Skip to content
Aug 15 2019

Can Equity Investors Eat Their Cake And Have It Too?

  • Aug 15, 2019

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.

August 20

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 more
August 16

Here’s One Reason Sentiment Is So Subdued...

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.

 

Read more
August 16

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?
 

Read more
August 15

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 more
August 14

MTI: 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 more
August 13

Inflation Slightly Better Than Expected

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 more
August 09

The Stock Market’s Clark Kent

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 more
August 07

Conflicting 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 more
August 07

The 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 more
August 07

August 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 more
August 07

Are 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 more
August 07

Seeking 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 more
August 07

Portfolio 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 more
August 06

Internet 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 more
August 06

When 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 more
August 06

MTI: 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 more
August 05

Show 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 more
August 02

Try 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 more
August 02

Icing Over?

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 more
July 30

MTI: Economic Factors Lifted By Monetary Measures

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 more
July 26

The 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 more
July 25

Putting 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 more
July 23

MTI: 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 more
July 19

Some 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 more
July 16

MTI: 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 more
July 15

A 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 more
July 12

Core CPI Slightly Better Than Expected

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.

 

Read more
July 12

Factor Tilts at Mid-Year

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 more
July 11

Lessons 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 more
July 09

MTI: 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 more
July 08

A 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 more
July 05

Correlations Are Worthless, Except This One

We’ve never understood investment quants’ desire to project correlations among assets. Such correlations are inherently unstable.

Read more
July 05

Building 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 more
July 05

Big Is Still Beautiful

The 10-year-old bull grabs most of the headlines, but its younger sibling has begun to command more respect.

Read more
July 04

Slowdown 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 more
July 03

Return 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 more
July 03

MTI: 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 more
July 01

Beware… 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. 
 

Read more
June 28

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.

Read more