Governmental powers are still trying to put together another economic relief package. However, despite the July expiration of unemployment benefits provided by the CARES Act, here, two-and-a-half months later, U.S. economic momentum is remarkably healthy.Read more
The nation hollers for more economic stimulus! The President says we need more, the Federal Reserve Chairman agrees, Republicans concur, and Democrats think no one is advocating for enough. The screams for help are amplified everyday by the media. Supposedly, the economy is hanging on by only a thread, desperately waiting for more support.Read more
Factor analysis is a point of emphasis in Leuthold’s tactical research activities, and this note summarizes our Factor Tilt outlook going into the fourth quarter. Factors are return drivers such as Value, Momentum, and Quality, and research has found that factor results vary over time—but that does not mean they are random.Read more
With monetary and fiscal policies both running full-throttle, many investors are considering inflation hedges. Some traditional favorites—commercial real estate and energy stocks—have several issues holding them back (e.g., COVID-19 and environmental concerns), even with higher inflation. Cash and Treasury Inflation-Protected Securities (TIPS) may keep pace with inflation but offer little more because yields are so low.Read more
As throughout the post-war era, valuation tools provide guidance for investors to assess whether the stock market is cheap, reasonably priced, or simply too expensive. That is, looking back over the post-war period, the lowest-valuation quartile typically produced higher future stock market returns than valuations stemming from the highest quartile.Read more
The big jump in Small Caps over the last two weeks has entirely reversed the segment’s summer underperformance and has technicians feverish about another “breath thrust.” Technically, it’s impressive, but we are more intrigued by the fundamental potential for continued Small Cap (and Mid Cap) outperformance.
For many, the stock market rally since March remains suspect. Its leadership has not broadened beyond new-era growth stocks to include economically sensitive cyclical sectors and small-cap stocks. Perhaps, though, leadership in this new bull market is more established than it appears.Read more
U.S. corporations piled on almost $1 trillion in debt over the first six months of the year (a 10% increase). Corporate debt has now surged to 56% of GDP. We’ve argued that the level of corporate debt isn’t the problem, in and of itself. Rather, it’s what this debt has failed to generate that is the real problem.Read more
Mid and Small Cap stocks underperformed in 2018 and 2019. However, after the collapse of February and March, these “SMID” Caps have largely kept pace with the torrid rebound in the blue chips. Today’s valuations are priming the SMIDs for a similar “decoupling” in the years ahead, like that following Y2K.Read more
Long before policymakers’ extreme response to the COVID collapse, we feared that the Fed’s interventions were suppressing important signals from the stock and bond markets. But we now suspect that hyper-expansionary policies are suppressing price signals from the “real” economy as well.Read more
We examine a variety of industry groups with noteworthy relative price action on both “reopening” and “closed economy” days. Our objective is to shed more light on the industry groups that are consistently moving together on these days.Read more
Earnings estimates for 2021 are being projected above the records posted in 2018 and 2019. We ask the question, “How do we get there?” Here we present an introduction to this topic that we will examine at length and provide a full analysis in mid-October.Read more
Outflow from equity-focused mutual fund categories remains relentless despite the recovering stock market, while bond ETFs continue to blow-out record inflows.Read more
The COVID-19 pandemic rages on, the economy is still officially in recession, almost 8% of the workforce is unemployed, and layoff announcements remain commonplace. Furthermore, downtown office buildings are uninhabited, many businesses are operating far below capacity (e.g., restaurants, hotels, airlines), and corporate profits are much lower than pre-COVID.Read more
Read this week's Major Trend.Read more
Wall Street and Main Street often appear at odds with each other. However, since they are both importantly tied to the economy, it seems reasonable that sentiment for each would typically be similar. In the long run, both would cheer a healthy economy, and neither would root for recession.Read more
Amid an ongoing pandemic, and after years of extremely subpar economic growth, few anticipate the possibility the U.S. economy could be headed for an era of much stronger growth. However, the accompanying chart illustrates a historical indicator that suggests the U.S. may be on the cusp of a prolonged period of healthy economic growth.
Look, quick! Before it reverses! The Top-5 firms in the S&P 500 have underperformed in September! I’m sorry, you’ll have to forgive my sense of urgency, but the astounding speed and consistency in which these firms have outperformed may have burned the notion into my brain that they can only “go up” (or at the very least beat the index).Read more
Broader stock-market plays beyond new-era technology and communications have been generally matching the overall S&P 500 since it bottomed in March. However, these more widespread market plays—including cyclical sectors, small caps, value stocks, and international investments—seem poised to take a more significant leadership role in this bull market in the coming year.Read more
The Fed is hell-bent on generating inflation of 2% or higher in an over-supplied world that we think should probably be experiencing mild deflation. Their success or failure at this mission will be critical for asset allocators. For equity managers who must remain fully invested, however, the more important question might be not whether the Fed can generate higher inflation, but where.
Bond yields and earnings are both currently low.
During the post-war era, the stock market has done best when yields have been the lowest (despite the fact that low yields are often associated with poor earnings results). This is illustrated in Chart 1, which shows the S&P 500 average annualized total return and the frequency of negative monthly returns by U.S. bond yield quartiles (1950-to-date).Read more
The combination of rebounding economic activity and a surging (peaking?) enchantment with mega cap growth stocks is pressing investors to make an important tactical call: whether to take profits in some highfliers and shift assets to sectors with more cyclical exposure and better valuations.Read more
There is a widespread, consensus narrative that Wall Street Bullishness is divorced from Main Street Fundamentals. With things so bad on Main Street, the only reason the stock market keeps rising is because of a steady, massive, and unprecedented supply of “Sugar” being provided by both monetary and fiscal authorities. Once the sugar stops, the narrative goes, the stock market party is bound to end badly!Read more
The emotional fallout associated with the COVID-19 crisis produced an unprecedented reaction—or overreaction—by businesses, consumers, investors, and policy officials, which could play a major role in shaping the economic and financial-market landscape in the coming year.Read more
Health Care has been resilient this year, but will that continue in the run-up to the presidential election? We look at the performance of the Attractively-ranked industry groups and how they have historically performed leading up to an election and post-election.Read more
One characteristic of recent stock market action is extreme correlation. Chart 1 shows that during the sharp market decline following the COVID-19 arrival in the U.S. and the V-shaped upturn thereafter, the average correlation of S&P 500 constituents moved to near its highest level measured back to 1986.Read more
In 2019 and 2020, our regard for time-tested valuation tools resulted in tactical portfolios being underexposed to stocks during a pair of tremendous rallies. Now, the critique is that we don’t appreciate the brilliance of today’s policymakers and their miraculous ability to pivot just when the stocks (and, in the latest case, the economy) need it most.Read more
The most likely catalysts for improved relative performance of foreign stocks would be: (1) a bear market; (2) a recession; and, (3) a major downturn in the U.S. dollar. This year has supplied all three, yet the relative strength ratios of most foreign equity composites continue to grind lower as if it’s “business as usual.”Read more