Research.LeutholdGroup

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

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This article summarizes our current research into the interaction between factors and sectors. We find that sector weights have a significant influence on some factor results, while the true factor impact is the key driver for others. Watch for our full report coming next week.

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The setback that began in late January qualifies as the sixth intermediate correction of the current bull market, where “intermediate” is defined as an S&P 500 loss ranging between 7%-12%...

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In the last couple of months, we’ve come across a handful of economic “check lists” purporting to show the relative absence of recession harbingers as the expansion closes in on its ninth anniversary this summer.

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Here’s another way to look at the persistence of momentum across asset classes for the last 45 years.

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In March 1991, an article titled “Investor Sentiment and the Closed-End Fund Puzzle” was published in The Journal of Finance.

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Quantitative investing has become an integral component of professional investment management, and smart beta funds have become popular vehicles for advisors as they assemble actively-managed client portfolios.

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Factor performance during 2016 is the reverse of that of 2014-2015. Quants and smart beta funds focusing solely on Value have enjoyed the year, while multi-factor approaches have struggled. Value has been the only factor that has provided positive performance this year.

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In the June Green Book, we professed some skepticism surrounding the long-term, “low-risk” BUY signal for stocks that was triggered at the end of May by our Very Long Term (VLT) Momentum algorithm (also known as the Coppock Curve).

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Validating results of a prior study, a look at the last four MSCI index rebalances shows that stocks soon to be added outperform from Announce Date to Effective Date, while deleted stocks underperform.

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We have mentioned a number of times that China had experienced a very unpleasant “second-hand” tightening due to its peg to the dollar. Its trade competitiveness has suffered tremendously. With a weaker dollar the Chinese Yuan can re-gain some of its competitiveness while maintaining its peg to the dollar. A rare win-win in today’s convoluted world of finance.

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Hedge funds have shuttered by the dozen in the past few weeks, with the worst carnage among those focused on Emerging Markets and commodities. But the problem is broader.

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The blue chip U.S. indexes have gone nowhere in 2015, and we expect bulls will soon write off the year as the “pause that refreshes.” But what’s been refreshed?

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While the S&P 500 had erased all but 2% of its August loss as of early December, Small Caps and the “average stock” had recouped only about half their correction losses. Not good.

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For the third consecutive year (thus far), quantitative factors worked best within the Materials sector. Energy also saw success as the decline in oil hurt the same stocks as in 2014. Factors were least effective in Health Care and Telecom.

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A strong dollar and low commodity prices are major forces dragging down EM currencies across the board.

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Among the various arguments put forward by those believing the recent decline is no more than a correction, the most difficult for us to address is the common claim that “there’s no recession on the horizon.”

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Last year was a solid one for the Group Selection (GS) Score approach, with the Attractive list delivering a total return of +13.1%—more than 500 basis points above The Leuthold Group Universe average, which gained only +7.9%.

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The recent Energy sector decline has accomplished the feat of wiping out all of the upside gains achieved during its “Third Act” played out in the 2006-2008 surge.

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In early October 2014, we noted the momentum reversal of Low Quality stocks and a few signs of the likelihood of transitioning to another phase of the quality cycle. The official numbers of Q4 have confirmed this.

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Six of the seven factor categories we track have turned in positive performance so far in 2014; Value is the exception. Lost in the numbers is that most of the value has come from the short quintiles, so it has been hard for managers to take advantage of this trend.

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Our AdvantHedge Composite lost 5.9% in July, lagging the inverse performance of the S&P 500 (5.1%), but outpacing both the NASDAQ (6.6%) and the Russell 2000 (7.0%) as the market returned to “risk-on” mode.

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Info Tech remains the largest sector short position, while Energy is second.

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Info Tech remains the largest sector short position, while Energy is second.

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Is market rallying in anticipation of conflict resolution in Iraq? Bush will be under increasing pressure to resolve things before the 2008 Presidential election. We look at the Korean conflict and Vietnam war for clues about how this possible resolution in Iraq may play out in stock market.

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2005 Performance Recap: Equities, Fixed Income, Large Vs. Small Caps, Weighted Vs. Unweighted S&P 500, Industrial Metals and AdvantHedge.

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Group Selection Scores worked well in 2005. Buying top 20 ranked equity groups each month based on GS Scores produced a 19% gain for the year, well above the 3% S&P 500 performance (price only).

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Back at the end of October, virtually all of the primary stock market indexes were slightly underwater on a YTD basis, but November’s market action changed all that with an impressive rally.

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Debunking one myth of buy and hold rationale. Showing how stock market returns change if investors avoid the best and worst performing stock market days. Essentially, anything can be proven with statistics.

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CPI expected to decline in 2006 and historically a decelerating CPI is a significant stock market positive, producing above average returns. Stage could be setting for a market rally in 2006 as inflation pressures wane.

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With most indexes declining during October, it was not a bad month to have a portion of the asset allocation portfolio hedged.

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A comparison of the performance of the current stock market recovery to the monthly performance averages of past recoveries (1900 to date).

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Going into September, there was little expectation that equities would perform strongly in the coming month, and by that token, the market did not disappoint.

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Comparison the performance of the current stock market recovery to the monthly performance averages of past recoveries (1900 to date).

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Considering the menace of record high oil prices and the devastation caused by Katrina— two topics which dominated the national headlines in August— stocks held up relatively well.

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The top ten groups, from our 150+ group history, in each of the last six years during the fourth quarter (October to December performance). 

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Strong July stock market could  continue into the dog days of August.

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For those who were having trouble remembering what positive returns felt like, May’s stock market strength probably came as welcomed relief.

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The YTD performance gap between large caps and small caps continues to widen.

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Market is very oversold after the March decline, and a near term rally is expected soon.

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