Our stock-bond model (three- to six-month view) was modestly Overweight global equities mid-January, but preliminary is +5) mid-January before it rose back to +3 in early February. The initial drop in the equity score was driven by the reversal signal from net advances in stocks significantly exceeding the historical average. In early February, we observed (i) net after they contracted for four consecutive months. The model has delivered a 61% return since inception in February 2023, outperforming the 60/40 equity/bond benchmark annually with an excess return of 8.2% over entire the period. Our short-term equity models (one- to three-month view) are not expecting a bear market yet. The estimated bear market probabilities for the S&P500 and MSCl AC World are 42% and 17%, respectively. Momentum indicators have softened for both indices. Risk indicators remain benign for MSCl AC World, but they have worsened significantly for S&P 500 as VIX exceeded 20 amid recent market weakness. Our short-term currency models are also bullish EUR/USD and AUD/USD. EUR/USD continues to perform relatively better than many Asian currencies, and it remains undervalued relative to market factors. Meanwhile, momentum factors are currently strongly supportive of AUD/USD, and reversal signals are muted. Our short-term models have delivered positive returns YTD for each asset. Our market diversity indicators flag potential overbought conditions in equity markets of EM ex Asia, Malaysia, US consumer staples and materials, Europe utilities and currencies (AUD/USD and CNH/USD). Gold no longer appears overbought after it was flagged by our indicator in January and experienced a 14% peak-to-trough decline.
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