US Bonds
Credit spreads – US corporate BBB less 10y Treasury yields – are
currently rated 0, suggesting that spreads will tend to narrow. Credit spreads
have moved with these ratings and declined over the last several weeks.
Consistent with the above, US high-yield bonds are rated 3, or highly
resilient. All else being equal, high-yield bond prices will tend to rise.
Developed Market Stocks
US industrial stocks, as represented by the Dow Jones Industrial
Average, will continue to display moderate resilience in the near term. Stock
prices may soften, but I do not expect dramatic declines. Portfolios should
maintain a positive exposure to US stocks as declines and subsequent increases
may be difficult to capture.
UK stocks are rated 3 and have been resilient for the last several
weeks. Qualitatively, they are getting a boost from the weakening UK currency.
I do expect resilience to fade over the next few weeks, with UK stocks becoming
more vulnerable to price declines.
European stock prices have a rating of 2. At the moment, it appears
that this rating will remain in place for a few weeks.
Commodities
Overall, commodity prices are moderately resilient.
The S&P Goldman Sachs Commodity Index represents a basket of
commodities, with a high weighting in crude oil. The S&P GSCI has a rating
of 2. Crude oil (not shown in graphic) has a rating of 3.
Gold has a rating of 2, moderately resilient. There may be near-term
price softness, but Macro and Exceptional Macro MRI continue to be positive and
prices are likely to be resilient mid to longer term.
Emerging Markets
Emerging market stock and bond prices are rated moderately resilient
this week. At the moment, this appears to be a temporary breather because the
Macro and Exceptional Macro Market Resilience Indexes are both positive.
Chinese stocks, as represented by the Shanghai Composite, have a
rating of 0, which suggests vulnerability to declines.
Currencies
The Dollar index, DXY, is rated 0 and is vulnerable to declines.
The Euro is rated 3, but may this rating may be short lived; we may
see a rating of 2 in the next week or so. Regardless, EURUSD may continue to
appreciate because of the positive Macro and Exceptional Macro ratings.
GBP is rated 2, which means it is moderately resilient. This is a new
rating and suggests a positive shift – it was rated 0 just a month ago.
