U.S. equities are in the news again.

Amid the U.S. – China trade clash, people are questioning the short term outlook for U.S. equities.

According to a recent article on Marketwatch U.S. equities (S&P 500) are set for the worst performance in the month of May in nearly 50 years.

The U.S. – China trade tensions are important for markets, however following the constant news flow can become distracting.

As a portfolio manager you probably need to pay attention to the developments, but it’s also important not to lose track of the big picture. What is the underlying data saying about the short term outlook for U.S. equities?

To answer that question we use our short term risk appetite matrix for the U.S., which is composed of three categories:

  • Economic Activity
  • Monetary Conditions
  • Technicals

Each of these categories are made up of ClearMacro’s investment signals, which have predictive insight about market returns.

Short term risk appetite matrix is moderately risk off, suggesting portfolio managers should be cautious on U.S. equities

Currently Economic Activity and Monetary Conditions are both “Moderately Risk Off” (one red square), while Technicals are “Neutral”.

Below you can see the development of the three categories. Economic Activity has slowly deteriorated over the last 2.5 years. Monetary Conditions have fluctuated a bit, but has generally stayed in the range of “Moderately Risk On” to “Moderately Risk Off”. Technicals started deteriorating last year when U.S. equities started falling in Q4, and then started rising in the beginning of 2019. However, they have started deteriorating as of late.

Our conclusion is that investors should be moderately risk off U.S. equities in the short term (0- 6 months). However, this might change from one week to another when new data becomes available. When that happens, the ClearENGINE will capture the changes, and we can change our view accordingly.

Economic Activity has slowly deteriorated.

Monetary conditions have fluctuated and are currently “Moderately Risk Off”.

Technicals have started deteriorating lately.

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