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
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
The combination of rebounding economic activity and a surging enchantment with mega-cap growth stocks is pressing investors to make an important tactical call: whether or not to exit some highfliers and shift assets to sectors with more cyclical exposure.Read more
History doesn’t repeat, but it often rhymes, and sometimes it “reflects!” Forty years ago, the U.S. was at the tail end of its worst inflationary spiral in history and inflationary fears permeated the behaviors of consumers, businesses, politicians, and policy officials. Here in 2020, after more than a decade of disinflation/deflation, chronically falling/negative yields, and weak/contracting economic growth, economic stagnation fears are rampant and it is like watching a mirror image of 1980.Read more
The COVID-19 pandemic caused the greatest quarterly and year-over-year real GDP contractions of the post-war era, and corporate earnings should have been devastated. But, as shown in Chart 1, by historic standards, S&P 500 earnings per share (EPS) suffered only a relatively small decline.Read more
As the S&P 500 reaches a new high, investors are increasingly alarmed by its valuation. And rightly so! Nearly every traditional valuation measure suggests the stock market is trading near all-time record levels. If conventional valuation models are accurate, the stock market appears to have very little upside potential and, ultimately, considerable downside risk.Read more
There are still significant risks surrounding the economic outlook. The pandemic may again worsen this fall or winter necessitating another lockdown of economic activity; without additional fiscal relief, rental payments and business bankruptcies could become overwhelming.
The good-looking big boys and girls have been touted as the only game in town this year. These large, domestic, safe, easily recognized, fast-growing, and sexy stocks have been the ticket! Straying has been costly—international stocks, small caps, cyclicals, and value plays have all trailed.Read more
Growth investing is in the midst of a spectacular run this year, extending its decade-long dominance over the Value style. Chart 1 depicts the Growth / Value relationship over the last 25 years through July 31st, with key turning points marked by vertical lines.Read more
Last Friday’s employment report illuminated that the U.S. economy continues to recover from its pandemic-induced shutdown. Indeed, the Atlanta Fed GDPNow U.S. real GDP forecast for the current quarter is an astounding 20.5%! Bouncing back from the worst ever post-war economic collapse, the U.S. is headed for some gaudy economic numbers in the contemporary quarter. The question facing investors is what are the implications for earnings results next year?Read more
We geek it up a notch and use some of the popular text-processing techniques to quantify the hawkish/dovish sentiment of the latest Fed statement. Some human “coaching” is needed in every step of the process (hence the “artificial” part). But when these tools are used properly for carefully chosen tasks, they can be quite intelligent.Read more
We get irked when TV pundits misrepresent the mood of equity investors as unduly pessimistic based one or two (or zero) data points. Among the dozens of “Attitudinal” indicators we track, an overwhelming majority show professional and retail investors have jumped back into the fray.Read more
A major driver of the division in recent performance among retail groups has been the burgeoning “nesting” theme. Stuck at home, consumers are directing their dollars toward indoor and outdoor home upgrades. A related theme has now established itself in the upper rankings of our group work—Housing.Read more
There is a consensus narrative suggesting that unless a stock is called Tech or FAANG, it is not participating in this stock market rally. Indeed, much consternation surrounds the fact that the FAANG 5 (the five biggest FAANG stocks) now comprise about 25% of S&P 500 total market capitalization.Read more