“The benchmark of quality I go for is pretty high” Jimmy Page

As global equity markets marked time for the past five days, having recovered over 20% from the lows of a month ago, market analysts debate whether this is a bear rally or the start of the next global expansion. One could argue much of the economic data is so bad it has only one place to go, which is higher. A possible indication of this has been something of a bounce in the Citi economic surprise index in the past week. The Vix index fell further in the past five days, again suggesting that there is continuing confidence that the economic data may pick up from here. One then remembers that after the 1929 crash, equities recovered something like 40% of their losses.

If fortune favors the brave then the brave would be buying the cyclical sectors as asset allocation of defensives in favor of the more economically exposed sectors is more extreme than it has been since 2004. More extreme than in 2009. If one is looking for safety in numbers, buying the likes of Nestle at this point in time, who reiterated their guidance for the year on Friday, against the banking sector, for example, forced to cancel their dividends, is where you look. Anyone who considers themselves a contrarian would definitely be considering the likes of construction, steel, autos, and dare I say airlines. For some managers this could be a career-defining moment, it may also be a hard sell to the boss.

It is hard to argue at the time buying into economically exposed sectors at this point in time would be risky, but one can also argue that the more defensive sectors look fully valued.

Looking to the week ahead, company earnings will remain in focus as 140 of the companies in the S&P 500 report in the coming days. The companies reporting include some of the biggest names including Boeing, Amazon, Apple, and Microsoft. The other big focus will be the meeting of the Federal Open Market Committee on Tuesday and Wednesday. There are some important data in the week ahead, including first-quarter gross domestic product numbers and fresh data on car sales and manufacturing activity.

The scale of the equity market rally has defied many as the fundamentals would not support such a recovery, the Fed along with all other central banks around the globe are trying to bridge the gap. We will learn more on Wednesday what other tricks the Federal Reserve may have in mind.