We are closing our long Russell 2000 recommendation with a modest potential loss, initiated on March 15 following the better-than-expected data in the first of the regional surveys. The recommendation was predicated on (i) still friendly, if not accelerating, US macro data, (ii) supportive monetary policy, and (iii) better insulation that Russell offers against global concerns, including Europe and China, relative to some other implementations (SP 500 index and Wavefront GDP Growth Basket).
Since then, the macro data (both US and global) have come in more mixed than we would like, with Friday’s non-farm employment growth report clearly disappointing. Furthermore, last week’s “guts” of the ISM were weaker than the headline reading, and the momentum of our Global Leading Indicator (GLI) stalled. Combined with the fact that the Fed may be further away from a fresh round of easing than we had expected, two out of three pillars supporting the recommendation were compromised. And as the risk/reward of backing the US growth upgrade worsened, Euro area sovereign risks resurfaced yet again. With an upcoming “lull” in the US macro calendar and a significant batch of Chinese data forthcoming, we think it is prudent to step back and re-evaluate our overall tactical trading view.
Fortunately for anyone who took up the call, the loss is indeed likely to be “modest.” On March 15, the Russell 2000 was trading at around 830. It closed last Thursday at 818.