A picture paints a thousand words...
Lower yields interpreted as a 'growth scare'. US 10-Year Bond Yield down to 4.11% this morning, from above 4.80% in January. Bond bulls are getting paid!
Rotation OUT OF high beta (Technology, Consumer Discretionary) INTO low volatility (Healthcare, Consumer Staples, Real-Estate and Utilities)
Rotation OUT OF U.S. INTO Rest of World'
An insightful comment (heard at the beginning of this year) from an international market participant: 'For Europe and the rest of the world, the bar is low. For the United States, the bar is high.'
The above comment speaks to our previously positive index view on Europe (Inexpensive Near All-Time Highs, 26 September 2024): https://www.unum.capital/post/european-equities-inexpensive-near-all-time-highs and negative index view on the United States (Risk of A Medium Term Retracement, 05 December 2024): https://www.unum.capital/post/spy-mterm
Amidst the growth scare, there have been plenty of the opportunities for active traders!
Previous Post (Sunday 02 March): Talking Points - 10 Things You Need To Know
The year 2025 has begun with a shift in global market trends. For the first two months, the United States stock market has remained stagnant, failing to match the growth seen in other parts of the world. This lack of movement in U.S. equities is a notable change.
Adding to this picture, U.S. bond yields have been decreasing. This drop, from 4.70% to 4.20%, has caused concern among investors, who fear a slowdown in economic growth. This worry, termed a "growth scare," is fueled by uncertainty surrounding future economic policies.
The U.S. dollar has also weakened, mirroring the trend in bond yields. This decline has allowed for a broader range of market growth, as the dollar's previous strength had been a limiting factor.
In Europe, stock markets are experiencing a surge, reaching multi-year highs. This growth is partly attributed to lower stock valuations in the region. However, despite these recent gains, the overall long-term progress in European markets remains modest.
Meanwhile, Chinese stocks are showing signs of recovery. This improvement is driven by a combination of low stock prices and government support for the technology sector, boosting investor confidence.
In South Africa, stocks focused on the local economy have seen a decline after a period of growth. Investors are now taking profits and closely examining the country's economic growth and upcoming company earnings reports.
However, on the Johannesburg Stock Exchange (JSE), industrial companies have performed well. Companies like Naspers, Prosus, British American Tobacco, and Richemont have been leading the market gains.
In contrast, South African mining companies, specifically those involved in diversified mining and platinum mining, have seen little movement in their stock prices in recent weeks.
In the U.S., investors are showing a preference for stable, reliable sectors like healthcare and consumer staples. These sectors, known as "defensives," are seen as safer investments during times of uncertainty. Technology stocks, which are considered more risky, have lagged behind.
Outside the U.S., technology, financial, and consumer discretionary sectors have been leading the market growth. This divergence highlights a changing focus among global investors.
In summary, a key trend is emerging: investors are increasingly looking beyond the U.S. market. This shift is evidenced by the stronger performance of markets in other parts of the world. As one analyst pointed out, expectations for the U.S. market are high, while expectations for the rest of the world are relatively low, allowing for more potential growth.
Lester Davids
Analyst: Unum Capital
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