Ai For Alpha Market Focus

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???? ? The return to grace of Value?

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The value style has?just?broken?its?last?highs?established?at the?beginning?of 2022,?before?the?outbreak?of the?war?in Ukraine. It?is?the first global index to break?through?its?established?highs?before?the correction in 2022.??

What?information?does?this?signal tell us???

First, this market fact reflects an improvement in the financial situation: risk premia, notably implied?volatilities?and credit spreads, have eased across all asset classes, as?evidenced?by the sharp fall in the risk index calculated by Ai?For?Alpha, reflecting investors' appetite for risk.??

Secondly, this signal reflects the rotation of style in favor of value stocks, at the expense of growth stocks. In Europe, discounted stocks outperformed by 6.5% over the last two years. In the United States, the outperformance over this period even amounts to 17%! It is true that discounted stocks have lagged growth stocks by 2 to 3% per year over the last ten years. Similarly, the geographic discounted indices,?i.e.?European and emerging stocks, have stood out this year with respective performances of 9% and 8% since the beginning of the year, compared to the 3% rise of the S&P 500.?

Indeed, CTAs have changed their positioning over the last month:???

- They have almost immunized their bearish positioning on equities and have repositioned themselves bullishly on the European equity markets. Over the last twelve months, stock market performances have ranged from -28% for the Nasdaq to +3% for the FTSE, while European equities have only declined by 5%, after a 14% rally in one month. There is no debate about the normalization of stock market indices.????

- The bullish positioning on the dollar, and particularly on the EUR/USD and GBP/USD, is declining.???

- On the other hand, the bearish positioning on bonds is maintained and even reinforced, especially on short-maturity bonds (less than 2 years) that reflect the monetary tightening of central banks the most.????

From a sector perspective, this is reflected in the overperformance of cyclical sectors in recent years, notably Energy, Basic Resources, and Financials. As China breaks with its "zero Covid" health strategy, reopens its?economy, and prepares itself for fiscal stimulus, commodities (notably base and precious metals, but also energy and agriculture) have favorable fundamentals for this year 2023. And if hopes of monetary easing by central banks were to be dashed, rising rates would certainly not be over, but financial stocks could continue to benefit.??

2022 saw the end of the?zero-interest?rate era, but it may also have marked the beginning of an era of outperformance by value stocks?relative?to growth stocks.?