EUR 85.33 For Business Accounts Only

Int'l Macro Vision: Sector Synopsis

nt'l Equity Strategy



We continue to see reason for caution and as a result, our overall outlook remains neutral. Most of the recent weakness has been contained to EM & China thus far, and has not spread to the US, Europe, or Japan. As long as this remains true, we cannot be bearish overall. From a Sector perspective, we prefer a mix of growth (Technology, Services, Financial Services) and defensives (Health Care, Utilities, Real Estate, Consumer Staples). Below we summarize the basis for our neutral and cautious outlook.

Factors supporting our neutral and cautious intermediate-term outlook: (1) High yield spreads are hitting 5-6-month wides in the US and Europe/Germany. (2) Defensives are starting to outperform; MSCI ACWI Sectors such as Utilities, Health Care, and Real Estate display improving RS. (3) The US dollar (DXY) is on the cusp of a breakout above 92.80-93.50. (4) Global sovereign bond yields have been falling precipitously and interest rate volatility remains high. (5) Commodities have become increasingly mixed as WTI crude oil displays a major uptrend violation and copper is on the cusp of a breakdown. (6) The MSCI EM index (EEM-US) recently broke below major $52 support, and China's Shanghai Composite and Hong Kong's Hang Seng also broke below key levels. These items are all consistent with an equity market that is likely under pressure; until these dynamics improve, our neutral and cautious outlook remains appropriate.

Positives that prevent us from being bearish: (1) Aside from emerging markets (EEM-US), the other broad global indexes (MSCI ACWI, ACWI ex-US, and EAFE) remain well-above important supports, including $99 on ACWI-US, $54 on ACWX-US, and $77 on EFA-US. (2) Europe's STOXX 50 remains above 3875, Japan (DXJ-US) remains above $58.50, and the Russell 2000 (IWM) remains above $208. (3) Not one MSCI ACWI Sector is breaking down below long-term support. (4) Small-caps are still outperforming outside of the US. (5) Broad commodities (Bloomberg Commodity index, DJP-US) remain above important long-term base support at $25.50. Until the above begin to violate key levels we are not ready to turn full-on bearish, and our neutral outlook is appropriate.