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- Bond model signals eventually change after three weeks of no change.
- Equities remain net buy with no changes to signals.
- Over the past three months, the best-performing bond model has been the one-month lookback for Gilts (2.1%), for equities it has been the twelve-month lookback for the Nikkei (6.3%).
Bank of Canada surprised markets as it ended quantitative easing, the consensus was to halve weekly purchases, as it saw inflation more persistent than first thought. They also moved up the timeline for rate hikes. Today, the ECB held policy. Elsewhere, supply chain congestion and energy price abnormalities continue to provide inflationary pressures to upcoming central bank meetings. Equity markets have so far been resilient in the face of the rise in yields, though they have shown more volatility in recent days. On this backdrop, one change to bond signals that remain net ‘sell’, and equity markets signal net ‘buy’.
Latest Signals
Three weeks of all ‘sell’ signals for bond models ends, the one-month lookback for US long bonds flips from ‘sell’ to ‘buy’ (Table 1). All other signals remain ‘sell’. Overall, signals for all bonds are net ‘sell’ (Chart 1).
No changes in equity models. The S&P500, DAX, and FTSE-100 have ‘buy’ signals across all lookback models, the one-month lookback for the Nikkei is the only ‘sell’ signal (Table 1). In total, equities are ‘net’ buy (Chart 1).
Best Performing Models
Looking at the performance of the best models over the past three months, we find the following:
- Bonds: the best-performing bond model is the one-month lookback for Gilts. It has delivered 2.1% returns and is currently signalling a ‘sell’ signal (Table 1, Chart 2).
- Equities: the best-performing equity model has been the twelve-month lookback for the Nikkei. It has delivered 6.3% returns and is currently giving ‘buy’ signals (Table 1, Chart 3).
*The basic strategy is to use returns (lookback windows) to give buy/sell signals. So, if the US stocks are up over the past 3 months, you buy, otherwise you sell (note I use excess returns).