In his latest newsletter, Chris Wood of Jefferies urged investors to stick with the pro-cyclical commodity trade. Chris Wood says this is despite Beijing’s recent understandable efforts to talk down commodity prices, and despite concerns that a successful revival of the Iran 2015 nuclear deal will cause increased supply on the world oil market. Indeed both concerns should be used as opportunities to add to positions in the likes of copper stocks and oil stocks, as per Chris.

Interestingly, Chris notes that GREED & fear’s attention was recently caught by one widely followed monthly survey of fund managers by a prominent sell-side firm that reported the highest positioning in cyclical stocks like commodities and industrial materials for the past ten years. This is certainly possible given that most fund managers have spent the last ten years not owning such stocks since the combination of Fed balance sheet expansion and investor socialism, otherwise known as passive investing, has caused massive flows into the same stocks.

Chris says, in the short term, if GREED & fear had to favour one area of the cyclical trade the most it would be oil stocks.

Here are the key highlights of his recent note

• GREED & fear’s attention was recently caught by one widely followed monthly survey

• Fund managers have reported the highest positioning in cyclical stocks

• Ratio of the S&P500 market cap to the Federal Reserve balance sheet is now 4.6x

On India

• Growing evidence that the second Covid wave has peaked in India’s major cities

• 7-day average daily new cases in Mumbai and Delhi have declined sharp

• See continuing resilience of the Indian stock market