On March 19, the 50-day moving average of Germany’s DAX index dipped below its 200-day moving average, forming a so-called “death cross”, a technical indicator commonly perceived as a strong bearish signal. The global financial markets have become increasingly integrated. A crisis in one market (e.g., the DAX, due to trade concerns) can quickly spill over into other countries.
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Despite the recent developments on the macro and policy front, the quarterly earnings cycle remains the most decisive for active equity managers. In this report, we show that our comprehensive suite of products for advanced financial statement analysis featuring cutting edge NLP (Natural Language Processing), machine learning and alternative Big Data (e.g., management presentation, insider transaction, and regulatory filings) can help active managers generate significant alpha.
Recently, economic and company fundamentals have been overshadowed by unexpected policy and political events (e.g., global trade conflicts, and public relation debacles engulfing technology firms). Risky assets such as equities and high yield bonds sold off, while US treasuries and gold held up. Sector-wise, cyclicals and financials plunged, while real estate and utilities rallied. However, style factors exhibited a completely opposite reaction. Risky factors such as book-to-market, small cap and illiquidity outperformed defensive styles (e.g., dividend yield, low beta, quality, and price momentum).
New Trade Measures against China. On March 22, USTR announced President Trump’s decision on the trade measures against China under Section 301, including punitive tariffs on $60 billion annual imports. The renewed trade conflicts send a chill through the global market. The exact list of products subject to the 25% ad valorem duties will be released in the next few days. USTR mentioned that aerospace, information and communication technology, and machinery will be included. We also expect medical equipment, modern rail, maritime, BioPharma, industrial robotics, and other consumer and industrials goods to be in the list.
Given that interest rates and unemployment are at historical lows and inflation and wage growth are creeping higher, the Fed is expected to raise its benchmark Fed Funds Rate three or four times this year. In fact, the probability of a 25bps rate hike at the next FOMC meeting on Wednesday is close to 90%. In this report, we develop a model to measure interest rate sensitivity at the single stock level and provide a list of names that are most negatively exposed to rising interest rates.
US government’s decision to impose steel and aluminum tariffs raised the fear of global trade wars. In the end, not only were Canada and Mexico temporarily exempted, but other US allies were encouraged to apply for exemptions. The watered-down trade conflicts combined with the announcement that President Trump would meet with North Korean leader Kim Jong Un reduce the risk of trade wars and geopolitical conflicts. In this report, we systematically assess the impact of trade tensions and geopolitical risks on asset prices.
Wolfe Research Vice Chairman of QES Research, Yin Luo, discussed the implications of US current account balance on the economy and financial markets.
US government’s decision to impose steel and aluminum tariffs caused a wave of uncertainty at the beginning of the month as equity markets recoiled on the back of potential global trade wars. In this report, we try to understand the implications of current account balance on the economy and financial markets.
Wolfe Research Vice Chairman of QES Research, Yin Luo, discussed economic cycle based investing, rising interest rates, systematic macro research in a turbulent time, and asset allocation predictions.
The US economy is heading for uncharted waters. The US federal government is injecting tremendous stimulus via tax cuts and infrastructure spending, at a time when the economy is already at full employment. At the same time, the Federal Reserve, with its new Chairman, is pushing for tightening monetary policy. In this research, we use an economic cycle/regime model to understand the implications to asset allocation, sector and style factor rotation decisions.
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