Financial Markets
MacroQuant recommends underweighting equities and adopting a benchmark duration stance in fixed-income portfolios. The model is very positive on the US dollar, bearish on gold, neutral on copper, and bullish on oil.
The equity bull market is getting long in the tooth. Bonds should perform well once economic growth begins to slow. The dollar will strengthen over the coming months before resuming its downtrend. While crude has likely found a near-term floor, we favor metals over energy in the long run.
South Africa’s ambitious reform agenda will take time to bear fruit. Meanwhile, the country faces a stagflationary squeeze as inflation rises while growth slows. South African stocks, bonds, and currency are all vulnerable.
On Friday, the MacroQuant equity z-score fell to -1.01, below the critical -1 threshold that often coincided with bear markets in the past. With that in mind, today, I am downgrading stocks to a slight underweight on both a 3-month and a 12-month horizon.
The AI boom will increase inflation in the near term and could also raise it over the long term. The Fed’s reluctance to hike rates is understandable, but it risks amplifying what may already be a brewing stock market bubble.
MacroQuant recommends a slight underweight position in equities, favors a below-benchmark duration stance in fixed-income portfolios, is very positive on the US dollar, downgrades gold to underweight, upgrades copper to overweight, and remains very bullish on oil.
The AI bubble is a different type of bubble. It is primarily an earnings bubble rather than a valuation bubble. Like all bubbles, the AI bubble will burst. For now, however, our AI demand indicators do not suggest that this is imminent.
