Skip to content
Nov 07 2018

If Not Large Cap Growth, Then What?

  • Nov 7, 2018

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 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.  

 

Read more
November 15

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.

 

Read more
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.

Read more
November 12

Rates Hurting Households

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

Read more
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.

Read more
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.

Read more
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.

Read more
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.

Read more
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.

Read more
November 07

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.

Read more
November 07

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.

Read more
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...

Read more
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.

Read more
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.

Read more
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.

Read more
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! 
 

Read more
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.

 

Read more
October 25

VIX Volatility Vignettes!

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

Read more
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.

Read more
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. 
 

Read more
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.

Read more
October 17

A Positive Sign For Emerging Market Stocks?

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
October 15

Factors And Sectors: A Curious Entanglement

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
October 15

The ‘REAL’ Killer!

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!
 

Read more
October 12

Inflation—Another Small Miss

The latest CPI numbers missed market expectations. The problem is not with the actual CPI numbers, but merely the fact that market expectations are still a tad too high. More disconcerting is the cool trend in housing inflation.

 

Read more
October 05

Narrow Performance Divergence Among EM May Not Last

We’ve previously noted the narrowing performance divergence between top- and bottom-performing Emerging Market (EM) countries in recent years.

Read more
October 05

Stock Market Observations

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
October 05

Research Preview: Sector-Adjusted Factor Returns

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
October 05

Defensive Health Care Outpaces The Market

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
October 05

Flows Subdued Across Categories

Through August 2018, total net cash flows into mutual funds and ETFs are positive but remain muted compared to those logged at this time in 2017.

Read more
October 05

Mid-Term Elections—History Might Not Be A Good Guide

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
October 05

U.S. Rates—Driven Higher By Real Yields

The recent move higher in rates had broader support as other major markets also saw higher rates.

Read more
October 02

MTI: Breadth Continues To Erode

Since late August even the strongest of the market breadth measures—the NYSE Daily/Advance Decline Line—has failed to confirm highs in the DJIA and S&P 500, while the weakest—which measures 52-week highs and lows—has continued to erode.

Read more
September 12

A Prehistory Of The Communication Services Sector

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
September 08

Fondly Remembering The Year 2000...

Many equity investors have suggested there’s no comparison between today’s expensive market and the bubble peak of Y2K, pointing out that today’s Technology titans are “real companies” with massive revenue underpinnings.

Read more
September 08

Breakout Or Fake-Out?

The S&P 500 has fully erased its January and February losses, but there’s probably a market message in the fact that it took so long to do so.

Read more
September 07

Is FANG Forever?

As mania surrounding Apple’s stock was reaching a fever pitch in early 2012, The Leuthold Group wrote a piece entitled, Apple, Just How High Can It Go? To those caught up in the hysteria, the article served as a cautionary reminder.

Read more
September 07

Yield Curve Proxy—A Tool For Equity Investors

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
September 07

EM Crisis? Not There Yet

What some EM countries are going through is a classic sequence that can potentially lead to a full-blown EM crisis.

Read more
September 07

Price Hasn't Mattered

While Momentum continues to work overall, the gains have been skewed to the companies trading at the highest valuation multiples. Extremes, based on both price and valuation, have only been greater a handful of times during the period measured.

Read more