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.
MTI: Confidence Builds As S&P Flirts With High
The Attitudinal-category reading has moved to a six-month extreme as the S&P 500 flirts with its January high; improvement in the Economic work continues to reflect the pullback in various commodity measures.
Read moreInflation—Another Yawner
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The year-over-year headline number was in line with market expectations. Inflation has taken a back seat to trade war and the market seems complacent about the potential impact of trade war. Trump is right to talk down the dollar as a stronger dollar is disinflationary.
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Active vs. Passive Return Drivers - June 2018 Update
Our ongoing research into the relative performance of Active vs. Passive fund styles is based on the belief that just as market conditions cycle, so does the active-passive return spread.
Read moreCompany 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.
Read moreA 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.
Read moreThe 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.
Read moreToo 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.
Read moreAttractively-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.
Read moreValue 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.
Read moreRisk 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.
Read moreMTI: 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.”
Read moreAdvertising Flops
Investment Banking & Brokerage and Department Stores are this week's best groups. Internet Retail and Advertising are this week's worst groups.
Read moreTrade-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.
Read moreInflation 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.
Read moreSmall 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.
Read moreDiscretionary 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.
Read moreInvestment 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.
Read moreTry 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.
Read moreMTI: 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.
Read moreInflation—No Surprises Here
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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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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.
Read moreIs The Bull Just Napping?
Old age has certainly put no limitations on the bull’s exploits, so we should be cautious in reading too much into its meandering recovery path. However, it’s possible that action since the February low is not a recovery process but rather a countertrend bounce within a larger downtrend.
Read moreNarrow Momentum Performance Hard To Capture
While Momentum has worked very well during the last year, the best performance has been concentrated among the most expensive securities within the high Momentum group.
Read moreCycles And Taxes And GICS, Oh My!
Analyzing quarterly financial results and developing insights about upcoming periods is always difficult, but the first quarter of 2018 was unusually complicated.
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Transports Gain Momentum Amidst Struggling Industrials Sector; Railroads Purchased
Despite Industrials’ underperformance versus the broad equity market, the sector’s Transportation subset has been on the rise recently. In the latest round of our Group Selection (GS) Scores, four of the five Transportation groups rank Attractive, and the fifth one is rated High Neutral.
Read moreAll Crowded Trades Are Vulnerable—Even The Yield-Curve Flattener
Bond market volatility picked up quite a bit in May but the higher-low/higher-high pattern in the 10-year yield is still intact, indicating the primary uptrend has not reversed.
Read moreMTI: Sentiment Measures Decline
A sharp loss in the Attitudinal category reflects declines in all major groupings of sentiment measures, ranging from investor opinion surveys, to fund flows, to option trading activity.
Read moreValue Style’s 100-Year Flood
Value is the philosophical cornerstone of many legendary portfolio managers and is widely recognized as one of the most robust quantitative investment factors. Yet, despite its compelling conceptual merits and long-term record of superior returns, recent years’ underperformance of Value has lasted long enough to weigh on even 10-year performance records.
Read moreIs Small Cap Leadership Bullish?
The Russell 2000 closed above its January 26th high on Wednesday, and well beforehand bulls had seized upon the secondary stocks’ leadership as evidence that all is right again with both the U.S. economy and stock market...
Read moreEM Country Rotation Based On A Stock Factor Model
Back testing shows stock-level factor alpha can be captured at the country level. With the rapid growth of single-country ETFs, this may prove an efficient, practical alternative to individual stock selection.
Read moreThe “Correction” Clock Is Ticking
2018’s S&P 500 setback qualifies as an “intermediate” correction. Historically, the duration of intermediate corrections is brief, and recovery time to move back above prior highs has also been brief. This year’s retracement route is already among the most meandering of all recovery paths since 1950.
Read moreThe Market Told You So
First quarter profits have been terrific, and this quarter’s will be too. Enjoy them, but remember that the market “paid” you for them many months ago. Don’t submit another invoice…
Read moreHas The Makeup Of Momentum Changed?
The makeup of Momentum has stayed surprisingly steady through the volatility in 2018, with Info Tech and Health Care maintaining overexposure. Energy is sneaking in, though, and could be poised to take a much larger share.
Read moreRates & Credit At A Major Crossroads—A Few Things To Watch
April saw a valiant attempt by the U.S. 10-year yield to crack the upper band of the multi-decade downtrend channel (around 3.0%-3.05%).
Read moreThe Yin And Yang Of Utilities
Are Utilities defensives, or are they interest rate plays, or both? We believe the driving influence fluctuates based on market conditions, specifically fear, and the desire for protection in down markets.
Read moreMTI: Economic Measures Improve Slightly
While we’ve emphasized several negative developments within the MTI’s Economic composite in recent months, not all of the evidence leans bearish. Outside of the oil patch, commodities have struggled to make a clear breakout, possibly reflecting the short-term bounce in the dollar.
Read moreMTI: Monetary And Liquidity Work Deteriorates
While we’ve always emphasized the importance of the “weight of the evidence” over the individual MTI factor categories, it’s worth highlighting some key differences between the 2018 correction (which saw a loss in the S&P 500 of 10.2% at the February 8th closing low) and the 2015-2016 S&P 500 correction of 14.2%.
Read moreThe Commodity Stock Disconnect
We’ve chronicled the ever-expanding gap between commodity prices and commodity-oriented equities. Don’t expect a rebound in one based on the strength of the other. There’s no clear historical tendency for the weaker asset to catch up.
Read moreA “Drug-Free” Market Decline?
Yields on 10-year Treasuries are up 10 bps since stocks peaked in January, a clear break from the behavior of prior corrections. The last four stock declines of 10%+ were self-medicating—having been accompanied by bond yield declines of 50 to 150 basis points.
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