Latest from BCA Research
What’s going on? The market-weighted stock market is up. But the equally-weighted stock market is not up. Neither is credit. Neither are industrial metal prices. Neither is the oil price, despite two waves of OPEC output cuts. We explain the dichotomy. Plus: European basic resources stocks can rebound, but Netherlands is likely to reverse.
Chile’s equity market is set to sustainably outperform its EM peers on the back of political and macroeconomic tailwinds. The new moderate constitution and pragmatic government will boost market sentiment. A continued economic contraction and tumbling inflation will allow the central bank to initiate an easing cycle sooner than most EM and regional peers.
The BCA Score continues to perform well our Small-to-Mid cap strategy, but missed out in the large cap universe since our factor tilts do not favor the large cap names driving the market. Overall, the BCA Score L/S was held back by a resurgence in upside volatility and a reversal in momentum, but is still up roughly 18% from its low at the end of January.
Following this weekend’s OPEC 2.0 meeting, KSA announced a 1mm b/d crude output cut, slated for this July or August, as it attempts to support weak oil prices. The new output quotas, reduced to reflect members’ weak crude oil production will continue until end-2024. UAE’s quota was the only one raised in acknowledgement of its higher production capacity. On the back of this announcement, we continue to expect brent prices will average $90/bbl this year.
The S&P 500 performance was flat in May if not for the strong performance of a small cohort of mega-caps, aided by exposure to AI. Earnings and sales growth are contracting but analysts expect a rebound into a yearend, which is already priced in. Yet, inflation is still elevated, and the job market is stubbornly tight – rates will stay much higher for longer, eventually ending the party. Until then, the lopsided equity rally may continue.
In response to client questions, we offer our view on the purported link between tech stocks and interest rates, the similarities between the S&L Crisis and the current banking turmoil and the near-term outlook for consensus economic expectations.
MacroQuant now favors Technology and Consumer Discretionary and the style score continues to favor small-cap growth. In this insight we explore how small-cap growth has favorable breadth compared to the market,and therefore the style offers better opportunities for stocks pickers.
In this short weekly report, we review some of our favorite FX trades.