Asia | Emerging Markets | Equities | FX | Global | UK
Momentum Model Returns Slump
- By Bilal Hafeez and Ben Ford
- 2 min read
When evaluating the performance of our momentum models we are considering the average performance across the one-, three-, and 12-month momentum models.
Summary
-
- Positive momentum model returns were short-lived, with negative performance across 19 of 22 of the models we track.
-
- Returns have typically been far better in the FX carry strategies we follow YTD.
This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.
When evaluating the performance of our momentum models we are considering the average performance across the one-, three-, and 12-month momentum models.
Summary
- Positive momentum model returns were short-lived, with negative performance across 16 of 19 of the models we track.
- Returns have typically been far better in the FX carry strategies we follow YTD.
- Equity momentum models are net-bearish on the S&P 500, but bullish elsewhere. They have turned net-bullish JGBs and intensified their GBP bullishness and AUD and CAD bearishness.
Latest Signals
Momentum model signals are net-bearish the S&P 500, with the three-month lookback model flipping to signal ‘sell’ (Chart 1 and Table 1). Meanwhile, they are bullish on the Nikkei, DAX and FTSE-100.
JGBs are now a net-buy, with a buy signal in the 12-month lookback model accompanying the three-month equivalent. Otherwise, momentum models are net bearish on US, German and UK rates.
Momentum models have increased their bullish GBP and bearish CAD and AUD convictions (Chart 2 and Table 2).
Model Performance
Momentum models have performed poorly over the past week (-0.2% WoW) and three months (-1.2%), with only three of 19 delivering positive returns over the longer period. EUR/NOK is the standout, having returned +7.6% over the past three months.
Our Views
There remains a case for hawkishness. Henry is calling for a 50bp May European Central Bank hike (markets are nearer 25bp than 50bp) and a 4% terminal rate, some 35bp above current pricing. Meanwhile, across the pond, markets are pricing over 50bps of Federal Reserve easings this year, something Dominique disagrees with as sticky inflationary pressures are yet to abate.
John believes investors are best suited to this backdrop by being long US financials and maintaining an overall defensive position in your portfolio.
*The basic strategy is to use returns (lookback windows) to give buy/sell signals. So, if the US stocks are up over the past three months, you buy, otherwise, you sell (note I use excess returns).