Skip to content
Oct 10 2019

The Case Of The Flipping Factors

  • Oct 10, 2019

Equity market themes have been boringly consistent of late; growth beating value, large beating small, and domestic beating international. In the factor world, Momentum and Low Volatility have been investor favorites for most of 2019 while Value resided in last place – the same old, same old. Then, something remarkable occurred on September 9th.

October 22

A Crescendo Of FEAR… And… CHANGE Afoot?

Despite a significant stock market rally, this year has been beset by escalating recession fears. The list of worries include broad-based slowing in the global economic recovery (centered in the manufacturing sector), a never-ending trade war, persistent political and geo-political drama, a chronic decline in global bond yields, a surge in negative yielding bonds, an inversion in the U.S. yield curve, and an expansion that recently celebrated a birthday which makes it the oldest ever in U.S. history!

Read more
October 18

Giving Up The Ghost

The approach of Halloween brings thoughts of jack-o-lanterns, scary movies, and buckets full of candy. The season also marks the time when investors finally give up the ghost on the optimistic, even wishful, earnings forecasts made early in the year.

Read more
October 15

Momentum Reverses Losses Of Prior Week

Read this week's Major Trend. 

Read more
October 14

Too Much Courage Or Fear?

The underlying character of the financial markets is often a good indication of investor sentiment. It takes courage (or stupidity in retrospect?) to buy certain assets, while the purchase of other investments is driven mostly by fear. In this fashion, a good read on whether the stock market is being propelled by excessive hope or angst can be obtained by monitoring the character of its leadership. 

Read more
October 11

If Your Team Is Out Of The Playoffs, Here’s A New Gamble

With promised breakthroughs on Brexit and the trade war miraculously occurring on the same day, few pundits now believe the market is anywhere close to an important peak. (A peak in the S&P 500, that is, since peaks occurred long ago in the ACWI, MSCI Emerging Markets, NYSE Composite, Value Line Arithmetic, S&P MidCap 400, and the Russell 2000.)

 

Read more
October 11

Inflation—Not Much To See

The Core CPI is in line with consensus. The recent string of weak economic numbers has increased the odds of an imminent recession. A currency pact with China would serve to cap the upside in the dollar and may even help weaken it, providing support to inflation.

Read more
October 07

A “Mini-FANGs” Swap?

Despite a slowdown in old-era business investment (manufacturing) during the last year, new-era business spending (information processing equipment and intellectual products) remains healthy. This argues for continued leadership among technology stocks. 

Read more
October 05

More Trends We Don’t Find Friendly…

The yield curve’s ten-month moving average inverted in September, hence the yield curve inversion can no longer be dismissed as transitory; the Boom/Bust Indicator remains below its descending 10-month moving average, confirming economic weakness predicted by the yield curve; and, the “Present Situation” component of September’s Consumer Confidence survey slipped below its 10-month moving average for the third time in 2019.

Read more
October 05

Small Cap VLT BUY: Not Quite...

Small Caps came tantalizingly close to activating a major VLT BUY signal in September, with the Russell 2000 closing less than a half percent below the trigger level. A new bull signal from this indicator wouldn’t “fit” into our market and economic narrative, but we won’t sweep it under the rug if it occurs.

Read more
October 05

“Quant Quake” But No Market Quake

Value, High Beta, and Small Cap stocks all captured a few rays of sunlight for the first time in a long while. It’s too early to tell if last month’s leadership U-turns can be sustained, but major market trends are the most susceptible to reverse during cyclical bear markets.

Read more
October 05

Quality Stocks’ Stronghold

Despite higher volatility, market performance is still up in the high double-digits YTD. Interestingly, as our index of High Quality Stocks versus Low Quality Stocks shows, High Quality is prevailing in terms of relative performance.

Read more
October 05

Cash Flows Accelerate Out Of Stock Funds Into Bond And Money Market

Bond and money-market fund subsets are seeing strong net cash inflows year-to-date, having captured $581 billion thus far (versus $176 billion at this time last year).

Read more
October 04

Cross-Asset Cross Currents—All About The Recession Call

September was an emotionally exhausting month for investors as reversals in major themes produced wide-ranging repercussions. Movements in various markets have been increasingly tied to bonds—the market that is most sensitive to recession outlook.

Read more
October 04

Industry Groups Topping The Charts In 2019

The groups we examine here are particularly interesting because they are a diversified mix across sectors with varying macro-factor relationships and risk profiles. They have scored well for a long period of time and have been long-term positions in our SI portfolio.

Read more
October 03

ISM or CYC?

The ISM manufacturing and services reports have significantly increased recession anxieties and have been wreaking havoc with the stock market over the last couple days. And, who knows, the real pain for equity investors may come tomorrow morning when the monthly payroll employment numbers are released?

Read more
September 30

Preemptive Policy

One of the features arguing for an extension of this economic recovery and its corollary bull market is aggressive and “preemptive” economic policies! Hesitancy has frequently spelled trouble during past economic expansions. 

Read more
September 27

The Odd Couple

The Momentum style—in which investors buy what has been going up recently—represents an optimistic, hopeful, “I’ll take some of that” mentality. The Low Volatility factor entails a pessimistic, fearful outlook in which investors want (or need) to stay invested in stocks but desire downside protection in case the market performs badly.

Read more
September 23

Earnings Set To POP?

Several factors helped the stock market resume a climb to marginal new highs this year. Valuations came down, inflation pressures moderated, yields collapsed, and policy officials became universally supportive. However, a key element remains elusive and, without it, a further significant advance in this bull market seems doubtful. 

Read more
September 20

Box Jumpers Beware!

Style rotation! Regime change! Market action of the first two weeks of September coaxed the few remaining Small Cap Value managers off ledges from New York to San Francisco.

Read more
September 19

Private Sector Press Conference

Yesterday, the Federal Reserve held one of its regularly scheduled press conferences, which are “must see TV” for investors. We all tune in to hear what the Board thinks about the economy and what they plan do about it. 

Read more
September 17

A Shift In Leadership?

In the last couple weeks, the stock market has undergone a significant shift in leadership. Perhaps it is the long-awaited swing from “growth” to “value,” but so far it appears more like a shift from “defensive” to “cyclical.” 

Read more
September 17

MTI: Broad Rally Lifted Momentum Inputs

Read this week's Major Trend. 

Read more
September 13

Is The Patient Too Old For A Transplant?

This week’s massive stock market leadership flip has certainly remedied some of the breadth weakness we discussed in this month’s Green Book. But we can’t help wonder whether the move is analogous to performing a transplant on a 95-year-old. The patient might survive the surgery, then die while under anesthetic.

Read more
September 12

Reaching A Crossroads

The Core CPI registered its highest YOY increase of the past year. However, a recent NY Fed survey and other inflation forecasts seems to point to softening expectations. During Fed easing regimes, the CPI has been a good indicator of how aggressive the Fed needs to be. The next few months will be critical in assessing our economic situation.

 

Read more
September 12

A Silent Productivity Miracle

Lost in the roar surrounding the trade war, the inverted yield curve, an expanding wave of negative global bond yields, and persistent recession chatter, is a “silent U.S. productivity miracle!” Largely AWOL in this expansion until recently, and despite being barely acknowledged due to widespread recession fears, productivity has finally arrived, adding yet another wildcard to the remaining years of this economic recovery. 

Read more
September 11

Horse Trading In The Factor Zoo

Smart beta ETFs have become an immensely popular investment tool, attracting billions of dollars in AUM by providing investors with targeted exposure to factors such as Value, Momentum and Quality.  Characteristics such as these have been shown to generate alpha over time, and investors understandably wish to have focused positions in these return-generating styles. 

Read more
September 10

MTI: Cyclical Market Risks Remain High

Read this week's Major Trend. 

Read more
September 07

Small Caps: “What If?”

The Russell 2000 is the most important major index on the cusp of a new BUY signal. Our best guess is that Small Caps will still trend lower for now, creating a buying opportunity in the months ahead.

Read more
September 07

ISM Shows This Is A Different Kind Of Cycle

The manufacturing economy has thrown us a deflationary curve in 2019: The Price Index broke down in advance of New Orders, a reversal of the textbook recession/recovery sequence between these two measures.

Read more
September 07

More Extreme Than 1999?

We noted that the December 2018 stock market low was the second most expensive in history, second only to that of October 1998. Similarities between 2019 market action and the 1998-99 rebound remain eerie. Something isn’t right, and it’s not bullish.

Read more
September 07

Factor Performance: Momentum Saves The Day (Year); Value Is Awful

Momentum has made a furious comeback after a rough start to the year, posting an +11% spread in both May and August. Value continues to get crushed and there has been nowhere to hide: The pain is equally distributed between cheap and expensive, and it’s happening in every sector.

Read more
September 07

From Hongkongitis To Hongkongoma

We call the current problem in Hong Kong, Hongkongoma, a complex problem underpinned by an ever-widening wealth gap and aggravated by an anti-mainland sentiment as a result of HK’s lost sense of superiority. The Extradition Bill is just the latest trigger.

Read more
September 06

Fresh Look At The Education Services Group

We take a look at the group’s constituent transformation, its robust GS Score, political/regulatory tailwinds, and its ability to withstand and hold up well during market downturns and recessions.

Read more
September 05

A Low-Vol Signal SWITCH!

Investors have been playing defense in recent months, piling into bonds despite low yields, sleeping well at night with gold purchases, staying with the perceived safety of U.S. stocks, avoiding risky small cap companies, and buying traditional low-risk sectors including Utilities, Consumer Staples, and REITS.

Read more
September 03

Stock Market STIMULUS!

What’s driving the stock market? Trade wars, inverted yield curves, Presidential Tweets, manufacturing weakness, negative yields, Fed confusion, earnings woes? Yes, all the above! 

Read more