Research. LeutholdGroup

Earnings Releases Cause Surge In Price Volatility

Three years ago, we did a series of studies looking at price reactions to corporate earnings releases (ER) and we found that, since 2007, price movement has become more dramatic on ER days.

December 07

Deep-Six The “Threes-Fives”

We’ve sometimes called the yield curve our “favorite economist,” so we were amused when some enthusiastic data miner in the Treasury market tried to slip us a cheap imitation in late November.

December 07

It’s About Money, Not Profits

The consensus focus all year has been on the boom in U.S. corporate profits.

December 07

It’s Not A Pause… It’s “Paws”

A bear market will almost always prove to be the catalyst of one or more shifts in long-term market leadership.

December 07

Quant

What’s In Momentum Now?

Along with market volatility, the composition of Momentum has changed, becoming more defensive and less exposed to cyclicals and commodities.

December 07

Equity Strategies

Restaurants Group Dishes Up Defense

The Restaurants industry is another Consumer Discretionary group ranking Attractive via our GS Scores; we purchased it in the Select Industries (SI) portfolio in November. This group has exhibited defensive qualities of late.

December 07

Bonds

Risk Aversion Index: New “Lower Risk” Signal

Despite the recent signal whipsaws, we have been cautious toward all risky assets and we continue to recommend defense amid higher volatility across all asset classes.

December 06

Problems Aplenty

Recently, when Federal Reserve Chairman Jerome Powell and President Donald Trump both blinked—one on rate hikes and the other on trade wars—the S&P 500 surged by more than 6% in about a week! Many sensed the primary challenges holding back stocks were finally resolving and sentiment quickly turned bullish as investors did not want to miss the Santa Rally!

December 04

MTI: Inflation Measures Have Faded Sharply

The Economic/Interest Rates/Inflation category was not a big mover on the week, but its relative stability of late has masked a major shift within key indicator groupings. Leading inflation measures have faded sharply, with upgrades across the board in the commodity readings.

December 03

P/E Pressures

The valuation of the stock market has been under steady pressure this year. The S&P 500 trailing price-earnings (P/E) multiple has declined by about 25% from a recovery peak of 23 in January to about 18. The hope for this bull market is that P/E contraction is almost over, allowing stock prices to again rise with earnings gains.

November 30

What can Margins Do For An Encore?

A massive drop in corporate tax payments lifted the third quarter NIPA profit margin back to the 10% level for the first time four years. But while we try not to always view the glass as half empty, we find it troubling that margins remain well-below their 2012 highs (10.6%) in spite of this one-time windfall.

November 27

MTI: Fundamentals Improve

While the improvement in the fundamental categories is encouraging, the weight of the evidence continues to support a cyclically defensive stance toward the stock market.

November 23

Thanksgiving Leftovers

Whatever one’s preferred leftovers from yesterday’s feast, the odds are good you’ll find them more appetizing than the slop served up by global asset markets this year. Stocks have obviously been turkeys, but all the surrounding trimmings that help diversify a portfolio have proven anything but complementary to the main course.

November 20

MTI: Extensive Overvaluation Vs. 1999/2000

A critical difference we’ve discussed repeatedly is that market overvaluation in the 1999/2000 episode was concentrated in roughly the top-50 Mega Caps, while current overvaluation—though arguably not as extreme—afflicts nearly the entire list of publicly-traded U.S. stocks.

November 20

Popular/Panned (PP) Ratio — An Update

We first published the accompanying chart in March of this year. The PP Ratio had just spiked sharply upward in the previous three months, as it did near the end of the dot-com era in 2000. Since March, in a very similar fashion as shown, the PP Ratio has eerily traced the same path as during the dot-com era.

November 19

Velocity Quietly Rises?

he velocity of the money supply measures the pace at which cash is spent in the economy, or the amount of total GDP activity created by each dollar of the money supply. Monetary velocity has long been a focal point for the Federal Reserve, economists, and investors because its growth often shapes the character of the recovery.

November 16

Correction Creating Values?

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.

November 15

Inflation Watch

Inflation—In Line Again

The latest CPI numbers matched market expectations. Lower oil and a strong dollar are disinflationary. Cooling trend in the housing market is worth close monitoring. Global inflation surprises provide supportive backdrop.

November 13

MTI: Too Early For Bullish Valuation Case

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.

November 12

Special Reports

Rates Hurting Households

Doubling of yields since 2016 has slammed households. Percentage increase in rates is more important than the absolute level.

November 12

“Trending” To “Timing”

From the mid-1920s until the mid-2000s, the performance cycles of small cap stocks relative to large cap stocks (i.e., the small/large market cap factor or SLF) were typically multi-year events.

November 07

Think Halloween Is Behind Us? Beware, Zombie Alert!

“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.

November 07

P/E Crash!!

While this year’s liquidity squeeze has yet to exact the toll we ultimately expect on the U.S. stock mar-ket, it has certainly contributed to a sharp compression in P/E multiples.

November 07

For Asset Allocators, As Bad As It Gets!

During 2018, no major asset class has done well, and in most respects the opportunity-set available this year has been among the worst in the last 50 years.

November 07

Measuring The Backup In Bond Yields

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.

November 07

Of Special Interest

If Not Large Cap Growth, Then What?

With the valuation of several high-profile Large Growth names well over 100 times earnings, we consid-er alternatives by examining the relative valuations between LG and other equity categories.

November 07

Equity Strategies

Brick & Mortar Retail Evades October Sell-Off

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.

November 07

Bonds

Divergence Everywhere—A Cross-Asset View

The 40 bps jump in the 10-year yield, a 2-standard-deviation event, occurred within a five-week win-dow. Interestingly, historical data doesn’t suggest a continued increase in the near term.

November 05

A Fundamentals Farewell…

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...

November 02

Are Wages Now On the 4% Freeway?

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.

November 02

Goldilocks, Meet The Three Bears

During the stock market’s protracted retracement of its January/February decline, we speculated a few times that the final outcome might look similar to the bull market tops of 1990, 2000, and 2007.

October 30

MTI: Plunge In Momentum

Momentum category collapsed to receive its first negative reading since early March 2016, while the Attitudinal category flipped to net positive ground for the first time in more than 2-1/2 years.

October 29

“Crowding-Out” Productivity?

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!

October 26

Assessing The Damage

Our tactical accounts remain positioned very defensively, and we have yet to see the sort of capitulative market action that would lead us to lift any existing equity hedges.

October 25

VIX Volatility Vignettes!

Amongst a week of elevated financial market volatility, a few random short vignettes on recent action.

October 23

MTI: Acceleration In Global Tightening

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.

October 22

It Only Takes A Little Inflation…

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.

October 19

Monitoring Mo’s Mojo

Momentum is one of the most successful investment styles over the long run, and does particularly well in the later stages of a bull market during the run-up to an eventual peak.

October 17