There is a lot of alpha on offer during reporting season, particularly for those who move
quickly. Usually, its sets the tone for relative performance trends in the months that follow. Strong results are rewarded, weak results are punished and, more importantly, there tends to be legs to these trades.
But, at turning points for the economy and corporate earnings, what’s in the rear vision
mirror can quickly become irrelevant for what’s in front. Over the next 12 months what the market rewards will be the reverse of what it has rewarded over the past 12 months. Instead of focusing on earnings growth and scarcity at any price, the market will shift its focus towards economic and interest rate leverage, and this means shifting holdings in the hope of gaining cyclical upside.
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