Int'l Macro Vision: Sector Synopsis
Int'l Equity StrategyOur outlook remains neutral on global equities (MSCI ACWI) as of our August 8, 2024 Int'l Compass, after being bullish since early-November 2023. In late-July (7/25/24 Int'l Compass) we discussed expectations for a 1- to 4-month pullback/consolidation period on MSCI ACWI (ACWI-US), and at this point it seems likely to last closer to four months, and potentially 4- to 6-months from our selected 7/17/24 starting point, until the market decides which way this consolidation resolves. We have always said that this consolidation could end up being a significant topping pattern, particularly in the U.S., and we continue to keep a close eye on April 2000 and August 2007 topping analogs in the S&P 500, which have tracked this current consolidation phase quite well – not to mention the similar backdrops to today that includes a new Fed cutting cycle, recession indicators going off (Sahm and Schannep Recession Indicator, which both moved deeper into “recession zone” following the August U.S. employment report), and the yield curve un-inverting. Of course, there are plenty of other concerning developments which we discuss below. Defensive Sectors (Utilities, Health Care, Telecommunications, Real Estate, and Consumer Staples) continue to lead and this remains where we want to be overweight.
In addition to the aforementioned concerning similarities to the 2000 and 2007 tops, other risk-off signals that support our neutral, yet cautious, outlook include: (1) 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. (2) Defensive Sectors (Utilities, Staples, Health Care, Real Estate, and Telecommunications) continue to handily outperform, and (3) a major breakdown in the global Discretionary vs. Staples ratio is a clear risk-off signal that often precedes larger corrections. Lastly, (4) the latest recessionary signal we are seeing includes WTI and Brent crude oil prices violating 1.5-year uptrend supports.
Various other neutral-to-bullish signals have kept us neutral overall. This includes: (1) U.S. and European high yield spreads remain at multi-year narrows, holding below 430bps and 470bps, respectively. (2) Global Industrials and Financials Sectors are outperforming alongside defensives. And (3) MSCI ACWI is still just consolidating. While we do not expect it to happen, we may be forced to shift back to bullish if ACWI-US can manage to break above $117-$119 resistance.
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