Value, Growth or neither?Looking at equity markets as a conflict between Value stocks and Growth stocks has become a reflex for many market commentators. ‘Growth is beating Value’ (or the other way around) is always a good headline. Value stocks are defined as basically cheap stocks and it is, therefore, possible in any index, to point to the Value side of that index. Growth stocks are defined as stocks with above-average growth prospects. So again, it is possible to look at an index and point to the growthiest stocks. The main index providers have done exactly that by splitting their main indices in two down the middle, a Growth and a Value version, as early as the 1980s.
Using Value and Growth to explain the last ten years
While simplistic and playing into human’s love of false dichotomies, it is true that this narrative explained the last ten years of equity performance pretty well. From the overwhelming domination of Growth stocks, in a negative interest rate environment where investment was cheap, to the start of a Value revival last year, on the back of the most aggressive tightening cycle in decades.
What about the other factors? Didn’t Quality perform better over that period?
However, most things in our world can’t be reduced to a simple choice. Academics have demonstrated over the last five decades that multiple other factors can be used to slice and dice the markets to create outperforming portfolios. In the 90s, Fama and French introduced their 3-factors model using Value but also Size and Momentum to explain market returns. More recently, they added Profitability (often called Quality) and Investment in a new 5-factors model.
Looking at the performance of the seven leading factors over the last ten years, we note that while Growth beat the market by 1.6% per annum and Value underperformed by 1.9% per annum, the strongest factor was, in fact, Quality with an outperformance of 2.3% per annum1.
Is Quality Value or Growth, then?
Using Quality as a third lens, we observe that companies in the Value index are, on average, less profitable than those in the benchmark, and that those in the Growth index are, on average, more so. 23% of the S&P 500 Value exhibit less than 10% in return on equity (ROE) versus less than 5% for the S&P 500 Growth. And 25% of the S&P 500 Growth has more than 50% in ROE versus less than 5% for the Value index.
However, what is fascinating is that in the Value index, there are still some very profitable companies and in the Growth index, there are still some unprofitable companies. In other words, the Value/Growth dichotomy is very different from the High Quality/Low Quality one. The market could therefore be split not into two indices (Value and Growth) but into four:
High-Quality Value
High-Quality Growth
Low-Quality Value
Low-Quality Growth
Historically, High-Quality Value has outperformed High-Quality Growth
Using academic data, it is possible to splice US equity markets since the 60s into groups by fundamental data. In Figure 3, we focus every year on the 20% of the universe with the highest operating profitability (that is, High Quality in Figure 3). That group is then split into five further quintiles depending on their valuations (using price to book (P/B) as a metric) from the cheapest to the most expensive.
We observe that picking profitable companies with high P/B would have outperformed the market since the 60s but would have underperformed profitable companies in general. On the contrary, picking cheaper High-Quality companies would have outperformed both the market and the overall High-Quality grouping. In other words, Quality Value has outperformed Quality Growth over the last 60 years in US equity markets. Looking at other geographies, such as Europe, we find similar results.
At WisdomTree, we believe that a well-constructed Quality strategy can be the cornerstone of an equity portfolio.High-Quality companies exhibit an ‘all-weather’ behaviour that offers a balance between building wealth over the long term whilst protecting the portfolio during economic downturns. However, in 2022, secondary tilts were incredibly important. Value stocks benefitted from central banks’ hawkishness, leaning on their low implied duration to deliver outstanding performance in a particularly hard year for equities. Among Quality-focused strategies, the one with Value tilt delivered outperformance on average, and the one with Growth tilt tended to underperform.
Looking forward to 2023, recession risk continues to hang over the market like the sword of Damocles. While inflation has shown signs of easing, we expect central banks to remain hawkish around the globe as inflation is still very meaningfully above targets. The recent coordinated communication plan by Federal Reserve Federal Open Market Committee members is a further example of this continued hawkishness. With markets facing many of the same issues in 2023 that they faced in the second half of 2022, it looks like resilient investments that tilt to Quality and Value that have done particularly well in 2022 could continue to benefit.
Sources
1 Source: WisdomTree, Bloomberg. From 31 January 2013 to 31 January 2023. Growth is proxied by the MSCI World Growth net TR Index. Value is proxied by the MSCI World Value net TR Index. Quality is proxied by MSCI World Quality net TR Index. The remaining 4 factors (Min Vol, High Dividend Small Cap and Momentum) are also proxied by indices in the MSCI families.
FOMC
Momentum Setup // Pre-newsWe have a wicks to fill. One is at 1.06174. The Other wick is the Previous weekly candle low at 1.06120. We have momentum so most likely we will touch these prices at some point. We are trading 2 hours before news here. Ultimate target on week on 1.055. Additionally, I think FOMC will help provide a catalyst to take us lower. We may pullback hard first, for liquidity. So be aware of price spikes as we walk into news. Momentum , with regard to Price Action, is explained in the previous post. If we look at Weekly/Daily timeframes we see all red or what we interpret as rejection wicks, which aligns with our bias.
AUD/USD rises on strong capital spendingThe Australian dollar has rebounded on Thursday, after a 2-day slide in which AUD/USD lost 100 points. In European trade, AUD/USD is trading at 0.6830, up 0.37%. On Wednesday, the Australian dollar fell to 0.6794, its lowest level since Jan. 6.
Australia's private capital expenditure jumped 2.2% q/q in Q4 2022, rebounding from 0.6% in Q3 and above the estimate of 1.3%. Building capex sparkled with a 3.6% gain, after declining by 1.6% in the third quarter. The strong numbers have pushed the Aussie higher on Thursday.
The capex release comes on the heels of wage growth, which slowed to 0.8% q/q in Q4 2022. This was lower than the 1.1% gain and the estimate of 1.0%. On an annualized basis, wage growth edged up to 3.3%, up from 3.2% but lower than the estimate of 3.5%. The RBA is keeping a close eye on wage growth, concerned that stubbornly high inflation could trigger a price-wage spiral that would entrench inflation expectations and complicate efforts to curb inflation.
The FOMC minutes reiterated what we've been hearing from Powell & Co. for months. FOMC members said there were signs that inflation was heading lower but more rate hikes were needed to bring inflation back to the 2% target. The minutes noted that the labour market remains robust, which is contributing to continuing upward pressures on wages and prices." It should be noted that the minutes are somewhat stale, given the blowout employment report and the jump in retail sales which were released after the February meeting. These releases point to a surprisingly resilient US economy and could mean that members will become even more hawkish.
An important takeaway is that although the vote to hike by 0.25% was unanimous, two members (Bullard and Mester) saw a case for a 0.50% increase. The markets widely expect another 0.25% hike in March, but the host of unexpectedly strong releases in recent weeks has raised the likelihood of a 0.50% move. We can expect market pricing to continue to shift as the US releases key data in the coming weeks ahead of the Mar. 22 meeting.
AUD/USD has support at 0.6784 and 0.6690
There is resistance at 0.6907 and 0.7001
USD Index Targets 104.820 After US Federal Reserve Meeting?We have learned that almost all US Federal Reserve officials backed a 25-basis-points rate hike at the last FOMC meeting held on January 31 to February 1.
Only a few officials favored a larger 50-basis-points hike at the meeting or said they "could have supported" it. Even so, many more dovish sentences were spoken in the latest meeting than compared to the December meeting. Although, officials did not go as far to consider a pause in rate hikes. The only time this topic was broached was in reference to foreign central banks and their potential strategies.
Of course, the meetings also showed the obligatory note that, although the rate hikes have started to ease inflationary pressure, officials agreed that there was much more work to do to get inflation under control and were definitely aware of the risk of not doing enough, so the drip of dovish language will likely continue for some time before a dovish outlook overtakes a hawkish. Especially, because the meeting took place before the release of the hotter-than-expected jobs and retail sales data from January. This might go some way in supporting the USD in the short to medium term.
Looking at the DXY after the release of the minutes, it looks to have helped the USD index push into the mid 104s, where it is encountering some resistance. The index only has to break into 104.700 to eclipse its recent one week high and return to its month high. A target above this range could include 104.820, which aligns with the 200-EMA and some peaks reached in January.
USD/CHF LONG POSITION FED MEETING NEWS Good Morning everyone,
As we expect the dollar is gaining some power during this weeks, and the previous meetings is being bullish for the usd currencies.
In that matter we expect the same to happen today at 01:00pm.
this trade is expected 1/1 risk reward.
That's my personal opinion for today
DXY:The Dollar continues to be boughtInflation has not been eliminated yet in the US, the Economy is good which indicates the interest rates hikes will not stop yet. which we want to confirm today with Fomc.
in today's trading session we are monitoring DXY for a buying opportunity around 104 zone, once we will receive any bullish confirmation the trade will be executed.
Trade safe, Joe.
XAUUSD getting ready for blast off??Good afternoon gold gang! hope you're well.
Wow, not much movement again today waiting for the FOMC minutes to come out. Gold price is hugging my middle level there perfectly tapping into it continuously.
This normally happens before a news event and is usually quite a big move coming from it, so lets see!!
I have my targets above and below .. we might even see a whipsaw where it takes them both .. who knows!
Until then, stay safe in the markets .. ill be back this evening with an update
Tommy
Gold consolidates ahead of FOMC minutesThe main event for today is actually the release of the FOMC minutes tonight at 19:00 GMT – for which we have gold in focus.
The rise of US yields and increased expectations of a 50bp March hike mean the minutes have become of greater importance. As traders had assumed a 25bp February hike was practically a given, it could come as a surprise if we learn that the Fed were closer to opting for a 50bp hike than previously assumed – and that would likely increase bets of a 50bp hike in March, given the slew of strong US economic data we’ve seen of late. And that could be bearish for gold.
Our original call for a retracement towards 1900 has worked out quite well. It didn't quite reach 1900, but it was good enough for bears to fade into a move for the anticipated wave C lower - which we still have a target of around 1800.
Gold remains within a downtrend on the 4-hour chart and consolidating near its lows. You could say its leaning on the ropes, but also doing quite well considering how strong US yields performed yesterday. On the assumption that markets are sensitive to perceived hawkish FOMC minutes, I suspect gold will trey to push lower and test the lows around $1820. We may seen an initial move higher (given Friday’s bullish hammer on the daily chart), but the weekly pivot point and $1850 handle loom above – which I suspect will cap upside potential for now.
Upside risks for USD/JPY continue to buildIt may have taken a few weeks, but markets are finally pricing in what we argued all along; a higher terminal rate and no cuts this year.
If you cast your mind back to the Fed’s recent 25bp hike, it is fair to say the Fed were not impressed with the market’s original response. Fed fund futures not only lowered the terminal rate to 5% but even began pricing in two cuts this this. And that has all been reversed, and rightly so in our view.
Fed members were quick to respond and read from the same hawkish script, with little success early on as markets continued to call ‘bulldust’ on their rhetoric. That is, until a strong Nonfarm payrolls report shook things up, as it paved the way for further hikes. Yet it has taken over two weeks, a plethora more hawkish comments and strong data for markets to slowly wake up to the fact that a higher terminal rate is the more likely path for the Fed, and for us to forget about cuts this year. And that is the scenario we have backed throughout.
February data which has underscored the Fed’s hawkish stance include (but not limited to):
• Nonfarm payrolls 517k (185 expected, 186k previous)
• Unemployment 3.4% (3.6% expected, 3.5% previous, near historic lows)
• ISM services 55.2 (50.4 expected, 49.2 previous)
• CPI 6.4% y/y (6.2% expected, 6.5% previous)
• Retail sales 3% y/y (1.8% expected, -1.1% previous)
• Core retail sales 2.3% (0.8% expected, 0.4% previous)
• PPI 0.7% m/m (0.4% expected, -0.2% previous)
Fed fund futures now imply:
• 76% chance of a 25bp hike in March (down from over 90% two weeks ago)
• 25.5% chance of a 50bp hike in March (up from 9% two weeks ago, or 0% three weeks ago)
• A terminal rate of 5.5% in June (up from 5% terminal rate after the Fed’s last meeting)
• Less than a 35% of a 25bp cut in December (two cuts were being priced in after the Fed’s Fed meeting)
What are we looking for in the FOMC minutes?
For current market pricing to be sustained (or justified, for want of a better word) we’ll need to see a more finely balanced debate over a 50bp hike versus a 25bp in Feb or even March. Markets took it for granted that a 25bp was a given in February, so any uncertainty surrounding this assumption would knock confidence that another 25bp hike in March is a given. And that could send the US dollar and yields higher, and the stock market and gold lower.
USD/JPY daily chart
USD/JPY reached our upside target around the 200-day EMA / 161.8% Fibonacci projection outlined last Monday, following its false break of 130 and prominent bullish pinbar. Momentum is clearly pointing higher overall, and the recent repricing of Fed fund futures and rise in bond yields ahead of the FOMC minutes provides hope that its trend can continue (if the minutes are deemed to be hawkish, as we suspect). The high around 138 are the next major resistance level, near where another soft US CPI print and the BOJ widening their YCC band originally sent the pair lower.
FOMC Minutes are major pivots Most of the FOMC focus is on the rate announcement and press conference, but I found the minutes actually make better pivots. It's especially clear on the weekly chart. I expect this one to be bear, but will roll with it either way. Which way do you see it?
New sell zone on EURUSD Last Friday EURUSD reached 1,0611 and pullback from the level.
The rise may continue to 1,0730, where we will be looking for sell opportunities again.
An entry is made only after pullback from the zone.
The target is test and breakout of the last week’s low.
The scenario breaks down on moving above 1,0805.
GOLD vs DXY - Negative Correlation, meet in the middle?I've mapped XAUUSD (top) against DXY (bottom) to clearly show the almost perfect negative correlation.
DXY is more extreme in it's movements, as highlighted in the recent candles.
I'm expecting further strength for DXY this week, especially as FOMC speakers are all hawkish and the market is expecting a 0.5% rate hike.
If this is correct then Gold will have no choice but to fall, and I'm expecting it to hit the 1775 level, due to DXY strength.
USDCAD: Expecting a breakout and push up to 1.38With public holiday's in both USA and Canada tomorrow, I expect a quiet start to the week for this pair.
On Tuesday it's Canada CPI which has been falling. Bank of Canada have just paused its rate rises as it expects inflation to come down to around 3% by mid-year and 2% in 2024, so if inflation continues to fall this should be negative for the CAD.
On the other-hand, the DXY strength I've posted about in recent ideas seems to be materialising and I'm expecting a push up to test 105.2 - 105.6, particularly with the FED stating 'the battle with inflation certainly isn't won', and recent other economic data supporting the chances of the US avoiding recession. The FED still has room for manoeuvre and may be looking at another 0.5pt hike in the pending FMOC minutes, which will be good for the dollar.
From a technical perspective, price is bouncing off the 200MA (8hr) and above the 50MA and 100MA, which are about to cross, and so I am bullish bias.
If the fundamentals play out as I expect, I'll be looking to get in long on this pair before the breakout of a quick for a quick scalp, and then monitoring for a rise up to 1.38 following the break and retest.
BTCUSD LongsHello traders,
It looks like we can finally see a shift in the BTCUSD orderflow, we was delivering bearish for the past couple of months and now we can see accumolation put in motion.
At probability stand poin we have higher chances of seeing price of BTCUSD continue pushing forward as long as the price is showing us this.
XAUUSD H4 - Long Signal XAUUSD H4 - Solid bounce from the analysis yesterday in the end, position is looking healthy, but as always, to continue to trend and theme, we need to be breaking previous highs, and setting fresh higher lows. Lets see what happens this morning and throughout the course of the overlap with the data possibly catalysing this move forward.
Reduce inflation rate from 6.5% to 3% this years, says WilliamsFOMC's Williams speech did not do much, as he was echoing what Jerome Powell already said 2 days ago. Rate hikes to resume, but at slower pace. Williams mentioned that inflation rate in the US should cool off to 3% this year, now at 6.5%. That's 50% lower.
Question is, how much more rate hike is required to push inflation down by 50%? Will that be somehow somewhat slowdown the US economy as a whole? A whole lot more tightening will need to take place, as I see it. Lending has already begun to tighten and credit is more difficult to obtain due to stricter requirements by banks.
Hmm... how will this play out?
By Sifu Steve @ XeroAcademy
#usdollar #usd #dxy #interestrates #useconomy #federalreserve #FOMC #inflation
GOLD SHORT TERM INTRADAY IDEAIntraday Analysis - ( 9 FEB 2023 )
Price still trading in a range, range plays are always valid however will be looking for break outs in days to come.
HRHR sells 1902 / 1897 regions
MRMR sells breaking back below 1876
Safest sells below 1860
A break of 1860s, will be targeting minimally 1830s giving us a solid 300+ pips with 1845 as a first target.
Scalp buys are valid in this range however will be more incline to take buys above 1886.5. HOWEVER LOOK OUT FOR 1890 PSYCHOLOGICAL KEY LEVEL.
DXYAfter reaching the bottom of the ascending channel, the dollar index has started moving upwards.
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EURUSDAfter testing the price ceiling and inability to break the ceiling, it will enter the downward trend and move towards the bottom of the sideway range.
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PYPL Long Resault: 25.28% Profit✅A good opportunity to long position and get a good profit from the attractive American stock market
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PYPLA good opportunity to long position and get a good profit from the attractive American stock market
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GM Long Resault: 24.89% Profit✅A good opportunity to long position and get a good profit from the attractive American stock market
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GMA good opportunity to long position and get a good profit from the attractive American stock market
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