Business

Francois Trahan Explains How Market Leadership Is Changing

In an exclusive interview, top-ranked portfolio strategist Francois Trahan explains the changing market leadership and why it’s predictable WEALTHTRACK #1452 broadcast on June 15, 2018.

Get The Timeless Reading eBook in PDF

Get the entire 10-part series on Timeless Reading in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q1 hedge fund letters, conference, scoops etc, Also read Lear Capital: Financial Products You Should Avoid?

Francois Trahan

Francois Trahan Explains How Market Leadership Is Changing

Transcript

The fourth quarter of last year investor preference is for all things cyclical all things that do well when the economy is improving when economic prospects are improving or when leading indicators are improving. Maybe is the way to think about it. When leading indicators start topping out all of a sudden investors start to look for something a little different. And so when you look at the characteristics of the best performing stocks last year and the fourth quarter specifically you know it's the high beta companies the very cyclical companies that are leading the charge. So energy industrials financial financials. Right. And all of a sudden in January that started to change. And initially it was you know it wasn't very obvious it became very obvious later in the month when the market you know kind of cratered. But what you see when leading indicators top out is that investors start to turn toward companies that have some sort of longer term story when they start to question what might happen to the economy. They look for companies with some sort of structural or secular story. Right. And so if they're wrong on the economy you know they might not have not be impacted significantly. And so by default that tends to push people towards the growth your names.

So the period that follows a peak in leading indicators when it comes to leadership at least is what I would call the growth phase of the market where and I'm not talking about you know growth as the in terms of the asset class but more growth in the growth complex if you will in this sector like tech stocks for Intel's tech is the growth the ascent right in the S&P the second growth sector would be consumer discretionary. And this year you're talking about number one into in terms of performance. And so it's not a coincidence that's how things are supposed to work. Following a peak in leading indicators so in many ways you know this is the most difficult backdrop I think for investors when leading indicators top out is the economy still feels great. GDP is still accelerating employment industrial production S&P revenue. All of those things are still accelerating but leading indicators start topping out which indicators leading indicators in particular are topping out wells and there is a lot of orders the Purchasing Managers Index referring to interact. Well that's one series that I like a lot. Yes the very visible series but at the end of the day we choose to use that one to illustrate our you know to illustrate the cycle. So when did they peak.