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.