Many believe it will take years to fully recover from Covid-19. Indeed, over the weekend, U.S. Federal Reserve chairman Jerome Powell suggested that although the economy will eventually recover, the process could stretch through until at least the end of next year and ultimately depends on the development of a vaccine.Read more
The attempt to re-open parts of the U.S. economy amidst the ongoing Covid-19 crisis is either Red, Blue, or Purple! Using data from an employment tracking tool utilized by 100,000+ local businesses across the United States, the accompanying chart illustrates the speed and depth of the decline in hours worked and its recent slow recovery among traditional Republican, Democratic, and Swing states.Read more
The CPI numbers missed expectations. COVID-19 is the divide between inflation winners vs losers. Our inflation scorecard continues to point to lower inflation and it’s driven by a demand shock. Lower capacity utilization and money velocity also indicate a disinflationary trend ahead.
Small Caps lagged during the bounce off the March lows before a late-April spurt briefly pulled them ahead of the S&P 500. Still, considering that Russell 2000 losses were so much steeper than the S&P 500’s (-43% versus -33%), we would have expected something better.Read more
Valuation dispersions remain at extreme levels. Dispersions within Large Cap stocks remain above Tech Bubble levels, but are on par with Mid and Small Cap stocks on an absolute basis. Spreads within sectors also present historic stock selection opportunities.Read more
From a top-down view, since 2003, Value’s performance has been much more closely tied to various asset markets and macro drivers. From a bottom-up perspective, we believe the change in Value’s migration behavior might be the key to its failure. We believe macro tailwinds and positive surprises are both necessary for a true Value revival.Read more
Health Care has been the best performing sector following mid-February’s market peak. Its robust relative performance during this bear market isn’t terribly surprising given the sector’s defensive qualities, but it has impressively outpaced other safe haven areas.Read more
With May Day marches and demonstrations cancelled, the workers of the world have one less opportunity to remind us of the ever-widening wealth gap and the evils of the “Top 1%.” It’s a shame, because this was the year that we active managers would have stood shoulder to shoulder with those protesters voicing our own contempt for the “Top 1%”… of the S&P 500.
Domestic, large capitalization, and growth have dominated stock market leadership for much of the last decade. During this stretch, investors (author included) have repeatedly attempted to exploit “undervalued and out-of-favor” segments of the stock market, only to be proved premature.Read more
Is there any way to judge when U.S. economic reports may finally bottom? Obviously, it depends on what happens with the virus. If it continues to burn hot or simply lingers longer than expected, keeping “stay-at-home” orders in place, could economic data prove bottomless?Read more
For the second time in the last 30 years, “growth” has dominated leadership within the stock market. After significant outperformance during the 1990s’ dot-com era, the growth style has again substantially outpaced since the start of the last recovery (Chart 1).Read more
Earnings, like everything in the economy, are in freefall. Finance textbooks would argue this paints a bleak future for the stock market, but that isn't always the case.Read more
The CPI numbers missed expectations. The segments most affected by COVID-19 were the biggest detractors. The market isn’t too concerned about weak inflation at this point, because there are much bigger issues at present, such as liquidity and financial conditions.Read more
Volatility within the stock and bond markets has recently parted company. Since 1990, the correlation in daily movements of the stock market’s VIX Volatility index and the bond market’s MOVE index has been about 0.60. While they do not move perfectly together, they usually move in the same direction.Read more
March’s mad dash for cash didn’t stop with rates/credit/FX markets. Among equities, there was also a strong preference for cash liquidity. The market rewarded companies that had strong cash positions and punished those without—which explains why traditionally defensive styles actually underperformed.Read more
During the peak-to-trough market drawdown through mid-March, some of the most popular Low/Min Vol ETFs did not perform as anticipated. Stable and boring businesses, that weather downturns relatively well, are facing atypical vulnerabilities.Read more
In recent weeks, we’ve seen the “sell-side” investment community get about as cautious as it ever gets, recommending investors to “trim risky holdings on ‘up’ days” and “stay diversified.” However, these cheerleaders’ idea of diversification is usually to hold more equities in different sizes and styles.Read more
This has been a “speedy” Bear Market. Measured through the first 22 days of all bear markets in post-war history, the contemporary bear market declined by almost 6.5 times more than all the others! In 2020, the market dropped 32% in 22 days versus an average of just -5.1% for the previous 13 bear markets. See Paulsen’s Perspective “Recession By Proclamation!” posted on March 23rd.