Stifel : Macro & Portfolio Strategy – January 2018

• Stifel sees a 5% SP500 correction in Q1 for SP500.
• SP500 seen at roughly current levels by EOY = Active investing environment
• Slide 2 for long term forecast !!! (Note that Stifel forecast has been quite correct in the last 6-7 years in this bull market).
• Slides 6 on long rates and SP500.
• US 10 Yields seen at 2.96% eoy

Link to the Stifel Macro & Portfolio Strategy :  Stifel 050118


Infrastructure : THE Investment Theme for 2017 ?

FED : NO change in interest rates

  • No surprise hike by Fed.
  • Three dissenters calling for a hike and arguing for a need to cooldown financial markets ( .. really?).
  • 1% rally in principal Us indices and Gold . Nasdaq 100 and Composite at new all time highs.
  • USD slightly weaker and bonds rallying as well at long end of curve.

Next focus for Us stocks is Q3 earnings season starting on October 10th. SP500 in 2120-2195 range are levels to watch for more down/upside. Nasdaq 100 crossing above previous highs (At the moment only a one day move ) and daily MACD crossing higher based on yesterday’s closing is giving a bullish technical signal … that is hard to justify on a fundamental basis at these levels/valuations. I would respect the bullish signal as long as 4790-4800 and more importantly 4650 are not recrossed on the downside.

BOJ Unveils New Framework for Policy: Statement Highlights / BLOOMBERG

  1. The short-term policy rate will be kept at minus 0,1%.
  2. BOJ will direct its government bonds purchase so that the 10 year yields will remain around current level of 0%. Average maturity rule is cancelled so they can buy along the curve . Pace of buying remains the same i.e. 80 trillion yen per year.
  3. BOJ goes on with their equity market support : they will buy ETF’s at a pace of around 6 trillion yen per year

Virt Pf : In order to broaden our diversification and given the continuation of Equity markets by BOJ we add a Japan ETF quoted in NY . We will use one which includes a JPY currency hedge which is the iShares Currency Hedge Japan ETF (Ticker : HEWJ)- chart below – . Buy at ny open today Max 24,75 USD.


FED Meeting : BNP & Barclays see surprise hike tomorrow …

… while only 22% chance are currently priced in and most principal US indices at or a few % from their all time highs .                                       Back in june 60% likelihood was priced with US indices 3 to 6% cheaper …

Conclusion : Expect Volatility (the nice word for decline) IF Fed hikes rates tomorrow OR if they make a significant change on the hawkish side in their policy statement.


SP500 :

Dow Jones :

Nasdaq 100 :

The One Question That Clients Aren’t Asking Reveals Complacency in the Bond Market : What interest rate risk? / Bloomberg

No, interest rates will not stay that low for ever : the dream bond investors have lived for years will turn into a nightmare if they are not prepared.

“Year-to-date, total returns in every area of the fixed income market are strong, really positive, whether it’s Treasuries, whether it’s high yield, whether it’s preferreds, emerging markets, everything’s done great,” … “That doesn’t normally happen. You don’t normally have long Treasuries producing double digit returns and high yield at the same time.”

Yield Hunters Become the Hunted as Japan Long Debt Loses 9% / Bloomberg

  • 20 Years JGBs have lost around 9% this quarter ; Yield is at 0,45% up from minus 0,005 % record low in July. (10Y JGBs shown on chart below)
  • “The intensity of Japan’s bond selloff has sparked concern the market will become the epicenter for a global rout, just as it led a record rally in the first half of 2016.”


Pimco Bond Fund Cuts Bet as Dimon to Gundlach Warn on Rates Path – Bloomberg

  • Pimco reduces portfolio duration and has cut Government bonds holdings.
  • J. Dimon , JPM CEO : “Lets s just raise rates, …. the Fed has to maintain credibility “.
  • Gundlach said in last week fixed-income investors should reduce the duration of their positions and move money into cash. “This is a big, big moment,” Gundlach said. “Interest rates have bottomed… I think it’s the beginning of something and you’re supposed to be defensive.”

Technical & Market Comment : SP500 crosses down key supports

The markets have disregarded for weeks multiple bad news : a sequence of 5 consecutive quarters of negative earnings, weak Q2 GDP and economic data in general especially in the manufacturing, risk a Fed move on the rates, risks linked to the election, … Intervention by Mr Rosengren, a Fed member, coming out on the need to hike rates seems to have been the trigger for a ugly friday on US markets.


SP500 closed at 2127,8 on friday down 2,45% on the day and 3% from its 2193 all time high. Two months of a mix of slight gains and range trading  have been wiped out in a few hours . Last 2 months action took place with low volumes and declining momentum which i already mentionned a-was negative .Friday’s kind of move conforts me in my inclination of being always partially hedged after the markets had a substantial move on the upside (SP500 was up 20% since February and 10% since end of june) that looks overextended .

On July 29th i referred to 2135 key level as former resistance and new support. This support has been broken down (see purple ellipse). The move is bearish and barring a recrossing of 2135-2140 on the upside SP500 should be (much) weaker in the next days . Risk on the downside for the short term is at 2080-2100, an heavy activity zone (see parallel green lines) . The blue up trendline originated from February bottom is also a support level at around 2100. The 2080-2100 zone is of big importance and should these levels fail to hold,the immediate target would be the 2000 level.


ACTION :  I place a STOP buy order at 2140 to book profit on the Short SP500 initiated on August 24th at 2185. So should the market recross the 2140 level on a closing basis the stance would be more NEUTRAL . If not i would stay short/hedge US markets.