Executive Summary

Energy and Materials: Still Sinking.  Earnings momentum in the Materials and Energy sectors has been negative every month since we launched our sector model 24 months ago.  The valuation of both sectors remains unattractive.

Japan: Risk of a Value Trap?  We have been Overweight Japan since launching our regional model in April 2014.  For the bulk of that period, both earnings and valuation factors were positive.  However, for the 2nd consecutive month, Japan’s earnings momentum has trended downward and earnings revisions have been negative.  It’s only valuation that supports its Overweight ranking, raising the risk of a value trap.

The Impact of ESG Factors in Regions.  In part reflecting the incorporation of ESG factors, Russia (weak ESG) is ranked 4th in our regional model, while North America (strong ESG) is ranked 2nd.  If our regional model did not incorporate ESG factors the rankings would be flipped: Russia would rank 2nd and North America 5th.

Figure 1:  Sector Over- and Underweights          Figure 2: Regional Over- and Underweights

Geraghty monthly figure 1 geraghty monthly figure 2

Source: Cornerstone Capital Group


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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.