Prime Trade Ideas: Time to Adjust Your Equity Holdings

We consolidate our favourite biases into one, easy-to-read, weekly report! Please find the original pieces linked throughout and a summary table at the end of the document. Reach out to us on Slack or email the author with any questions about the content.

An Update on Our Latest Trade Ideas

We summarise the latest updates on our trade ideas here with links to the original analysis.

• John introduced biases to major indices: he is overweight S&P 500, and underweight NASDAQ 100, Russell 2000, and European indices.
• Meanwhile, on US sectors, he made eight changes: he is overweight healthcare and materials, tactically underweight homebuilders, neutral regional banks, communications, and underweight large banks, retail, and consumer staples.
• Lastly, we lightened our bearish case on bitcoin due to improving on-chain/flow signals. The macro backdrop, however, remains a headwind.

Bilal’s Asset Allocation Update

Find Bilal’s latest asset allocation biases here.

• When positioning for what is to come, patience is key. This is because much is to be decided. It means preservation of capital is essential so overweighting cash is a prudent strategy.
• On other assets, we remain underweight government bonds. This should be no surprise; we think the market is under-pricing Fed hikes. Should they hike the Federal Funds rate to 8%, as Dominique envisions, a recession would almost certainly ensue in 2023, and equities would face further declines. Therefore, we also remain underweight equities.
• Turning to the final two assets, the energy crisis is still playing out and supply-chain problems persist; we remain neutral commodities. We are also neutral crypto.

John Tierney’s US Equity ETF Biases

Find John’s full list of ETF biases here. Alternatively, they are in the table below.

• Overall, John remains underweight equities versus other asset classes due to the rising rate environment, and the risk of economic slowdown and weaker earnings, which is not priced into the market now. But there is space for relative outperformance: he turned overweight the S&P 500, and underweight the Russell 2000, NASDAQ 100, and European indices.
• On a sector view, John had made eight changes: 1) tactically underweight homebuilders as they will hit the brakes on new projects until they work off excess inventory; 2) large banks to underweight as they may become more vulnerable in a slowing economy; 3) neutral regional banks; 4)moved retail to underweight as free cashflow has collapsed across the sector, suggesting that earnings will soon follow; 5) went neutral on communications; 6) underweight consumer staples  – free cash flow has been falling in 1H 2022 for consumer staples and will soon become a drag on earnings if it does not reverse; 7) overweight healthcare – there is little reason to think healthcare, a sector that is cheap relative to earnings and free cashflow, is at risk; 8) lastly, a lot of bad news is priced into materials, John turns overweight materials.

Henry’s European ETF Biases

Henry made this call back in March. The premise still holds, and we review short-term adjustments periodically.

• Long-term overweight renewable energy (FAN, INRG): The EU remains hugely exposed to Russian energy – not just in gas but nearly all fossil fuels. It means that simply replacing the supply of Russian gas energy with other sources may be practically difficult (due to infrastructure) as well as geopolitically unattractive. Longer term, a concerted increase in renewables spend is highly likely.
• Paring overweight financials exposure. European stocks have faced substantial volatility as of late, from Russian gas supply, ECB policy, and Italian politics. It has meant we have pared exposure to the financial sector. Long term, however, we see strategic value in overweighting financials (CB5).

Cryptocurrency Models

Find our latest bitcoin signals here and our latest ethereum signals here.

• We turned less bearish on bitcoin. While the macro backdrop remains difficult our on-chain/flow metrics are become more supportive of the cryptocurrency; three are bullish and three are neutral.
• We remained bullish ethereum. Just like bitcoin, the macro backdrop is unfavourable, but on-chain/flow metrics are boosting its bullish case; five are bullish, one is bearish, while the last is bearish.

Discretionary Macro

Our latest discretionary macro biases in collaboration with SGX can be found here while our latest views on rates in collaboration with TMX can be found here.

• In our latest SGX piece, we hold onto our bearish CNH view but think in the short term it could remain rangebound, so we keep our 6.72/6.80 USD/CNH strangle. Elsewhere, we turn neutral on KRW on stronger global equities (previously bearish) and remain bearish INR and TWD, and bullish SGD.
• In our latest TMX piece, we are bullish Canadian rates (two- and 10-year) and bearish US rates (two- and 10-year). This is because we think the Fed will end up hiking more than the Bank of Canada, an opposing view to the market, while Canadian housing is more vulnerable than US housing.

Ben Ford is a Researcher at Macro Hive. Ben studied BSc Financial Mathematics at Cardiff University and MSc Finance at Cass Business School, his dissertations were on the tails of GARCH volatility models, and foreign exchange investment strategies during crises, respectively.

 

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)

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