US Strategy – The Risk Trade!

On Thursday, the S&P 500 closed at 1,066, up 2.3%.  What a rip that a Dollar Down day gives you!  The strong gains on Thursday snapped a four-day losing streak for the S&P 500.  With a better that expected GDP number, the overriding theme was the return of the risk trade, as the VIX declined 11.3% after spiking more than 25% over the last four days. 

More importantly the Dollar index (UUP) declined 0.7% on the day, but remains up 1.2% over the past week.  

These dynamics led to the outperformance of high beta Financials, Materials and Consumer Discretionary sectors.  Not surprisingly, Utilities, Healthcare, and Consumer staples were the bottom three performing sectors.  In total five sectors outperformed the S&P 500. 

On the MACRO front, initial jobless claims fell 1,000 to 530,000 in the week-ended October 24th; the consensus expectations were for a bigger decline to 525,000.  The four-week moving average continued to trend lower, falling to 526,250 last week, the lowest level since early January. 

The Financials (XLF) was the best performing sector rising 4.2% yesterday.  The better-than-expected GDP numbers brought back to life the risk trade, leading to strong gains in the lower-quality names within the sector.  The decline in the Dollar also put back in focus the REFALTION trade.  As a result the Materials were one of the best performers, rising 3.0% on the day.  The Energy (XLE) also outperformed, rising 2.7%

Today, the set up for the S&P 500 is: TRADE (1,042) and TREND is positive (1,019).   The Research Edge quantitative models have 9 of 9 sectors in the S&P 500 positive on TREND and 3 of 9 sectors are positive from the TRADE duration.  Both Energy and Technology moved back to positive on both TRADE and TREND. 

The Research Edge Quant models have 1% upside and 2% downside in the S&P 500.  At the time of writing the major market futures are poised to open to the down side. 

The Research Edge MACRO Team.

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