Export sensitive countries such as Germany, Taiwan and South Korea are showing improvement in equity breadth. Given this, we expect small cap and emerging markets to outperform during what seems to be a period of economic reacceleration (see Global Leading Indicators Turning Up, Favor Risk-On Tilt).
Credit spreads in the US and emerging markets are moving in line with the stock market, showing little signs of stress in the financial market.
Pro-cyclical sectors such as industrials and financials have performed well, showing increasing breadth and participation when looking at the underlying companies. Consumer staples and consumer discretionary have experienced a cool off and are now laggards among sectors.
Though the fundamental picture has improved with global leading indicators and breadth measures, investor sentiment is currently stretched, which may result in a short-term pullback or consolidation.
Our model regime has moved from neutral to slightly overweight equities with an increased exposure to international and cyclical investments given current macroeconomic developments. Further, we have decided to reduce our duration in all of the portfolios except for growth as we believe we are closer to the end than the beginning of this rate cutting cycle. Lastly, we have increased our risk appetite for credit and have obtained exposure in emerging market bonds.
To find out more about Financial Sense® Wealth Management or for a complimentary risk assessment of your portfolio, click here to contact us.
Advisory services offered through Financial Sense® Advisors, Inc., a registered investment adviser. Securities offered through Financial Sense® Securities, Inc., Member FINRA/SIPC. DBA Financial Sense® Wealth Management.