CoreMacro

Markets see long-term global growth prospects as having deteriorated materially, with policymakers unwilling or unable to do much about it. Meanwhile, recent economic data - U.S. notably - hasn't been that bad. A divergence between what matters to Wall Street versus Main Street explains the disconnect. Accelerating wage growth, lower commodity prices, and cheaper rates are positives for households - but not for many Wall Street sectors. Stay neutral global equities. T-bonds are a "hold" for now. The dollar's selloff is overdone.

Plunging commodities have been driven by increased supply and falling investor demand, not a major downshift in physical demand. Stay neutral global equities. The earnings outlook remains uninspiring, but bottoming oil prices and continued monetary stimulus support valuations. The selloff in global bank shares reflects NIRP-related "income statement worries", not "balance sheet concerns" linked to deteriorating credit quality. Downgrade Treasury notes to neutral. The rally in bonds has brought 10-year yields near our long-standing, out-of-consensus target of 1.5%.

DM central banks are shifting back into easing mode, with the BoJ's surprise cut the most dramatic example. Japan's adoption of negative rates represents another deflation-fighting step, ultimately leading to a price-level targeting regime and debt monetization. While the real yen will ultimately decline, near-term strength would force more aggressive policy. Stay neutral global equities, preparing to decrease exposure on any sustained rebound. U.S. 10-year yields are still on track to reach our target of 1.5% by year-end.

Last month, the model outperformed both global and U.S. equities in local-currency and U.S.-dollar terms. For February, the model is aggressively increasing its risk exposure and has included a bet on commodities for the first time since 2012. For equities, the largest overweight remains Europe, but EM and Canada enjoyed significant upgrades. For bonds, the model favors the European periphery.

Special Report

While cyclical factors have contributed to the recent trade slowdown, there are many longer-term structural forces that will pose headwinds to globalization. A lack of aggregate demand will constrain growth and hurt trade in a global economy attempting to increase savings. Meanwhile, the bulk of economic dividends from free trade have already been reaped. The direct casualties from slowing global trade are economies with large export sectors: most commodity-producing countries and some south-east Asian nations.

Special Report

We are proud to announce the launch of our Equity Trading Strategy (ETS) service. This new service ranks every publicly-listed stock in the U.S. according to a sophisticated model that combines over 30 stock market anomalies - all with the aim of finding stocks that will deliver outsized returns. By providing individual stock rankings, ETS enables you to leverage BCA's macro views and apply them at the stock level. Our easy-to-use web application will allow you to quickly generate and validate investment ideas. More importantly, by picking top-ranking stocks, you will be able to generate higher long-term returns. The attached Special Report discusses the theoretical underpinnings of the model which has been in development for the past 15 years. We trust that this new service will be greatly beneficial for equity investors, and we hope you will find this report both valuable and insightful.