Exploring the Relationship Between Assets and Economic Variables

One method to assess the performance of an asset is by comparing it to historical connections with an economic indicator. Bank of America's strategists, led by Michael Hartnett, conducted this analysis using the U.S. ISM manufacturing index and its correlation with price movements.

Identifying Winners and Losers

According to their findings, companies in the commodities sector and select "mercantilist stock indices" like South Korea's Kospi, Sweden's OMX, Germany's DAX, and emerging markets excluding China are currently positioned as the cheapest assets based on this metric. Conversely, Japanese stocks and semiconductor stocks are trading under the assumption of a robust U.S. ISM outlook.

Economic Insights and Investment Advice

The most recent U.S. ISM manufacturing reading stood at 49.1%, a level indicative of 1.9% annualized GDP growth according to ISM standards. In light of this data, Bank of America's team suggests that investors should consider being "long producer, short consumer." The global PMI figures further support this stance, showing a shift towards order surpassing inventories while consumer indicators hint at a slowdown in spending and hiring activity.

In Summary

By analyzing asset performance through the lens of economic indicators like the U.S. ISM manufacturing gauge, investors can gain valuable insights into market trends and potential opportunities. Bank of America's strategic guidance emphasizes the importance of positioning portfolios accordingly to navigate the changing economic landscape effectively.

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