Ideas
Equity selloff is shallow valuation reset
The weakness in equities after the strong jobs report is more of a valuation recalibration than a growth scare. Corrections driven by positioning and valuations are typically short and shallow, while corrections driven by growth expectations are deeper and more protracted. Credit spreads are the key tell: widening spreads would signal growth fears, but without widening the selloff looks like normal digestion of markets that ran too far too fast.
Buy Treasuries when yields spike
The Fed's recalibration phase is over; further cuts would require weaker unemployment data because inflation remains sticky above target. She expects rates to stay in a wide 3.5%-5% band in 2025, so bond investors should buy when yields spike and bonds sell off, extending duration into those selloffs, while being patient when growth fears drive yields lower.
Russell 2000 vulnerable if rate cuts fewer
Fewer rate cuts hurt small caps because the Russell 2000 has many unprofitable companies, much higher use of floating-rate debt and higher debt levels. Russell 2000 earnings estimates were cut about 25% over the last year, and the recent rally was mostly a valuation-multiple move; if rate cuts are reduced, those valuations can compress and small caps may weaken further.
Play tactical value snapback, not leadership
Value underperformed so much in December that it could have a short-term snapback and outperform early in the year. However, value earnings have been revised lower while growth earnings have been revised higher, so she is willing to play the tactical snapback but does not view value as the sustained long-run winner for 2025.
Favor quality midcaps over small and large
She likes quality midcaps because they have a value tilt from valuation discipline, better quality companies, better balance sheets and higher profitability. Leaning away from ultra-concentrated large-cap indices into quality midcaps is more compelling given where large-cap growth starting valuations are.
Watch oil as consumer risk
Watch oil prices because oil down year-over-year has acted as a persistent tax cut for consumers, allowing them to spend elsewhere. If oil prices rise meaningfully, real wage growth could look worse, household consumption could pull back, GDP could slow, earnings estimates could be cut, and equities could correct on both lower earnings and multiple compression.
Stretched dollar positioning risks reversal
Dollar positioning looks stretched based on IMM positioning, though CFTC data is less stretched. Historically, tops in the dollar have coincided with stretched long positioning and bottoms with light or short positioning, so if everyone is already positioned for a stronger-for-longer dollar, the trade could reverse.
Underweight high yield on tight spreads
She is underweight high yield because spreads are so tight that investors are not being compensated for the risk.
Overweight alternatives and infrastructure
She is overweight alternative assets and likes assets considered uncorrelated to equities. Infrastructure can be correlated to the economic cycle but is less correlated to equity markets, making it an interesting portfolio diversifier.
Favor discounted dividend quality equities
Within equities, she finds opportunity in more value-leaning dividend quality parts of the market. The firm uses quality overlays and focuses on companies trading at a discount to the overall market, which leaves less multiple air to come out if there is a derating.
This The David Lin Report video, published January 11, 2025,
features Cameron Dawson
discussing SPY, TLT, IWM, VTV, XMHQ, WTI, USD, US High Yield Bonds, Alternative assets, PAVE, Dividend quality equities.
10 trade ideas extracted by AI with direction and confidence scoring.
Speakers:
Cameron Dawson
· Tickers:
SPY,
TLT,
IWM,
VTV,
XMHQ,
WTI,
USD,
US High Yield Bonds,
Alternative assets,
PAVE,
Dividend quality equities
