• Our US long bond model joins JGBs signalling net-buy, while others remain net-sell.
• All equity models continue to signal buy.
• Over the past three months, the best performing bond model has been the one-month lookback for gilts (4%), for equities the three-month lookback model for the S&P500 has been the best performer (5.5%).
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- Our US long bond model joins JGBs signalling net-buy, while others remain net-sell.
- All equity models continue to signal buy.
- Over the past three months, the best performing bond model has been the one-month lookback for gilts (4%), for equities the three-month lookback model for the S&P500 has been the best performer (5.5%).
Market focus returned to US inflation with the October print accelerating to 6.2% YoY. Alongside the stronger-than-expected nonfarm payrolls, rising inflation increases the risk of a faster taper announcement at the December FOMC meeting. The market has now brought forward interest-rate hike expectations for the Federal Reserve and is pricing in at least two hikes in 2022. Elsewhere, the energy crisis continues to weigh heavily on economies as Oil hits new highs of 86.04. On this backdrop, we saw US long bonds join JGB signals as net ‘buy’, all equity markets signal ‘buy’.
Latest Signals
This week, US long bonds flip net ‘buy’ as the three-month lookback model flipped from ‘sell’ to ‘buy’. It joins JGB as the only other net ‘buy’; the one-month lookback model for bunds flipped to ‘buy’ (Table 1). Other than US long bonds and JGBs, bond signals are net ‘sell’ (Chart 1).
Signals across all equity models remain ‘buy’ (Chart 1, Table 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 4% returns and it currently signalling a ‘buy’ signal (Table 1, Chart 2)
- Equities: lookback models for the Nikkei are no longer the best-performing equity models, the three-month lookback model for the S&P500 delivered 5.5% over the past three months. It currently signals ‘buy’ (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).