Recently, when Federal Reserve Chairman Jerome Powell and President Donald Trump both blinked—one on rate hikes and the other on trade wars—the S&P 500 surged by more than 6% in about a week! Many sensed the primary challenges holding back stocks were finally resolving and sentiment quickly turned bullish as investors did not want to miss the Santa Rally!Read more
The Economic/Interest Rates/Inflation category was not a big mover on the week, but its relative stability of late has masked a major shift within key indicator groupings. Leading inflation measures have faded sharply, with upgrades across the board in the commodity readings.Read more
The valuation of the stock market has been under steady pressure this year. The S&P 500 trailing price-earnings (P/E) multiple has declined by about 25% from a recovery peak of 23 in January to about 18. The hope for this bull market is that P/E contraction is almost over, allowing stock prices to again rise with earnings gains.Read more
A massive drop in corporate tax payments lifted the third quarter NIPA profit margin back to the 10% level for the first time four years. But while we try not to always view the glass as half empty, we find it troubling that margins remain well-below their 2012 highs (10.6%) in spite of this one-time windfall.
Whatever one’s preferred leftovers from yesterday’s feast, the odds are good you’ll find them more appetizing than the slop served up by global asset markets this year. Stocks have obviously been turkeys, but all the surrounding trimmings that help diversify a portfolio have proven anything but complementary to the main course.Read more
A critical difference we’ve discussed repeatedly is that market overvaluation in the 1999/2000 episode was concentrated in roughly the top-50 Mega Caps, while current overvaluation—though arguably not as extreme—afflicts nearly the entire list of publicly-traded U.S. stocks.Read more
We first published the accompanying chart in March of this year. The PP Ratio had just spiked sharply upward in the previous three months, as it did near the end of the dot-com era in 2000. Since March, in a very similar fashion as shown, the PP Ratio has eerily traced the same path as during the dot-com era.
he velocity of the money supply measures the pace at which cash is spent in the economy, or the amount of total GDP activity created by each dollar of the money supply. Monetary velocity has long been a focal point for the Federal Reserve, economists, and investors because its growth often shapes the character of the recovery.Read more
While the consensus view remains that October’s stock market rout was “healthy” and “overdue,” we think it was more likely the first leg down of much larger decline. But it’s still worth reviewing the improvement in valuations that market losses and this year’s excellent fundamentals have combined to produce.
Although the Intrinsic Value category is now about 100 points above the worst levels recorded in early January, it is far too early to begin making a bullish valuation case for the stock market. Interestingly, some of the same pundits who warned “valuation is not a timing tool” on the way up are the ones trotting out these premature, value-based arguments—which are typically built on extremely-optimistic forecasts for 2019 operating EPS.Read more
“Zombie” companies are being kept alive by low interest rates and generous credit conditions, and the number of them, worldwide, has risen significantly over the past few years.Read more
A couple of months ago, we (belatedly) observed that, in February the 10-year Treasury yield had bro-ken above its 10-year moving average. That simplistic tool has been a pretty good descriptor of yields’ long-term trend for more than a century, with few “whipsaw” signals along the way.Read more
Although Discretionary stocks broadly underperformed during October’s market decline, prominent amongst the very top industry group performers was a rather unexpected genre of industries—brick & mortar retail. Not only did this cohort hold up during October’s tumult, but many of the underlying stocks have been posting strong returns all year.Read more
Solid economic growth and fabulous profit results have underpinned the stock market in the last couple years. Since the presidential election, the global economic recovery exhibited a rare synchronization for a time, and within the U.S., confidence measures rose from mediocre to near post-war highs...Read more
The accompanying chart illustrates the annual rate of wage inflation for all U.S. nonsupervisory private nonfarm payrolls. This was the primary wage series used by the Bureau of Labor (BLS) until 2006 when it began using a wage series based on all private sector workers.Read more
Productivity has been weaker in the contemporary recovery than any other in the post-war era. At just a little above 1% per annum, the pace of productivity growth in this recovery has only been about 40% of the average growth experienced during past periods of economic expansion!
We believe the catalyst for market weakness has been the decline in accommodation by the Fed and other central banks. While there has been a pullback in some of the leading inflation measures since June, the rate of global tightening has actually accelerated.Read more
U.S. inflation has been modest for the last 35 years. The annual rate of core consumer price inflation has only briefly been above 5% since 1983, and for the last 20 years has been below 3%! Since inflation has been low for so long, an entire generation of investors often consider it a nonevent.
A central quandary for equity investors is whether Emerging Markets (EM) represent an opportunity or a risk? Current relative valuations highlight the opportunity. The relative forward P/E multiple (versus the S&P 500) is as low today as it was at the start of this bull market in early 2009, and relative price-to-sales and price-to-book ratios have not been this attractive since the early 2000s!Read more
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.Read more