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Sep 11 2019

Horse Trading In The Factor Zoo

  • Sep 11, 2019

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. 

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.

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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. 

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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.” 

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September 17

MTI: Broad Rally Lifted Momentum Inputs

Read this week's Major Trend. 

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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.

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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.

 

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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. 

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September 10

MTI: Cyclical Market Risks Remain High

Read this week's Major Trend. 

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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! 

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August 30

Is A Strengthening Dollar A Form Of Policy Tightening?

Executive summary (for those leaving early for the holiday weekend): No.

We’ve found no reliable relationship between swings in the U.S. Dollar and subsequent variations in U.S. economic growth.

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August 30

Segmenting Seasonality

Investors have long recognized that the stock market often does better in certain months compared to others. That is, stocks have a seasonality which can be exploited. The January Effect, the Santa Rally, “Sell in May and Go Away”; and, the carnage created by August, September, and October are appreciated and feared by “seasoned investors.” 

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August 27

MTI: Same Old Song

Read this week's Major Trend. 

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August 23

Portraits Of A Split Market

There’s an old Wall Street adage: “When the wind blows hard enough, even the turkeys fly.” A sophisticated meteorological instrument known as the “price chart” says the wind died down considerably beginning in January 2018

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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!

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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.

 

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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?
 

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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. 

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August 15

Can Equity Investors Eat Their Cake And Have It Too?

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.

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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.

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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.

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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.

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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. 

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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.

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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.

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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.

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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.

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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.”

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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.

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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.”

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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.

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August 05

Leuthold Quick Takes: Getting Sentimental

This issue of Leuthold Quick Takes reviews the conflicted nature of investor sentiment as seen by Doug Ramsey (Chief Investment Officer) and Jim Paulsen (Chief Investment Strategist).

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