It seems like it was only yesterday that Goldman initiatied a long in the Russell 2000, only to prematurely close the trade a few days later. Sure enough, here it is again. So, dear muppets, you are to buy all the 'elephants' that Goldman has to sell. As for the three letter acronym: just use RUT.
Recommending a long position in Russell 2000
We are recommending long positions in Russell 2000, with an 870 target and an 800 stop. Today's first glimpse of the March US data -- the Philly Fed and Empire Manufacturing surveys along with the weekly claims numbers -- show that the US cycle continues to expand. And improvement is these surveys also suggest that last month's wobbles, most visible in the Manufacturing ISM, were just that. We are aware that waiting for more data may have made us a bit late to this trade – and that the guts of today’s surveys are a touch softer. But with the market having de-rated its growth views lately, we think the recent news is good enough to want to take on exposure through the more intensive data period of the next few weeks.
Given a still intact expansion, there are a handful of assets that are not, in our estimation, fully reflecting this. Having closed out of a Russell 2000 position two weeks ago, we see this as a clearly lagging market (which unlike the SPX is not yet through February highs), and a market that is typically higher beta, leveraged to growth views and tilted a bit toward domestic rather than global exposures. We have also commented extensively on the fact that cyclical stocks have lagged defensives (our Wavefront Growth basket is an obvious example) even as the S & P 500 has continued to climb. Simply put, the implicit view of forward economic growth is less optimistic than it was just a month and a half ago, despite clear signs that things continue to improve. That said, with the clearer signs of improvement in the more domestic data set, relative to a more mixed picture out of places like China and Europe, we have opted to put our longs in an implementation that is more tilted domestically to the US. We will continue to monitor the incoming cyclical news closely.
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