Futures Momentum Model Signals – Equity Markets Models Signal Net Buy

• Bond model signals continue to signal ‘sell’ for third week running. 
• Flips across equity models turn equities net-buy across markets. 

• Over the past three months, the best-performing bond model has been the one-month lookback for Gilts (3.6%), for equities it has been the twelve-month lookback for the Nikkei (7.1%). 

The US Q3 earnings season has kicked off with positive surprises, especially among financials.  However, companies are reporting ongoing supply chain issues, which, along with higher energy prices, are keeping inflation expectations high. Employment continues to relent a completion of a move back to pre-COVID levels, adding another complexity to central bank policy normalisation considerations. On this backdrop, bonds signal ‘sell’, and equity markets signal net ‘buy’. 

Latest Signals 

No changes, bond models continue to signal ‘sell’ for the third week running (Table 1). This leaves bond markets net ‘sell’ (Chart 1). 

Four changes in equity models. The S&P500 one-month, Nikkei three-month, DAX one- and three-month all flip from ‘sell’ to ‘buy’ (Table 1). All other signals remain, equities are net ‘buy’ across all markets (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 3.6% 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 7.1% 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).

Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.

Ben Ford is a macro research analyst at Macro Hive, and is currently finishing an MSc in Finance at Cass Business School.

(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.)