11/15/13 - US Large Caps Best House in Bad Neighborhood
Over the past two months, we have seen a cascade of deterioration across markets. One by one each of the following began to fall: commodities, small-caps, high momentum stocks, Emerging markets, European markets, and bonds.
What has remained consistently strong throughout this period? Only US large cap stocks. Last week, our models rotated into this asset class but that is not to say that this is an ultra-bullish position on global growth. If it were, Europe and Emerging Markets would be confirming the new highs in US large caps and small-caps would not be deteriorating.
For now, US large caps are the best house in bad neighborhood. This could very well continue through year-end as seasonality remains favorable and momentum remains strong. However, looking ahead to early 2014, one of two scenarios is likely to play out.
First, if inflation expectations finally start to move meaningfully higher, Emerging Market equities should be the primary beneficiaries. The potential for a convergence between Emerging and Developed in 2014 is immense given the wide valuation and performance gap between the two markets. The second scenario is one in which inflation expectations turn lower. In that scenario, long-duration bonds should outperform as deflationary concerns return.
At Pension Partners, flexibility is critical to our investment process. Depending on the underlying conditions, we stand ready to capitalize on either of these scenarios. Looking forward to an interesting 2014.
This is All the Bulls Have Left:
Emerging Market Fat Pitch Hasn’t Lost Weight:
On Apple, Markets and Conviction:
Investors: Enjoy Above-Average Stock Market Strength While It Lasts
This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.