Note Précis February 21,2018: Markets Matters of Choices: Worldwide capital market correlations had previously appeared to loosen but do seem tighter in the aftermath of equity market drops in early February 2018, amid continued increases in U.S. Treasury fixed income instrument yields. When the U.S. and China closed markets on holidays this week, many others were unable to holdup. When the present market cycle commenced in 2009 in the midst of credit debacle, much depended on central banks. Now, U.S. 10 year Treasury Note yields at 2.95% are already over double their lows and could reach 4.75% by Q1/2019 as the grip of quantitative ease loosens on markets. As the potential for valuation gains become flaccid, choices matter in the markets. Alongside higher volatility, vestiges of momentum remain. They appear in junk bonds and favor for the Yen on more quantitative maneuvering. Instead, we favor short duration. Further in global allocation, we favor commodities diversification via markets like Australia and Canada. In equity growth and unlike tradition for this stage, we favor Information Technology over Healthcare and Consumer Staples on valuation and delivery. In cyclicals, we see Consumer Discretionary as mired in wrenching late cycle restructuring and favor Industrials instead. In tangible assets, we favor adversity restructured Materials and Energy over Real Estate that has gorged on low rates and easy money. On restructuring and balance sheet strength amid potential rate increases, we favor Telecommunications Services over Utilities, reputedly an income safe haven. Financial Services remain crucial for most equity markets but realities worldwide show the advantages still to lie with those earliest and most ruthlessly into restructuring.
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