05.10.2021
The European re-opening trade
The European Travel & Leisure (SXTP) sector looks expensive versus nearly every one its peers. For bulls, it may no longer be the best expression of the European re-opening trade; for bears, the one most vulnerable in any equity correction.
RETINA™ has flagged a number of divergence signals on models involving Travel & Leisure versus other sectors. SXTP versus Financials, Industrials and Personal & Household goods are all showing a 1.8 sigma dislocation between macro fair value & current spot price. It is 1.9 sigma rich versus both Energy & Media.
On each occasion macro-warranted fair value is flat-lining; the recent spate of SXTP outperformance has overshot fundamentals.
On each occasion macro-warranted fair value is flat-lining; the recent spate of SXTP outperformance has overshot fundamentals.
The macro regime is broadly the same each time. Reflation (rising inflation expectations, steeper yield curves, rising commodity prices) plus “risk on” (tight credit spreads & no China stress) provide an environment for Travel & Leisure to outperform.
But a lot of that good news is now priced. Back-testing the sector RV pairs cited above suggests Personal & Household Goods (SXQP) is the most efficient expression should a correction unfold.
It’s the same picture versus the broader Stoxx 600. It is a reflation play, is rich & now at levels that, since 2009, selling SXTP vs. SXXP has produced a 67% hit rate & +0.8% average return.
There is a health warning though. In every case model confidence is rolling over &, in some cases, we are on the cusp of falling out of a macro regime. A cautionary flag for SXTP longs to monitor.
But a lot of that good news is now priced. Back-testing the sector RV pairs cited above suggests Personal & Household Goods (SXQP) is the most efficient expression should a correction unfold.
It’s the same picture versus the broader Stoxx 600. It is a reflation play, is rich & now at levels that, since 2009, selling SXTP vs. SXXP has produced a 67% hit rate & +0.8% average return.
There is a health warning though. In every case model confidence is rolling over &, in some cases, we are on the cusp of falling out of a macro regime. A cautionary flag for SXTP longs to monitor.
