Equities could suffer more from inflation. This overall portfolio strategy can help you minimize the damage.

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Stocks are down as investors are still reeling from the unpleasant CPI surprise that took another bite out of markets on Wednesday. The tech sector was the hardest hit, with Apple AAPL,
+7.56%
lose 5% and cede its largest corporate crown in the world to Saudi Aramco.

Big tech “needs to recover to dominate the market,” said Markets.com chief analyst Neil Wilson, who sees the bulls fighting if the S&P 500 SPX,
+2.46%
drops to 3,800. This is “when things start to look very oversold… the risk is the slow decline in the bear market, the exact momentum we saw in the bull market but in reverse.”

Our call of the day comes from Citigroup strategists, who offered a portfolio of global equities to hedge against a further decline in stocks.

“It’s long Value and short Growth. It favors the UK and emerging markets over the US and continental Europe. It prefers cheap financials and commodities to more expensive tech-related deals,” said a team led by chief global equity strategist Robet Buckland.

The macro equity portfolio “minimizes exposure to further real yield deterioration in global equity markets, by shorting trades where valuations are most sensitive to 10-year US TIPS yields and buying those that are less sensitive,” the team said. The portfolio is wary of buoyant sectors, particularly in the United States

As the team explained, the global stock market is still not cheap relative to history.

They rate the MSCI AC World ACWI benchmark,
+1.60%
is down 17% year-to-date, trading at its long-term median of 15x 12-month forward price/earnings – down from last year’s peak of 20x. Falling to a 10-fold multiple seen during the 2011-2012 eurozone crisis would imply another downgrade of around 33%, they said.

The MSCI AC World Growth Index, meanwhile, is down 25%, while UK energy and healthcare are the only sectors to resist a “developing bear market”, said the strategists.

The relationship to real returns and stock valuations is key in determining further weakness in stocks, Citi reminded us.

“Money easing in 2019-20 has helped drive down real yields and revalue equities. more rate-sensitive growth markets are expected to decline further.

How many? The MSCI AC World Growth Index reached a PE of 29 times towards the end of 2021 and is now trading at 22 times, which corresponds to the current real yield of +0.3%.

If that real return falls back to -0.5%, the downgrade for growth stocks should reverse, but Citi’s global strategist Matt King has estimated that real returns are likely to head towards 1%, which is bearish for equities and thinks equities remain vulnerable even if 10 year TIPs stop rising.

Their hawkish real yield result would send the benchmark MSCI AC World to trade at a forward price/earnings of 14x to the current 15, and the MSCI US to 16x to 18x. We are almost there, they said, but the global growth index is expected to fall to 17 times from 22 times currently.

As for how this downgrading strategy has performed so far in 2022, here’s a chart:

Citigroup


“The long-only strategy is down this year, but much less than the broader market,” Buckland and the team said.

Lily: As Ark’s flagship fund plunges 76% from its peak, Cathie Wood still views its shares as residing in ‘deep value territory’

The buzz

Stock Disney DIS,
+1.45%
is down after the entertainment giant said it added more streaming subscribers than expected following Netflix’s NFLX,
-0.41%
routed, but warned of coming weakness.

AppLovin app,
-1.08%
rallies after app monetization group executives said their software business was booming and they could put the app unit up for sale.

The electric vehicle manufacturer Rivian Automotive RIVN,
-0.06%
is up after meeting its 2022 production outlook. And Lordstown Motors RIDE,
+1.76%
jumped more than 30% after it said the deal to sell its factory to Foxconn had been reached.

Beyond Meat’s BYND,
+7.11%
the stock heads below its IPO price for the first time after disappointing results. Grocery-delivery group Instacart has filed for a long-awaited IPO.

WeWork US,
-2.97%
and Squarespace SQSP,
+0.95%
both rose on well-received results, while US Foods USFD,
+3.53%
tumbles on earnings disappointment.

Producer prices in April rose 0.5%, in line with some economists’ forecasts, with annual inflation falling a bit. Weekly jobless claims rose by 1,000 to 203,000.

The crypto bloodbath continues. Following the collapse of the algorithmic stablecoin TerraUSD, mega stablecoin, Tether USDTUSD,
-0.01%,
announced a $1 billion trade as it hit a low of 95 cents. BitcoinBTC USD,
-0.62%
is down about 5%.

President Joe Biden urged Americans not to “fall asleep to such grief” as he announced 1 million COVID deaths in the country.

Finnish leaders back NATO membership in response to Russia’s war in Ukraine, and Moscow has threatened to sell out. Former Russian President Dmitry Medvedev has warned that the West’s steady supply of weapons and its support for Ukraine risk provoking a “full-fledged nuclear war”.

The steps

Uncredited


DJIA Stocks,
+2.59%

SPX,
+2.46%

COMP,
+2.87%
are under pressure, as well as Treasury yields TMUBMUSD10Y,
4.016%

TMUBMUSD02Y,
4.358%,
as the dollar climbs DXY,
+0.07%.
Commodities are also slipping, with oil CL00,
+0.64%

BRN00,
+0.60%
down more than 2% and GC00 gold,
+0.09%
down nearly 0.5%.

Table

Here’s a look at how Apple’s market cap was eventually ceded to Saudi Aramco’s.

Stock tickers

Here are the most searched tickers on MarketWatch as of 6 a.m. EST:

Random plays

This tough root crop could break the world’s addiction to wheat.

Spain is set to be the first country in the world to offer ‘menstrual leave’.

An untrained passenger lands on a small plane in Florida.

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Don F. Davis