Darius joined David Hunter last week on our Pro to Pro Live to discuss the 42 Macro Positioning Model, the outlook for asset markets, our “Green Shoots Globally” theme, and more.
If you missed the interview, here are the three most important takeaways from the conversation that have significant implications for your portfolio:
1. Our Positioning Model Suggests There Is Likely Additional Risk To The Upside Over The Medium Term
Bears have found themselves reluctant to join the recent rally in equities.
Our 42 Macro Positioning Model monitors the aggregated non-commercial net length as a percentage of total open interest in the combined futures and options markets for US Equities. Currently, this indicator sits in the 33rd percentile of readings, notably lower than the median reading of the 62nd percentile seen at major bull market peaks.
Despite the significant market rally, we have yet to witness the structural upside capitulation characteristic of bull market peaks. This absence suggests there is likely potential for further upside over the medium term, although there may be a correction in the near term.
2. Cash On The Sidelines Stays On The Sidelines Until There Are Reasons For It To Exit
Currently, over $6 trillion is parked in money market funds.
Our analysis, spanning the last four cycles—2020, 2008, 2001, and 1991 —reveals a consistent pattern: cash on the sidelines tends to stay put in these funds until after a crash, recession, and rate cuts have each taken place.
We anticipate this cycle will follow suit, with the bulk of cash on the sidelines staying put until these pivotal events unfold.
3. “Green Shoots Globally” Continues To Support Risk Assets
In January, we authored our “Green Shoots Globally” theme that was supportive of asset markets.
The theme persists, as our models show that every major economy in the world has a Composite PMI trending higher—a bullish leading indicator suggesting what is likely to occur over the next three to six months from an economic standpoint.
Moreover, we track the number of industries reporting growth in the ISM Manufacturing survey. In December, that number bottomed. Our backtests have found that in the year following the bottom, the S&P generates a median return of 28%. While this is just one data cyclical framework to respect, it strongly suggests that the broadening of market breadth stemming from improving global fundamentals is likely to continue.
That’s a wrap!
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