Whilst the headline indices held up in 2015, the drivers behind the US equity market have been weakening for sometime. Index levels have been pendant on flows into a concentrated number large cap technology growth shares and, outside these, supported by extraordinary levels of share buy-back activity. Meanwhile the model-dependent Fed is hawkish as long as employment numbers hold up. Should they do so, higher rates crimp equities but should they weaken, other aspects of the US economy will presumably be weakening in tandem. These are an unattractive set of payoffs and our core thesis now calls for a bear market in US equities. We have been reducing risk within portfolios and have moved to a more defensive position.
About the Author: James Spence
James is a co-founder of Cerno Capital and lead manages a number of the firm’s collective and private portfolios. After qualifying as a chartered accountant in London (Coopers & Lybrand, 1989) he relocated to Asia. Between 1991 and 2004 he worked as an equity analyst, head of research, and latterly as an equity strategist at WI Carr, Paribas, HSBC and UBS, based variously in Hong Kong, Singapore and Jakarta. James graduated from the University of St Andrews, Scotland with an MA in Philosophy & Logic in 1986. James is a Member of the Chartered Institute for Securities & Investment.