Following our Big Picture discussion on a rebound in M1 Global Money Supply, it increasingly looks like we have seen a bottom in global leading economic indicators (LEIs) and Purchasing Manager Indices (PMIs).
Major central banks such as the BOJ, ECB and the Fed are starting to increase their balance sheet and supply market liquidity.
Meanwhile credit default swaps (CDS) are showing little to no stress in the credit market and are continuing to improve as reflected by our Financial Stress Index.
Internal momentum is building as shown by an increase in monthly MACD buy signals on the S&P 1500 index.
Other points of interest:
- International breadth is exceeding domestic US participation and may be leading ahead of US business cycle. Currently, sentiment is high and could set the tone for a short-term pull back.
- Domestic yields look like they have put in a double bottom with the 10-year treasury looking to moving higher. High yield bonds have shown a nice improvement over treasuries again pointing towards a stronger credit market.
- On an equal weight basis, discretionary has shown outperformance to staples with much better internal performance. Energy is having a nice rebound on a short-term basis and was the best performing sector last week. The sector still faces major hurdles and will likely run into longer-term issues given its current downtrend and lack of mean reversion characteristics.
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.
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