Read on for our weekly dispatch from the Financial Sense Wealth Management investment team to find out what they're looking at this week.
Companies in the financial, healthcare, industrial and information technology sectors are showing strong breadth by hitting new 52-week highs. These are the exact areas we want to see improvement in to confirm a trough in global growth. Take a look at the table below that shows some of the strongest performers from Oct.1 - Dec. 10 of this year.
We see little to no value in investment-grade domestic corporate bonds but we increasingly see value in emerging market bonds. The credit spreads between distressed and high yield bonds are at relatively high levels that weren’t seen since the 2015-2016 global slowdown. This widening in credit spreads is due in large part to some of the oil and energy companies that have found themselves struggling over the last couple of years. However, energy is trying to put in a bottom.
For more on emerging markets listen to ITR Economics’ 2020 Forecast.
Fund flows show that individual investors are not driving stock returns, but corporate buybacks are again the needle mover. Seasonally speaking, small caps tend to outperform large caps in the fourth quarter until about February which lends our ear in that direction.
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Lastly, the Shanghai index shows breadth continuing to improve after a bit of a pullback. At the same time the highly correlated commodity copper continues to push off its prior lows, once again, signaling the bottom may be in for global growth as we discussed above.
The energy sector (+2.0%) led the advance (Friday) amid some key OPEC+ news that contributed to higher oil prices ($59.20, +0.75, +1.3%). The oil producers agreed to cut production by 500,000 barrels per day until March, with Saudi Arabia also offering up to an additional 400,000 barrel cut of its own. With these new energy catalysts, we’re watching the sector to see if breadth and technicals can improve. Oil continues to move sideways under $60. A breakout over $60 would be encouraging.
Investment Conclusions:
Our models remain overweight in equities as we continue to feel confident in global markets. We are currently overweight in emerging markets and international equities due to their attractive fundamental values. We are underweighting the duration of fixed income in nearly all our models. Precious metals continue to be on our list of attractive investments with industrial commodities not too far behind.
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