Central banks remain a driver for US markets

US STRATEGY

US equities fell back during the first two weeks of February before recovering in the second fortnight. All in all, the market closed the month a notch higher.

Global de-risking continued with downsides in global equities, oil prices and core bond yields, and increases in volatility, credit spreads, bank default swaps, gold, the EUR and the JPY. While, at the heart of the current market volatility, lies deteriorating long-term US inflation expectations and related assumptions that the Fed will be forced to undo its hiking process and indeed join the trend towards negative interest rates, other risks also persist, e.g., faltering near-term DM growth and China “hard-landing” concerns.

The data for January also showed that business sentiment had softened to start the year, but that consumer and employment data had remained resilient.

The market then sharply rebounded during the third week and equities enjoyed their second-best week in more than three years as risk aversion eased.

Oil stocks, which had been suffering since the start of the year, recovered as oil prices rebounded from mid-February, thanks partly to the positive outlook from the International Energy Agency and to more encouraging comments from the OPEC secretary general.

• We did not alter our sector allocation but we reoriented our portfolios more towards a cyclical allocation, mainly by reducing the Healthcare sector and reinvesting the proceeds in the Industrials and Materials sectors.
• We nonetheless remain positive on Healthcare, Technology and Consumer Staples while staying clear from Telecom.
• We raised or initiated positions in Emerson Electric, Amazon, Wabtec and Xylem and we sold or reduced positions in Mylan, Boston Scientific, Amgen and Abbott Laboratories
• Our largest active positions are Pepsico, Alphabet and Nikes.