As the markets wrestle with a bit of instability this week, it's time to take inventory of what's right and wrong presently.
We have the following equation that has emerged:
- Silver and gold are getting some big money inflows. This isn't a trade that's new to Zenolytics. In fact, the gold trade was recommended way back in December as a long-term asset allocation opportunity. More recently, silver was discussed as being in imminent breakout territory in the weekly review note posted this past weekend. Silver is on its way to having one of its best weeks in quite sometime, further confirming the secular metals bull market thesis.
- Semiconductors have been surprisingly resilient this week. The situation could encounter some volatility next week, as there are a host of earnings reports that could case some deviation from the calm route we have seen in the past few days.
- Major financials have reported this week and for the most part, earnings were good. If nothing else, the sector has further confirmed that despite compression in net interest margins, there is some value to be had in companies that are sporting 3% dividend yields while trading at a high single digit multiple to earnings and at the same time, buying back massive amounts of stock.
- Technology, in general, despite semiconductors attempting to carve out a bright path forward have been all over the place. It has become too unreliable over the very short-term to make any significant decisions.
Of all the aforementioned sectors, financials remain in a position where they should be rotated into and away from high-beta technology.
Whether deciding to express this through a position in C, JPM or USB as a few obvious candidates, financials are in a position to mitigate the prospects of continued market turbulence into the end of the month, while continuing to present a very real value proposition if an investor is inclined to hold them for a longer period of time.
That's the asset allocation to make as the texture of the market has changed over the short-term and at the very least, should be countered through some reasonably conservative decisions.
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