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Oct 12 2018

Inflation—Another Small Miss

  • Oct 12, 2018

The latest CPI numbers missed market expectations. The problem is not with the actual CPI numbers, but merely the fact that market expectations are still a tad too high. More disconcerting is the cool trend in housing inflation.

 

October 15

Factors And Sectors: A Curious Entanglement

Portfolio managers who tilt toward Value or Growth stocks have long known that each style carries with it an inherent bias toward some sectors and away from others. Our recent piece, Value Style’s 100-Year Flood, highlighted the significant role that sector weights (overweight Financials and Energy, underweight Technology) played in Value’s decade-long stretch of underperformance.

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October 15

The ‘REAL’ Killer!

Bond yields have taken center stage in the financial markets. Overheat anxieties have awakened, the Federal Reserve is poised for its fourth Fed funds hike of the year in December, and the 10-year bond yield has risen by about 40 basis points in a little over a month!
 

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October 12

Four Paw Prints That Will Confirm Rumored Sightings Of The Bear

We think the odds are better than even that the September 20th S&P 500 high will stand as the stock market high for 2018, and perhaps also as the high for a historic event begun back in 2009. We’re well-prepared for that possibility, with the Leuthold Core now positioned today with net equity exposure of just 37%.

 

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October 09

MTI: Internal Weakness Reaches Major Market Indexes

The weakening we’ve observed for several weeks in most internal stock market measures began to spread last week to the “externals,” i.e., the major market indexes like the DJIA and S&P 500. Still, we are amazed these indexes remain so close to their cycle highs in light of the extent of subsurface damage reflected in the daily and weekly breadth figures.

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October 05

Narrow Performance Divergence Among EM May Not Last

We’ve previously noted the narrowing performance divergence between top- and bottom-performing Emerging Market (EM) countries in recent years.

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October 05

Stock Market Observations

Throughout the spring and summer, the market could alternatively be characterized as “divergent” or “disjointed”—but until very recently it could not be considered “distributive.” Now, Mid and Small Caps have hit a short-term air pocket and breadth figures were exceptionally poor at September’s scattered highs in the DJIA and S&P 500.

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October 05

Defensive Health Care Outpaces The Market

Recently, Health Care stocks have been making headlines as the sector rallies to new all-time highs. However, when we look at the sector via Leuthold’s proprietarily-built industry group composition—which has a more realistic market-cap weighting approach—the Health Care sector has been outperforming since the end of 2017, and YTD it is the #1 performing sector in our work.

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October 05

Flows Subdued Across Categories

Through August 2018, total net cash flows into mutual funds and ETFs are positive but remain muted compared to those logged at this time in 2017.

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October 05

Mid-Term Elections—History Might Not Be A Good Guide

While mid-term elections are rarely big market movers, this year’s election demands more attention as it has the potential to alter the balance of political power in Washington.

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October 05

U.S. Rates—Driven Higher By Real Yields

The recent move higher in rates had broader support as other major markets also saw higher rates.

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October 02

MTI: Breadth Continues To Erode

Since late August even the strongest of the market breadth measures—the NYSE Daily/Advance Decline Line—has failed to confirm highs in the DJIA and S&P 500, while the weakest—which measures 52-week highs and lows—has continued to erode.

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September 12

A Prehistory Of The Communication Services Sector

The new GICS Communication Services sector being introduced late-September will include members that add considerable buoyancy to the growth rates and valuation ratios of this traditionally defensive, high yield, slow growth industry. As a newly-invented sector, Communication Services has no financial history, and we felt it was important to fill that void.

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September 08

Fondly Remembering The Year 2000...

Many equity investors have suggested there’s no comparison between today’s expensive market and the bubble peak of Y2K, pointing out that today’s Technology titans are “real companies” with massive revenue underpinnings.

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September 08

Breakout Or Fake-Out?

The S&P 500 has fully erased its January and February losses, but there’s probably a market message in the fact that it took so long to do so.

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September 07

Is FANG Forever?

As mania surrounding Apple’s stock was reaching a fever pitch in early 2012, The Leuthold Group wrote a piece entitled, Apple, Just How High Can It Go? To those caught up in the hysteria, the article served as a cautionary reminder.

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September 07

Yield Curve Proxy—A Tool For Equity Investors

The increasingly greater attention given to the yield curve by equity investors has prompted us to come up with an equity basket that can track the movement of the yield curve. Overall, it does a reasonably good job of capturing the major moves.

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September 07

EM Crisis? Not There Yet

What some EM countries are going through is a classic sequence that can potentially lead to a full-blown EM crisis.

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September 07

Price Hasn't Mattered

While Momentum continues to work overall, the gains have been skewed to the companies trading at the highest valuation multiples. Extremes, based on both price and valuation, have only been greater a handful of times during the period measured.

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September 07

A Phoenix Rises: The New Communication Services Sector

Herein we include an executive summary previewing our forthcoming, in-depth special report on September’s GICS sector changes. The full report, “A Prehistory of the Communication Services Sector” will be distributed soon.

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September 05

MTI: Market Sentiment Is Overconfident

The Attitudinal category neared a new negative extreme for the rally off February lows, while the Intrinsic Value category reached a new extreme for the entire bull market. This combination of overvaluation and overconfidence will eventually be resolved with large market losses…

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August 07

Company Leverage And The Impact Of Rising Interest Rates

Higher corporate leverage and rising short-term interest rates have not yet led to problems in the credit markets, but investors should be mindful of potential risks.

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August 07

A Market Breadth Mystery

It’s difficult to knock a stock market in which Small Caps and major breadth measures are making frequent new highs, however, there are performance anomalies that suggest liquidity is no longer sufficient to “float all boats.” Recent underperformance of the Equal Weighted S&P 500 is a case in point, at the same time, the current dichotomy in market breadth pales in comparison to the 1999-2000 episode.

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August 07

The Flags Are A-Flappin’!

The S&P 500 is on the verge of reversing its early-2018 losses and, if achieved, it would initially be accompanied by six “Red Flags”—which are based on key market indexes failing to record new highs in the 21 trading days preceding a new S&P 500 high. The last time the tally reached “six” was in May 2015—occurring at the final high before an S&P 500 loss of nearly 15% over the ensuing nine months.

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August 07

Too Many Clocks

Whatever one’s philosophical leaning, the practice of adjusting earnings has left investors with too many watches to consult. We look deeper into the topic of adjusted earnings to gauge the slippage between commonly-referenced earnings clocks.

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August 07

Attractively-Rated “Movies & Entertainment & Broadcasting” Group

Movies & Entertainment & Broadcasting’s Group Selection (GS) Score has been steadily improving of late; it rose to High Neutral in March and pushed up to Attractive two months ago. Currently a member of the Consumer Discretionary sector, this is a less-correlated option to the many retail industries also currently ranking strongly among the Discretionary components.

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August 06

Value Turns Positive

Value finally performed well during July, turning in its best month of 2018 on a spread basis. While the factor category is still deep in negative territory for the year, almost 85% of its underperformance is coming from the worst quintile outperforming the universe; meaning Value has mostly struggled because of expensive stocks outperforming, not cheap stocks lagging.

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August 06

Risk Barbell Or Middle Of The Road?

The underperformance of investment grade credit this year prompted the question of whether a risk-barbell portfolio of safe Treasuries and risky high-yield bonds may offer better performance than a middle-of-the-road portfolio of 100% investment grade corporate bonds in a highly-uncertain environment.

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July 31

MTI: Momentum Strengthens

A large gain in the Momentum category was almost entirely the result of a positive flip in a key market Reversal Model which had been bearish since March. While the long-term record of this model is good, its BUY signals over a forward three-to-six-month horizon have been less reliably bullish than, say, a breadth or momentum “thrust.”

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July 30

Dollar DRIVES The Day?

In the last few years, movements in the U.S. dollar have played a huge role in shaping the character of the recovery and the behavior of the financial markets. During the first half of this recovery, the trade-weighted U.S. dollar index (DXY) remained in a narrow range, but since 2014, its volatility has substantially increased.

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July 20

Advertising Flops

Investment Banking & Brokerage and Department Stores are this week's best groups. Internet Retail and Advertising are this week's worst groups.

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July 07

Trade-War Thematic Group

Trade wars or trade tensions, quietly started in 2017, hadn’t captured the market’s attention until early March this year—as demonstrated through a review of internet keyword search data of “Trade War” and “Tariff.” We present our Trade War thematic group which captures U.S. companies that could suffer the most from a trade war between the Trump administration and the rest of the world.

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July 07

Inflation Warning Flags?

After yet another benign figure on wages for June, the idea that inflationary pressures might be a problem for the stock market seems far-fetched.

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July 07

Small Cap vs Mid Cap vs Large Cap

Our Ratio of Ratios has been stuck in the Small Cap premium range of 2% to 7% for the last ten months—limiting the ability to make a call on market cap preference with this vignette.

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July 07

Discretionary Defies Gravity; Dept. Stores Purchased

Brick-and-mortar retail, not to mention antiquated Department Stores, have pretty much been declared dead in the age of Amazon. Often, this is when our GS Scores shine brightest... by picking industries that, at the time, are not intuitive and hard to stomach.

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July 07

Investment Grade Widened More Than High Yield: Implications & More

As credit spreads widened, something rather unusual happened: investment grade Corporate bonds performed far worse than High Yield bonds.

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July 06

Try This On For Size

Today’s market is barbelled regarding company size, with the mega-cap Tech stocks and the S&P 600 Small Cap index both outperforming the middle of the S&P 500.

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July 03

MTI: Market Not As Healthy Under The Surface

We’d concede that neither the relative strength of Small Caps nor the divergently strong action of the NYSE Daily Advance/Decline Line fit the pattern of a stock market undergoing a late-cycle period of distribution, however, the relatively low percentage of NYSE issues now trading above their 30-week moving averages (45.5%) suggests the market may not be as internally healthy as popularly portrayed.

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June 12

Inflation—No Surprises Here

Headline and Core CPI figures hit estimates right on the nose in May, continuing the trend of modest but not outrageous price increases. Energy prices have boosted headline CPI while core CPI continues to be driven by services. With both of the Fed’s mandates pretty much accomplished, appreciate this rare window of time.

 

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June 08

A Growth Alert?

This year started with strong expectations for economic growth. A substantial tax cut and evidence the global recovery had finally synchronized significantly raised expectations for both the pace of economic growth and corporate earnings results.. 

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June 07

Analysts, Summon Your Inner-Angler!

Quantitative investment firms are increasingly touting the cross-disciplinary backgrounds of their research staffs, with prior high-level experience in areas such as medical research and engineering not uncommon.

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