Yes, there is opportunity for macro trading with equities

 

The macroeconomic regime matters. Regardless of style, if you tilt to industries that have historically had higher Sharpe ratios in different economic regimes, investors can add value to their portfolio. Call it industry business cycle rotation, but accounting for simple macro regimes to industry allocations will improve portfolio performance. 

Industries will perform differently across the business cycle, but many have viewed that predicting the macro regime is difficult. A careful research paper takes a relatively simple approach to address this problem and show macro timing value. (See "Does History Repeat Itself? Business Cycle and Industry Returns".) 

Industry Sharpe ratios can be categorized across business cycle regimes. Given this information, the researchers make a judgement of the macro regime based on the output gap at the end of the year for the next year. Sorting the industries between long and short portfolios, it is found that buying high Sharpe ratio industries conditional on regime will outperform the market portfolio and a short portfolio.

The business cycle is measured through the sign of the output gap each year. The output gap is the deviation of growth from a linear and quadratic trend. This industry business cycle effect is robust to different measures of the business cycle.

According to the authors, the reason for this industry rotation edge is that investor do not seem to account for the impact of the business cycle on future cash flows. Albeit simple, investors are often surprised by the changes in firm cash flows across regimes and seem to under-react to these cash flow changes.

This industry effect is present even after accounting for the usual Fama-French factors and robust to industry momentum which has been found in the past to be significant.