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Applied Global Macro Research: US vs the World Equity Markets 4:1

Outperformance of US equities is not solely due to superior economic or earnings performance, but rather a result of changing investor perceptions, expectations, and risk premia.

Also, a large portion of the US outperformance can be attributed to a widening valuation gap and a stronger US dollar.

these factors are unlikely to persist, and a pullback in relative performance may be expected. Click here.

TopDown Charts: GSV vs ULG (March 22)

Global/Small/Value (GSV) stocks are extremely cheap compared to US/Large/Growth (ULG) stocks, with all three relative value indicators at compelling cheap levels.

However, a bottom or turning point in GSV vs ULG remains elusive, as the relative performance line continues to tick lower and the breadth composite remains weak.

In order for GSV to outperform, either GSV valuations need to catch up (possibly due to global growth acceleration) or ULG needs to fall further and faster (possibly due to tech sector trouble or a recession). Click here.

TopDown Charts: Defensive equities

The contrarian bull case has become more compelling as defensive equities lose further ground; relative valuations vs the index are at their 3rd cheapest level ever, portfolio allocation indicator is at record lows, and market cap weighting likewise has just notched up a new low.

Yet on the technicals, downside momentum remains significant with the defensives vs S&P500 relative performance line still below support, below its 200-day average, and with relative breadth still weak, and seasonality still negative.

The triggers for a rebound would be: seasonality turning positive (from May), breadth ticking higher (already a tentative bounce), and test of resistance (previous support). Click here.

True Insights: MOVE over VIX

Just look at how much riskier bonds have become regarding realized volatility.

Stocks are now less than three times as volatile as bonds, whereas they used to be, on average, five times as much.

I have repeatedly highlighted this structurally higher bond volatility, especially in the long term, to advocate for reducing the weight of (government) bonds. Click here.

TS Lombard: Is monetary policy even working? (March 21)

Contrary to what some pundits claim, monetary tightening is working

But it is true that most DM economies have tolerated higher interest rates better than was feared, in large part because debt-servicing ratios have remained low.

With monetary policy at a critical juncture, TS Lombard provides some markers to help investors navigate an increasingly uncertain policy outlook. Click here.