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FTSE- a hedge given inflation and recession risk

Carlsquare
23/08/20222 min read
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The positive stock market trend that we have experienced during July is now broken. Several indicators support the current downturn in the stock markets based on US S&P500 being the leading index. The most important indicator is the USD High Yield Corporate Bond ETF HYG, which has broken down (i.e., a declining risk appetite for US high-risk corporate bonds).

Another negative factor for stock markets is that the USD has continued to strengthen. This tends to depress world stock market indices. In addition, energy and metals prices have rebounded upwards again, which could trigger higher interest rates.
 
Although interest rates have turned upwards ahead of the Fed's meeting in Jackson Hole later this week, real interest rates remain negative. Reminiscent of the 1970s, the energy sector now accounts for a very large share of the S&P500 index's growth in aggregate corporate profits. During the oil crisis that began in 1973, the spike in interest rate came some two years later, i.e., with a delay.

Looking at the performance of the world's major stock market indices, the UK FTSE index appears to be the perfect hedge, with its large share of Consumer Staples, Energy, Financials and Materials. At the same time, the FTSE has an extremely low proportion of IT stocks, whose valuation has been depressed by investors' increasing return requirements.

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Source: Global Investment Strategy (GIS) as of 29 June 2022.

US stock markets indices, led by the S&P500 and Nasdaq, account for almost 60 per cent of the total market capitalisation of the world's stock exchanges. Hence, a bet against S&P500 is a bet against the global world index.

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Source: www.di.se, www.cnbc.com

The FTSE index has generated a positive return of 2% so far this year. At the same time, the index has rebounded strongly twice, in March and July. The decline in July was of a similar magnitude to, i.e., Boliden shares with their exposure to the zinc and copper prices.

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Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

From a technical perspective, the FTSE, despite having outperformed other world stock market indices, seems to have approached a peak that it has historically not managed to surpass.

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Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

A long position in the FTSE and a corresponding short position in the S&P500 is a bet that this year's stock market and industry trends will last for yet at least some months.

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Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.
Bull and Bear Certificate
+0.36%
S&P 500® Index
3x Long
BULL SP500 X3 VN1
Bid
73.54
Ask
73.57
2022-08-23_CS6.png
Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

The full name for abbreviations used in the previous text:

EMA 9: 9-day exponential moving average

Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.

MA20: 20-day moving average

MA50: 50-day moving average

MA100: 100-day moving average

MA200: 200-day moving average

MACD: Moving average convergence divergence

Risks

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