A Little More Cyclical Once Again – Executive Summary

In the November edition of the Regional and Sector Strategy: Monthly Update we upgraded to Overweight two sectors with exposure to global growth: Consumer Discretionary and Information Technology.  As we discuss below, we are now upgrading the Industrials sector to Neutral from Underweight, largely reflecting improved valuation.  We remain Neutral on the two sectors that are widely considered the most defensive: Consumer Staples and Health Care.  This month we are also downgrading Utilities to Underweight from Neutral, largely reflecting unfavorable earnings trends.

In terms of regions, we are upgrading North America to Overweight from Neutral, largely because of earnings trends.  This upgrade is also consistent with our sector recommendations given that our three Overweight GICS are among the sectors with the largest weights in North America: Information Technology (#1 weighting), Financials (#2), and Consumer Discretionary (#4).  We are downgrading the U.K. to Underweight from Neutral, reflecting unfavorable valuation and earnings trends.  This downgrade too is consistent with our sector strategy — among the sectors with the largest weights in the U.K. are Consumer Staples (#2 weighting) and Energy (#3), two sectors we continue to avoid.

We also continue to avoid regions with heavy exposure to commodities, most notably Latin America (Underweight), South Africa and Russia (both ranked Neutral).

Figure 1: Regional Over- and Underweights (Arrows Indicate Change vs. Last Month)

Dec strat fig 1

Figure 2: Sector Over- and Underweights (rows Indicate Change vs. Last Month)

Dec strat fig 2

Source: Cornerstone Capital Group

Please click here for important disclosures.

Michael Geraghty is the Global Markets Strategist for Cornerstone Capital Group. He has over three decades of experience in the financial services industry including working as an investment strategist at UBS and Citi.