10 Charts To Watch In 2020 (Q1 Update)

"Global Equities: it looks like we’re in a new cyclical bull market (based on a fairly familiar and reliable global equity market breadth signal). This chart and a few other global equity market breadth indicators helped pick the big breakout late last year.  It's quite likely that if the new cyclical bull market does get derailed somehow, that we see early warning signs show up in this chart. So this will be a key one to watch for risk asset allocations."

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7. Commodities I began the year with optimism on commodities for a few reasons, but a flock of black swans basically shat all over that thesis!  It turned out to be a false dawn for commodities, and just as we could say commodities were at a key junction at the start of the year, a couple of key signals and levels stand out to me. Firstly we have a line in the sand in the form of the 2008 and 2016 low points (and the 2005 breakout), if that gets broken it likely opens up more downside.  Second, we also have a collapse in breadth to basically oversold levels.  Ideally for a medium-term bullish signal there you want to see a collapse, bottom, and turn up in that indicator.  So while I can talk about the other things I am watching for this asset class, those are the key high level signposts.

"Commodities (at an asset class level) have also seen a familiar market breadth pattern emerge, which points to a cyclical bull market (lines up with relatively light positioning, cheap valuations, and a prospective better macro backdrop).  The outlook across the individual commodities that make up this index is a bit more nuanced, but the aggregate/asset class view looks fairly straightforward based on the sum of evidence from our indicator set."

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8. FX Volatility: well I can say I was right in that volatility came back in violent fashion... on direction, the DXY has left a trail of false breakouts in its wake over the past year or so.  Given some of the significant bearish medium-term signals for the US dollar, I would expect the sharp surge in the DXY last week will also end up as a false breakout.  But with everyone dealing with their own issues and central banks all doing their best to keep their economic patients alive, I would say a good base case is more of the same of ranging and false breakouts in the immediate term.

"FX Volatility: one key piece of the puzzle for commodities is the US dollar, and while I continue to maintain a bearish bias there, one thing I am very mindful of is the crunch in FX volatility.  Typically crunches in volatility like this tend to be resolved in a violent fashion: that is, it could be a harbinger of a large/rapid move (agnostic of direction).  So, will 2020 bring a return of volatility for the US dollar?"

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9. Value vs Growth: 'if you liked value stocks before...'  So obviously with value stocks slightly over-represented in energy/commodities/financials, and the fact we ended up with the opposite of what I outlined below as macro catalysts for value vs growth (i.e. what we got was lower bond yields, disastrous growth, and lower commodities), this has not worked out so far.  Going back to the common theme of this update - valuations - the relative value of value stocks now looks even better.  But clearly, we find ourselves tied up with a lot of other common (macro) themes with this one, in terms of catalysts, so it's back to the drawing board for now. 

"Value vs Growth: the investment strategy graveyard is littered with failed calls for a turnaround in the performance of value vs growth stocks.  But I think we could be close to the much-awaited and much-forecast turning point.  Relative value between the two cohorts is at the lowest point in 20 years, and in terms of macro catalysts, my expectations for higher bond yields, better growth, and higher commodity prices will help the sectors that are slightly over-represented in value vs growth.  So don't forget about value."

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