Investors See a Light at the End of the War’s Tunnel
A headline-driven market believes this war is about to end.
Key Takeaways
Another Headline-Driven Trading Day: We are seeing in real time how a headline-driven market behaves. First came the Trump threat of a blockade, which he is carrying out — a brilliant idea on several fronts. It chokes off Iranian oil revenues (an estimated loss of $435 million per day) and puts China in a position where it will be exerting pressure on the regime. Then we had this tape bomb come across the wires that the mullahs are no longer committed to the nuclear program (oh, sure thing). And the third item was Donald Trump claiming, “we’ve been called this morning by the right people, the appropriate people, and they want to work a deal.” Sure they do.
A Sector Mix With Historical Grounding: We ran a simple optimizer across nearly four decades of S&P 500 sector index data and found this out: had an investor bought and held just three sectors in equal weights over this time frame, the mix that has delivered the highest return on a volatility-adjusted basis, included (i) Tech, (ii) Health Care, and (iii) Consumer Staples. Consider this to be a concentrated yet still diversified mix of “growth” sectors where Tech provides the juice while Health Care and Consumer Staples provide the ballast, and typically help cushion this strategy in bear market phases. Simple, yet elegant.
Key CPI Measures Are Well Contained: What is there not to like? I’m talking about last week’s CPI report for March, because the internals were really good. The Cleveland Fed’s median CPI number was a tame +0.2% MoM for the third month in a row. The “trimmed mean” underlying measure also rang in under +0.2% sequentially for the second time in the past three months and in five of the past seven. Next, we have the Atlanta Fed’s “core flexible” CPI metric, which maps out corporate pricing power, and it also came in at +0.2%, and it has been at this level or below in five of the past six months.
