What if the S&P 500’s September 2nd closing high were to miraculously stand as the cycle’s high-water mark? If it did, the peak was presaged—in retrospect—by two Federal Reserve Bank presidents who rode the liquidity wave all the way to its crest after assuring the floodgates would be left wide open. Both resigned in September.
In a possible sign we’re not getting enough oxygen at current valuation altitudes, we decided to replace the usual mean-reversion technique with a much friendlier approach that we’ve dubbed “maximum attraction.”Read more
Coming of age in the 1970s, I understand the current, widespread fears of runaway inflation. Although it’s unlikely, could the last couple of years’ abuse and overuse of monetary and fiscal policies bring back a 1970s’ Inflationary Disco-era?Read more
For at least the last decade, small-cap cyclical stocks have had a very close, and positive connection with rising bond yields. From 2012 forward, the correlation between daily movements in small-cap cyclicals’ relative price performance and bond yields is a strong +0.65!
A stronger U.S. dollar is “supposed” to be bearish for commodities, but it’s been a banner year for most commodities with gold among the few that are down on the year. However, keep in mind that gold tends to be a harbinger of major moves in industrial commodities, with a lead time of about six months—and its year-over-year change is now negative.Read more
The COVID rescue plan has generated a multi-trillion-dollar deluge of federal spending that has trickled down to government transfer payments, personal incomes, retail sales, and surging EPS. When considering all of these data series in relation to their long-term trends, it’s truly remarkable that the only item analysts consider to be “transitory” is inflation.Read more
Industries propelling performance have been diverse; the top-five groups are from five different sectors. Commodity-oriented, retail, and financial groups have been the primary drivers. The Leuthold Select Industries equity strategy, which chooses its thematic investments from the GS Score’s Attractive range, is up 20.2% YTD through September.Read more
The Citi Economic Surprise Index fell to a negative extreme, while the Citi Inflation Surprise Index made all-time highs—a “stagflation” gap. Overall, if history repeats itself, the extreme ESI-ISI gap is apt to resolve itself, and the effect on asset markets will likely be limited. The global tightening trend will be a far more persuasive driver.Read more
Investors view Emerging Markets (EM) as the best source of economic growth across global equity markets, and rightly so. Annualized EM GDP growth of 8.6% since 2001 is more than double that of the U.S. and Europe. However, investors have not captured this extraordinary advance because earnings per share for the MSCI EM Index have lagged far behind EM economic growth rates.Read more
Based on the University of Michigan’s Consumer Sentiment Index, household confidence has collapsed in recent months. Other measures paint a less dire picture about consumer fears but most of them similarly suggest that enthusiasm has waned. Importantly, this decline in consumer confidence comes at a time of abnormally high consumer savings.Read more
In a couple of weeks, final second quarter EPS for the S&P 500 will confirm the fastest recovery ever from a recession-related earnings decline. That’s old news, and before it has even hit the tape. But we’ve had a sneak peak from the monthly, 12-month trailing EPS numbers published by MSCI for its USA Large Cap Index. Those figures showed that EPS exceeded their pre-COVID peak in May, and the latest reading (through August) is already 22% above the prior high! Simple trendline analysis suggests that EPS for U.S. Large Caps are likely higher today than they would have been in the absence of the COVID pandemic and hyper-stimulative response.
Under the surface of today's stock-market turbulence is an increasingly solid undertow of stock market support. Maybe it won’t be enough to ward off the pressures, but a foundation does seem to be forming in favor of another leg up for this bull market.
Quant researchers widely agree that Value offers a return premium over time (although not recently) and that High Quality also offers excess returns. The Quality angle seems contrary to intuition, in that investors generally prefer Quality companies and are willing to pay up for them, yet Quality regularly outperforms. Value and Quality are both well-respected investment factors, and we were curious to explore the interaction of these two smart beta stalwarts. Is Value enhanced by adding a layer of Quality, thereby avoiding value traps, or are Value investors better off buying junky, unattractive companies that have the most room to rebound from depressed prices?
August CPI numbers fell short of expectations with the m/m figures looking surprisingly normal.
The 10-year breakeven rate is four months removed from its high and in a very tight range.
The headline CPI has outstripped median wage gains for the last five months.
Everyone fears the Taper. Fed members constantly remind us that it’s coming soon, the financial media frequently preview the taper’s potential ugly market fallout, and a parade of Wall Street firms are warning that stocks will almost assuredly suffer at least some sort of taper tantrum.Read more
The impact of U.S. stock-market “hegemony” extends far beyond currency markets. We believe the mania has progressed to the point where the stock market itself will shape the intermediate-term and even long-term fortunes of the U.S. economy more than it ever has before.Read more
It seems investors care mostly that the authorities have fiercely defended the S&P 500’s status as the World’s Reserve IndexTM. A decade of QE should have taught us that when the Fed conducts a decade’s worth of QE in little more than a year, U.S. Large Cap stocks benefit the most.Read more
If there are shortages, bottlenecks, and commodity inflation everywhere, why is the rating for the Materials sector so uninspiring? Although valuations are compelling for Materials groups, the overall decline in the rankings can be traced to EPS revisions and macro influences, like the U.S. dollar and low rates.Read more
We take a look at how the market rewards different uses for cash and what drives management decisions about the use of cash over time. The focus here is on the three main cash applications: investment (Capex and R&D), return of cash (via buybacks and dividends), and M&A spending.Read more
Since the pandemic, economic policy has become an obsession for most investors. The thickness of former Federal Reserve Chairman Alan Greenspan’s briefcase seems pedestrian today. When fiscal and monetary authorities began adopting highly unconventional methodologies after the 2008 financial crisis (e.g., Tarp, Cash for Clunkers, and QE), the mantra on Wall Street became WWPOD (What Will Policy Officials Do?).
Small-cap stocks had a ferocious leadership run beginning last October when vaccinations were at hand—and hope surged that the COVID pandemic was finally ending. As economic activities restarted, the Russell 2000 outpaced the S&P 500 by nearly 33% between September and mid-March.Read more
Read this week's Major Trend.Read more