Momentum Models Signal US Equity Underperformance

When evaluating the performance of our momentum models we are considering the average performance across the one-, three-, and 12-month momentum models.

Summary

• Momentum models add to last week’s fortunes (+0.3% WoW), performing best in rates (+0.8%).
• A similarly sized return was seen over the past three months, on average (+0.3%).
• Momentum models point towards US equity underperformance and USD outperformance. Meanwhile, rates are expected to sell off.

Latest Signals

Equity momentum models expect US equities to diverge from Asian and European equivalents with signals turning net-bullish on the Nikkei and remaining likewise on the DAX and FTSE-100 (Chart 1 and Table 1).

Momentum models are bearish on US, UK, German and Japan rates without a bullish signal in sight.

FX momentum models upped their USD/JPY bullishness while they flipped net-long on EUR/CHF and scaled back $-bloc bearishness(vs USD; Chart 2 and Table 2).

Model Performance

Momentum models tipped higher (+0.3% WoW), adding to last week’s gains. They performed best in rates (+0.8%), worst in equities (+0.0%), and marginally well in FX (+0.1%). A similar return was seen over the past three months (+0.3%).

Our Views

FOMC participants have repeatedly been announcing that disinflation has started. Yet, disinflation so far has been limited to core goods with core services and shelter prices still growing apace. We think it means a higher terminal FFR, with Dominique’s 8% becoming ever more realistic, while the mother of all house price crashes would likely follow. As a result, John believes remaining defensive in equities will provide best value.

*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).

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 Researcher at Macro Hive. Benjamin 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.

Photo Credit: depositphotos.com

(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.)