This week, the smartest guys in the room…cough…are still split. Leading the bull charge is JPM:
We stay pro-risk with a strong cyclical tilt in our model portfolio again this month, including large OWs in equities and commodities and a large UW in bonds. Reopening from the pandemic should continue as vaccination extends to children and new highly-effective anti-viral treatments rollout, while global COVID caseloads have been stable in recent weeks and well below their summer peaks. We continue to expect this reopening trend to lead to a strong cyclical recovery as pent-up consumer demand is unleashed, and corporates ramp up capex and rebuild depressed inventories. While equities have begun to price in this outcome, staging a notable rally over the past month and beginnings of a rebound of cyclical segments, we believe the recovery of cyclicals and value has much further to go, and recent bond market moves appear disconnected. Yields fell over the past couple of weeks, largely driven by technicals/position unwinds, which were exacerbated by volatility around the BOE decision last week and weak liquidity. As this positioning pain is worked though, we expect longer-term rates to resume their rise. Meanwhile, the cyclical recovery, persistence of inflation and energy supply risks continue to support our large commodity OW.
Meh. This is yesterday’s story in my book. The pandemic was over nine months ago. Global growth is not accelerating, it’s slowing under pressure from stalls in China and US. Ahead is the swing to services and away from goods plus an enormous fiscal downdraft intensified by taper. This is neither equities nor commodities bullish and the many tops and hard crashes that we’ve seen in the latter is telling us so. For that matter, so is the failure of Cyclicals and Value to launch. The recent rebound has been led by Growth again as yields fell.
