. Treasury and European 10-year yields, and (3) the U.S. Dollar (DXY) appear to be putting-in local tops, which could easily end up being major tops. (4) U.S. interest rate volatility (MOVE index) remains subdued and is near 3-year lows. (5) Global cyclical/growth Sectors are outperforming (Consumer Discretionary, Technology, Financials, and Communication Services) while defensive Sectors are underperforming (Consumer Staples, Health Care, and Real Estate). (6) The global Discretionary vs. Staples ratio (RXI-US vs. KXI-US) is hitting all-time highs and remains in a well-defined uptrend. (7) China (Hang Seng and Shanghai Composite) has bottomed. (8) WTI crude oil appears to be failing at the 1.5-year downtrend. (9) Bitcoin, gold, and silver remain bullish. These risk-on signals are all reasons why we are bullish on global equities (MSCI ACWI) – and especially the U.S. and Europe/Germany.
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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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