While the consensus view remains that October’s stock market rout was “healthy” and “overdue,” we think it was more likely the first leg down of much larger decline. But it’s still worth reviewing the improvement in valuations that market losses and this year’s excellent fundamentals have combined to produce.
Although the Intrinsic Value category is now about 100 points above the worst levels recorded in early January, it is far too early to begin making a bullish valuation case for the stock market. Interestingly, some of the same pundits who warned “valuation is not a timing tool” on the way up are the ones trotting out these premature, value-based arguments—which are typically built on extremely-optimistic forecasts for 2019 operating EPS.Read more
“Zombie” companies are being kept alive by low interest rates and generous credit conditions, and the number of them, worldwide, has risen significantly over the past few years.Read more
A couple of months ago, we (belatedly) observed that, in February the 10-year Treasury yield had bro-ken above its 10-year moving average. That simplistic tool has been a pretty good descriptor of yields’ long-term trend for more than a century, with few “whipsaw” signals along the way.Read more
Although Discretionary stocks broadly underperformed during October’s market decline, prominent amongst the very top industry group performers was a rather unexpected genre of industries—brick & mortar retail. Not only did this cohort hold up during October’s tumult, but many of the underlying stocks have been posting strong returns all year.Read more
Solid economic growth and fabulous profit results have underpinned the stock market in the last couple years. Since the presidential election, the global economic recovery exhibited a rare synchronization for a time, and within the U.S., confidence measures rose from mediocre to near post-war highs...Read more
The accompanying chart illustrates the annual rate of wage inflation for all U.S. nonsupervisory private nonfarm payrolls. This was the primary wage series used by the Bureau of Labor (BLS) until 2006 when it began using a wage series based on all private sector workers.Read more
Productivity has been weaker in the contemporary recovery than any other in the post-war era. At just a little above 1% per annum, the pace of productivity growth in this recovery has only been about 40% of the average growth experienced during past periods of economic expansion!
We believe the catalyst for market weakness has been the decline in accommodation by the Fed and other central banks. While there has been a pullback in some of the leading inflation measures since June, the rate of global tightening has actually accelerated.Read more
U.S. inflation has been modest for the last 35 years. The annual rate of core consumer price inflation has only briefly been above 5% since 1983, and for the last 20 years has been below 3%! Since inflation has been low for so long, an entire generation of investors often consider it a nonevent.
A central quandary for equity investors is whether Emerging Markets (EM) represent an opportunity or a risk? Current relative valuations highlight the opportunity. The relative forward P/E multiple (versus the S&P 500) is as low today as it was at the start of this bull market in early 2009, and relative price-to-sales and price-to-book ratios have not been this attractive since the early 2000s!Read more
Portfolio managers who tilt toward Value or Growth stocks have long known that each style carries with it an inherent bias toward some sectors and away from others. Our recent piece, Value Style’s 100-Year Flood, highlighted the significant role that sector weights (overweight Financials and Energy, underweight Technology) played in Value’s decade-long stretch of underperformance.Read more
Bond yields have taken center stage in the financial markets. Overheat anxieties have awakened, the Federal Reserve is poised for its fourth Fed funds hike of the year in December, and the 10-year bond yield has risen by about 40 basis points in a little over a month!
We’ve previously noted the narrowing performance divergence between top- and bottom-performing Emerging Market (EM) countries in recent years.Read more
Throughout the spring and summer, the market could alternatively be characterized as “divergent” or “disjointed”—but until very recently it could not be considered “distributive.” Now, Mid and Small Caps have hit a short-term air pocket and breadth figures were exceptionally poor at September’s scattered highs in the DJIA and S&P 500.Read more
This article summarizes our current research into the interaction between factors and sectors. We find that sector weights have a significant influence on some factor results, while the true factor impact is the key driver for others. Watch for our full report coming next week.Read more
Recently, Health Care stocks have been making headlines as the sector rallies to new all-time highs. However, when we look at the sector via Leuthold’s proprietarily-built industry group composition—which has a more realistic market-cap weighting approach—the Health Care sector has been outperforming since the end of 2017, and YTD it is the #1 performing sector in our work.Read more
While mid-term elections are rarely big market movers, this year’s election demands more attention as it has the potential to alter the balance of political power in Washington.Read more
The new GICS Communication Services sector being introduced late-September will include members that add considerable buoyancy to the growth rates and valuation ratios of this traditionally defensive, high yield, slow growth industry. As a newly-invented sector, Communication Services has no financial history, and we felt it was important to fill that void.Read more
The increasingly greater attention given to the yield curve by equity investors has prompted us to come up with an equity basket that can track the movement of the yield curve. Overall, it does a reasonably good job of capturing the major moves.Read more