Can Equity Investors Eat Their Cake And Have It Too?
Investor sentiment seems to be unusually conflicted these days. There are worries aplenty, including numerous political skirmishes of consequence around the world, a slowing global economy, and lofty U.S. equity valuations. On the other hand, fiscal stimulus is high for this stage in an economic cycle and the Fed is easing monetary policy, two policy drivers it rarely pays to bet against.
Will Stimulus “Strike Out”?
Many increasingly fear the global economic recovery is in severe peril because overused economic policies have become futile. Bloated central bank balance sheets, large fiscal budgetary fiascos, and the unprecedented global phenomenon of widespread negative bond yields leaves an impression that economic help is spent!
Read moreHere’s One Reason Sentiment Is So Subdued...
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Market bulls remain mystified by the lack of enthusiasm for stocks given the proximity of U.S. indexes to all-time highs. They view this relative indifference as a contrarian positive—the “wall of worry” argument.
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Positive Economic Surprises With... ANGUISH!
The stock market is re-testing its August 5th collapse low, the U.S. 10-year bond yield is nearing its lows of this recovery, yet another yield curve inversion (tens vs. twos) was breached this week, silence from the Federal Reserve, negative yielding global debt now totaling more than $15 trillion, an escalating riot in Hong Kong, and trade-war negotiations hanging by a thread as ongoing communications are now only by phone! Whew, it’s tough being a bull. Maybe foolhardy?
Investment Bifurcation
Adding to current anxieties are the growing fears that businesses may be curtailing spending plans. Real nonresidential investment spending declined in the second quarter for the first time since early 2016. However, this decline was due entirely to ‘old-era investment spending’ while ‘new-era spending’ remains healthy.
Read moreMTI: Momentum Smacked Again
The hits to the Momentum category were broad-based; the Advance/Decline work continues to disguise a very dangerous, underlying bifurcation of the market.
Read moreInflation Slightly Better Than Expected
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The Core CPI is slightly ahead of consensus. Recent depreciation in the Chinese Yuan is disinflationary. Given the seasonal tendency for better economic numbers in the second half of the year, inflation would likely rise moderately along with the economy once we turn the corner.
Read moreThe Stock Market’s Clark Kent
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Mild-mannered and humdrum on the surface but a superhero underneath—that’s Clark Kent and, in recent months, the Low Volatility factor. Low Vol stocks are unexciting by definition, and the factor’s current holdings focus on utilities, REITs, and insurance companies.
Read moreConflicting Counsel?
This is why financial market prognostications are so difficult and why some believe fruitless! Currently, two recession indicators – both with equally impressive accurate historical prowess – are giving entirely contradictory signals? As shown by the accompanying charts, the yield curve has inverted while fiscal stimulus has been expanding. At least since 1965, this has ‘never’ happened.
Read moreThe Fed Subsidy Is Wearing Off
Earnings results for the second quarter have so far "beaten" expectations (as they always seem to), but that hasn’t changed the calculus for Small Cap companies. About one-third of them have negative earnings over the last twelve months.
Read moreAugust Is No Time To Disconnect
Rather than stocks disconnecting from the economy, as some equity bears contend, we see the blue chips disconnecting from the rest of the market. The underperformance of leading groups, along with multimonth divergences in momentum, bullish sentiment, and credit spreads are all consistent with the deteriorating prospects for earnings and the economy.
Read moreAre You Really A Contrarian?
The need to sound contrarian has become a borderline obsession among market pundits. Media opportunities for talking heads have exploded in the last decade, forcing those who hold the safest consensus views to falsely portray themselves as lonely and misunderstood market mavericks.
Read moreSeeking Yield Among ETFs
The 2.00%-4.99% yield range is the sweet spot for yield investors from a risk/reward standpoint; while the other end of the spectrum (>5% yield) incurs too much risk for the fat payouts. Here we spotlight four ETF strategies that focus on dividend paying stocks.
Read morePortfolio Positioning: Deciding Not To Decide
One portfolio strategy that attracts our interest is a barbell between Growth or Quality on the bullish side, paired with a Low or Minimum Volatility sleeve for the bearish side. This approach deals with today’s uncertainties by essentially “deciding not to decide.”
Read moreInternet Retail: Beyond Amazon
Amazon has become synonymous with the Internet Retail industry, however, this group is comprised of a diverse mix of companies ranging across the market spectrum, and strength is being exhibited throughout the group.
Read moreWhen A Cut Is Not Enough
The recent rate cut managed to bring policy uncertainty back into the market by two seemingly harmless words—”mid-cycle adjustment.”
Read moreMTI: Momentum Takes A Hit
The Momentum category lost ground in the latest calculation, with more than three-quarters of the loss reflecting a flip in one of our “long-term” momentum sub-models from 50% bullish in the prior week, to maximum bearish at Friday’s close.
Read moreShow Me The Money!
Despite the current drama, the stock market will not likely be sustainably driven by the Federal Reserve, ongoing trade negotiations, or by presidential politics. Although these spectacles will continue to bounce the market around, ultimately, its direction will most likely be tied to corporate earnings.
Read moreTry To Relax, Policy Uncertainty Is UP And This Is Good For Stocks?
Whew, what a week! Confusion reigned surrounding monetary policy on Wednesday after Chairman Powell’s press conference, and then trade policy uncertainty surged on Thursday when President Trump announced new tariffs on Chinese goods
Read moreIcing Over?
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Will this economic cycle end with “fire” (overheating) or “ice” (a whiff of deflation)? Interestingly, hedges against both outcomes have performed well in recent months, with both gold and Treasury bonds spiking. For many reasons, though, we believe the U.S. expansion is more likely to end in a deflationary bust.
Read moreMTI: Economic Factors Lifted By Monetary Measures
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Growth in M1 and M2 money supply has picked up, offsetting the bearish readings for Adjusted Reserves and the Fed balance sheet. Momentum category also strengthened.
Read moreThe BH Ratio (not to be confused with the BS Ratio?)
Despite a widespread impression that business confidence is declining under the weight of ongoing global uncertainties, it was reported yesterday that, after being flat for almost a year, new orders for nondefense ex-air capital goods (core business capital goods spending) rose to a new recovery high in June.
Read morePutting Humpty Together Again?
When Humpty Dumpty fell from the wall, all the king's horses and all the king's men could not put Humpty together again.
Read moreMTI: Momentum Improved Despite Modest Market Losses
The Momentum category improved despite last week’s modest market losses, with some of the longer-term trend work improving. Daily and weekly 52-week lows for the NASDAQ remain elevated, reflecting the increasing concentration of strength in Technology stocks.
Read moreSome Optimism For Earnings?
Little is expected from the current earnings season. At best, corporate profits may eke out a small gain compared to last year’s second quarter. Moreover, with Trump’s trade war still threatening to worsen, the yield curve still inverted, and because the U.S. economy is now in the longest expansion in its history, many are understandably worried that earnings growth may remain challenging.
Read moreMTI: Upside Surprises/Depressed Expectations
We think that the economic surprises, as well as the yield uptick, reflect an unwind of extremely one-sided positioning rather than an indication of a second-half economic rebound.
Read moreA Dollar Downgrade?
As shown in Chart 1, since 2015, the trade-weighted U.S. Dollar index has generally ranged between 90 and 100. Its recent stability, at a level much higher than it was during the first half of this economic recovery, has played an important role in shaping the economic and financial-market landscape.
Read moreCore CPI Slightly Better Than Expected
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The headline CPI numbers are in line while Core CPI is slightly ahead of consensus. Higher tariffs are not showing through import prices yet. Global slowdown underpins recent inflation path.
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Factor Tilts at Mid-Year
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Factors provide investors with the ability to shift their portfolio’s characteristics to fit a particular economic and market outlook. Value might look appealing under one set of conditions while Quality might be more desirable in another. We developed a research platform that analyzes various drivers of factor returns, summarized in Exhibit 1.
Read moreLessons From The Old Masters: John Neff
A recent trip to the Netherlands included visits to The Rijksmuseum and The Mauritshuis to view paintings including The Night Watch, widely acclaimed as Rembrandt’s greatest work, and Vermeer’s equally celebrated Girl with a Pearl Earring.
Read moreMTI: Attitudinal Measures Erode On Investor Enthusiasm
The Momentum category continues to grind higher, but this push has predictably stirred up investor enthusiasm (as measured this week by an identical decline in our Attitudinal composite). At the same time, longer-term measures like CEO Confidence, Small Business Optimism, and Consumer Confidence have all weakened in the latest reports, suggesting a rollover in animal spirits could be underway.
Read moreA Picture Is Worth 1,000 Words ... and it was a holiday week and I felt lazy
There is still plenty to worry about. The never-ending trade war enters yet another round of negotiations, geopolitical risks simmer, many economic reports (both in the U.S. and around the globe) remain weak, the size of negative-yield debt is becoming nearly as large as U.S. GDP, the U.S. stock market continues to exhibit a worrisome “triple-top” pattern, small cap stocks continue to trail, the yield curve is still inverted and, because of a “strong” jobs report on Friday, there is now doubt about whether the Fed will cut interest rates later this month.
Read moreCorrelations Are Worthless, Except This One
We’ve never understood investment quants’ desire to project correlations among assets. Such correlations are inherently unstable.
Read moreBuilding The Wall?
One of the more impressive feats that bullish pundits have pulled off is their successful portrayal of themselves as lonely and misunderstand contrarians even as the eleventh year of a cyclical bull market grinds on.
Read moreBig Is Still Beautiful
The 10-year-old bull grabs most of the headlines, but its younger sibling has begun to command more respect.
Read moreSlowdown Or Recession? Confidence Is Key
The pattern of sharp sell-offs followed by equally sharp rallies continued in June. Most risky assets recouped nearly all the losses suffered in May, and then some.
Read moreReturn Implications Of Dividend Cuts
Last month we noted that current interest-rate expectations might indicate good timing for dividend investments; however, we strongly suggested being selective, and lean toward high-quality dividend payers.
Read moreMTI: NOPE Index Boosts Economic Category
The bounce in the Economic category interrupted its last few months’ steady grind lower; the increase was led mostly by an upgrade to the NOPE Index (ISM New Orders Minus Price Index), which moved from high neutral to moderately bullish. The action of individual components is hardly reassuring, however.
Read moreBeware… Fiscal Policy May Screw Up The Conventional Playbook?
Like today, the Federal Reserve usually sucks all the oxygen out of the national economic-policy conversation. And, why not? It is comprised of a small elite group who hold conferences in exotic locations (Jackson Hole), have regular strategy meetings culminating in ‘must-see’ press conferences, make dot-plots sound interesting, and, between meetings, members regularly spout-off contradictory opinions.
Limbo Rock!
As global rates have taken a precipitous dive the last few months, it’s been hard not to hum “Limbo Rock.” And just like Chubby Checker, we’ve been asking our screens “How low can you go?” on a daily basis.
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