Long-Short U.S. Equity Model Signals
Proprietary insights on trend, momentum, credit spreads, volatility measures and market breadth. Weekly commentary on the individual models and the overall picture they present for market risk and opportunity.
STOCK VOLATILITY AND BOND SPREADS FLASHING CAUTION SIGNS FOR EQUITIES
- Signals derived from our U.S. equity models began to indicate a bullish outlook beginning on March 19, 2020, but in the last two weeks, credit spreads, volatility and momentum indicators have begun to flash caution. These are among our most important short/medium-term models.
- BBB credit spreads are trending higher, from 1.42% one month ago to 1.56% today. Still tight, to be sure, but when bond holders are worried about receiving principal and interest payments, equity investors are wise to take note. Credit default swaps on investment-grade debt actually declined -13% during this period, but we ascribe this to an index reconstitution by MARKIT.
- Global breadth is rolling over on the margin. Currently 10 out of the 45 country ETFs we track are positively trending and thus ranked “1” by our Trend1 model, down from 12 three weeks ago.
- With equity dispersion on the rise, now is another optimal time to consider swapping from passive equity funds (e.g., SPY) into alternatives. Our long/short fund-FlowPoint Capital Partners, LP is up +1.7% MTD and +17.4% YTD.