Thursday, April 5, 2018

Global Equities Have Entered Phase Three (now with more Star Trek)


From FT Alphaville:
Robert Buckland was upbeat as ever on Thursday, but Citi's global equity strategist also offered a warning. “Phase 3 has started”, he writes:
We think that global equities have entered Phase 3 of the credit/equity clock. This is the period towards the end of the cycle when credit spreads start to rise, but equity indices continue to make new highs. Share price volatility moves higher in line with widening spreads [see chart below]. Phase 3 lasted 16 months in the late 1980s, 32 months in the late 1990s, but only 4 months in the last market cycle.
Stock market investors should think Tribbles, rather than the more Klingon-esque dangers of phase 4, when they should hoard government bonds and canned food. Favour cyclical stocks over the more defensive sectors, said Rob, and start to reduce exposure to credit (which tends to fall in price as credit spreads widen).

Or, for a more alarmist stance, there are the quantitative strategists at Société Générale....