Investors Rotating Leadership from QE ‘Winners’ to QE ‘Losers’

Investors Rotating Leadership from QE ‘Winners’ to QE ‘Losers’

Investors Rotating Leadership form QE ‘Winners’ to QE ‘Losers’


Analysts are expecting investors will shift their holdings as the realization sinks in that the Fed is committed to raising interest rates until a major event compels the central bank to reverse course.

That means investments that had strong gains during a decade of QE (quantitative easing) a way for will lose out to strategies that have been out of favor since Y 2008.

HeffX-LTN believes that investors will rotate the leadership from QE winners to QE losers at a pace contingent on how fast profit growth slows

YTD returns indicate that the rotation has started.

QE winners are Technology stocks, US and European high-yield bonds, and emerging markets.

QE losers are cash, commodities, government bonds and volatility.

If Q-1 was about volatility, Q-2 will be about rotation within a big trading range, rotation specifically from levered cyclical plays to liquid defensive plays.

The Fed is expected to raise interest rates at least 2X this year, and the ECB and BOJ have indicated they will scale back their stimulus programs too

The Fed started this process in 2014, and is letting its balance sheet shrink as its $4.5-T of debt holdings mature.

As the Fed gradually withdrew monetary stimulus, stocks got a renewed boost from the possibility of greater fiscal stimulus after Donald Trump won the US Presidency.

President ran on a pro-business platform of cutting taxes and regulation, boosting job growth and spending $1% on infrastructure like roads and bridges.

The S&P 500 stock index climbed 34% between the election on 8 November 2016, and 26 January 2018, a month after President Trump approved his broad tax overhaul.

Since then the market moved into correction mode and has been consolidating that huge move.

Stocks fell 12% from the January highs before trading in a range between the 50-Day and 200-Day MAs, 2 Key indicators of market trends.

Investors want to see solid earnings results from US companies and optimistic guidance for future sales growth. Key valuation measures are elevated, indicating that stocks are expensive compared with historical norms.

 As of 31 March the forward consensus P/E (price-to-earnings ratio) was about 16.3X, or 7% higher than the historical average of 14.3X.

Monday, the major US stock market indexes finished at: DJIA +46.34 at 23979.10, NAS Comp +35.23 at 6950.34, S&P 500 +8.69 at 2613.16

Volume: Trade on the NYSE came in at 799-M/shares exchanged

  • NAS Comp +0.7% YTD
  • Russell 2000 -1.4% YTD
  • S&P 500 -2.3% YTD
  • DJIA -3.0% YTD

HeffX-LTN’s Market Indexes Technical Analysis

Date Symbol Price Technical Analysis Support Resistance
9 April 2018 QQQ 158.36 Bearish (-0.27) 156.59 158.73
9 April 2018 DIA 242.56 Bearish (-0.28) 238.32 242.80
9 April 2018 SPY 262.06 Bearish (-0.30) 259.11 263.42

Stay tuned…

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