13.03.25 - Positioning for recession
Recent data indicates softer inflationary pressures, as the U.S. consumer price index released on Wednesday rose only 0.2%, slightly below analysts' expectations of a 0.3% increase. Today's published wholesale prices remained flat, further signaling easing price pressures in February.
Despite this positive inflation data, investor sentiment remains cautious, prompting shifts in portfolio allocations toward a recession-focused outlook in the U.S. market. This is reflected in recent sector performance trends, with technology, financials, and consumer cyclical stocks experiencing declines, while sectors such as energy, consumer staples, and utilities gained momentum.
Meanwhile, geopolitical tensions remain elevated, with Russia recently rejecting a proposed 30-day ceasefire in Ukraine.
Markets: global stock markets decline on a broad base, interest rates trending sideways, US dollar gains back some ground following recent losses, gold with new all-time high, cryptos sideways trending to losing ground.
My view: Following recent heavy losses, including Monday’s sharp decline - the worst since 2022 - markets tried to claw back some ground yesterday with a modest recovery. However, the rebound lacked certain strength, signaling to me a potential risk of further downside.
Currently, technical indicators provide little support for a sustained market recovery. On the contrary, technical strategies increasingly suggest downgrades. At the same time the investors sentiment remains on “extreme fear” level, an unusual persistence lasting over two weeks already. Typically, such extreme sentiment is short-lived and acts as a contrarian indicator, presenting buying opportunities. Current market conditions are definitely different, fueled by high number of uncertainties. With the Ukrainian war and trade war to continue there is not much evidence that markets should calm down and investors gain back some confidence in the near-term.
I believe the recession scenario should be taken seriously, as the probability is clearly rising.
In the ETFMandate portfolio I further reduced my overall equity exposure by taking selectively profit on European stocks together with tactical short-term investments and by adding only few positions with a long-term investment horizon.
My exposure to the financial sector has now been significantly decreased, approaching nearly zero. After previously exiting all positions in US financial stocks, I have recently reduced exposure to European banks and insurance companies over the past two weeks. For the time being, only select UK financial holdings remain in the portfolio.
In addition, with the recovery move yesterday, I re-opened the short call on semiconductors via a short ETF.
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