Summary
Market conditions remained constructive, with breadth improving meaningfully across short-, intermediate-, and long-term measures over the past month. We continue to view the market as being in a structural bull market, while keeping price action at the centre of our investment process and using it to guide positioning decisions. Inflation also remained an important theme, particularly as rising energy prices began to contribute more meaningfully to CPI. In that context, gold behaved as it should as an inflation hedge, and we added back exposure through select gold mining positions, supported in part by continued central bank buying.
Positioning also shifted further toward more cyclical areas of the market. Consumer discretionary relative to staples, and transports relative to utilities, continued to signal a risk-on backdrop, with added exposure in rails and some renewed interest in copper. Cash levels moved lower to about 10% across the firm as we deployed capital into areas including precious metals, industrial chemicals and gases, and financials. On the geopolitical front, the Iran situation remained a key risk to monitor, particularly around the Strait of Hormuz, but markets largely absorbed those risks for now, with a more defensive posture reserved for any material deterioration in conditions.
Key Takeaways
Breadth improved meaningfully this month
- Short-, intermediate-, and long-term breadth models firmed up over the last month and now sit in generally healthy territory, reinforcing a more constructive market backdrop.
Inflation remained in focus this week
- Rising energy prices continued to contribute to upward pressure in CPI, and despite some softness on the day, the broader inflation trade remained intact.
Gold exposure moved back into portfolios
- Gold continued to behave as an inflation hedge, and select gold mining positions, including Alamos Gold, Agnico Eagle, Wheaton Precious, and Kinross, moved back into portfolios depending on mandate. Continued central bank buying also remained supportive of the trade.
Positioning shifted further toward cyclical areas
- Consumer discretionary outperformed staples and transports outperformed utilities, reinforcing the pro-cyclical tone in the market. Positions were added in rails, including CP Kansas City and CSX, while utility exposure remained below 1% across the firm.
Cash levels moved lower as capital was deployed
- Cash and cash equivalents declined to about 10% across the firm as capital was deployed into areas including precious metals, industrial chemicals and gases, and financials, including Citi and Morgan Stanley.
Geopolitical risk remained in focus
- The Iran situation continued to evolve, with particular attention on risks tied to the Strait of Hormuz. Markets largely absorbed those risks so far, while a more defensive posture remained the appropriate response if conditions were to deteriorate.