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S&P 500

Mar 10 2023

Small Caps: We’ve Seen This Setup B-Four

  • Mar 10, 2023

In mid-2020, we wrote that a new multi-year leadership cycle had probably begun. Technically, that belief hasn’t been disproven, but the extent of outperformance has been disappointing in the nearly three years since. 

Mar 07 2023

Meanwhile, In “Relative World”...

  • Mar 7, 2023

A large swath of the institutional asset-allocation world is engaged in the sometimes dangerous, binary game of “stocks versus bonds.” Although the 2022 bond debacle caused relatively mild damage to a massively overweight equity position, the bear markets of 2000-2002 and 2007-2009 produced losses for stocks versus bonds that exceeded 60%. 

Nov 05 2022

VLT: A Double-Sworded Edge

  • Nov 5, 2022

“Oversold” usually has a positive connotation in financial jargon, yet history’s worst air-pockets have almost always occurred when the stock market was deeply oversold. More time is needed before a “low-risk” entry point for the S&P 500 will be triggered from the VLT’s currently “oversold” status.

Oct 24 2022

The 60/40’s Annus Horribilis

  • Oct 24, 2022

The balanced portfolio strategy of allocating 60% to equities and 40% to fixed income generated a highly satisfactory 7.9% annualized return over the last 30 years. Despite the excellent returns earned by investors following this strategic model, the past couple of years have seen a parade of articles with headlines such as “Is the 60/40 Portfolio Obsolete?” and “Is the 60/40 Dead?” Given the central importance of this moderate allocation strategy to investment industry practices, we felt a closer look at the 60/40 portfolio was in order.

 

Oct 07 2022

Research Preview: The 60/40 Skeptics Were Right

  • Oct 7, 2022

The 60/40 strategy is having a terrible year, and its failure to protect investors in the bear market prompted us to take a look at the history and theory of the 60/40 guideline. We offer an early preview of the study, with a focus on 2022’s abysmal year-to-date returns.

Sep 30 2022

Time To Retire The Fed Model?

  • Sep 30, 2022

We’ve heard no references lately to the famous “Fed Model” for stock market valuation. We think we know why: The model’s usual proponents probably don’t like its current verdict—which is that stocks are far more expensive than at the early January market peak.

Sep 08 2022

Another Stab At The “Downside”

  • Sep 8, 2022

How far might the S&P 500 fall in a recessionary bear market? The 2002 and 2020 stock market lows were both produced by “recessionary” bears; based on history back to the 1920s, those two lows stand out as the priciest bear market bottoms on record—and it’s not even close.

Aug 05 2022

Additional Factors

  • Aug 5, 2022

The six-week rally that started mid-June featured advances from AAPL (+25%), AMZN (+30%), and TSLA (+39%), which accounted for one-fourth of the S&P 500’s gain. Despite the recent preference for Value, a spike in interest rates, and the bear market, the index’s concentration in the top-five firms is still near it’s all-time high set in August 2020.

Aug 05 2022

The Rally: Impressive, But Not Yet “Thrust-Worthy”

  • Aug 5, 2022

Many technicians contend that the rebound off June’s lows triggered a bear-market-killing “breadth thrust.” Several gauges we monitor to capture this phenomenon contradict that claim. None has reached a threshold that is extreme enough to qualify as a thrust.

Aug 05 2022

Overheated?

  • Aug 5, 2022

Living in Minneapolis, we’re bewildered by the absence of research considering global warming as potentially a good thing for certain organisms. That’s especially true for creatures where the science is almost nonexistent—like the stock market. Record heat wave? Bring it on!

Jul 08 2022

Remember When?

  • Jul 8, 2022

Remember the good old days (like even a year ago) when one didn’t need to mentally tabulate investment results in inflation-adjusted terms? For a blissful couple of decades, nominal and real returns were so close together that the latter figure seemed irrelevant.

Jul 08 2022

Break Out The Checkbook!

  • Jul 8, 2022

We apologize for that terribly misleading teaser of a title, but the bills for the stock-market mania of 2020-2021 are piling up. Inflation is one of them, lately increasing each month as relentlessly as cable TV used to. And for the 10% of households who own 90% of the stocks, market air-pockets such as June’s are like “surprise” medical bills: There’s rarely just one

May 06 2022

“Donuts”—The New Comfort Food

  • May 6, 2022

For the last few years, the S&P 500 has been the most richly priced of the broad equity indexes, and its moderate decline, to date, makes it even more so on a “relative” basis. In recognition of that, we began to track the hypothetical allocation strategy of avoiding this index.

May 06 2022

Peak EPS: Another Critique

  • May 6, 2022

It’s only been a few years since we added the Peak P/E ratio to our suite of market valuation measures. That situates us in the uncomfortable position of having to explain why a big decline in this newer metric might be misleading.

May 06 2022

Who Doesn’t Love A Sale?

  • May 6, 2022

The S&P 500 closed May 5th with a moderate 13.5% loss from its all-time high, a move that explains only part of what’s already been an historic bear market—in P/E ratios, that is.  

Apr 22 2022

The “Donut” Might Be Healthier Than You Think

  • Apr 22, 2022

Lent ended last week, allowing Christians to resume the intake of unhealthy foods. But rather than a nice, thick T-Bone steak, we’d suggest sampling one of the few items that’s fattened investors’ accounts in 2022—the Donut!

 

Mar 24 2022

The Bull Visits The Vet

  • Mar 24, 2022

Just after yesterday’s close, we loaded our precocious bull into an SUV and drove to the local veterinary clinic for a two-year checkup.

Our bovine buddy drew some sympathetic stares while we were waiting in the lobby. Noting our bull’s droopy eyelids and gray facial hair, an assistant informed us, “You know, you didn’t actually need to bring him here. We now have a mobile euthanasia service.” We just smiled, and waited for the veterinarian, who is said to be a specialist in this new super-species of bull.

Mar 05 2022

Don’t Fight The Tape?

  • Mar 5, 2022

Longstanding concerns over the stock market’s lofty price tag are frequently dismissed with the observation that “valuations are not helpful timing tools.” We don’t disagree. In that spirit, then, let’s review three simple trend-following models that have been useful timing tools.

Feb 11 2022

4% Club—AAPL Takes On The World

  • Feb 11, 2022

It’s probably about high time that we check in with our past and present members of the esteemed 4% Club. For those of you not familiar with this vignette: back in the day, achieving a 4% weight in the S&P 500 had been a rare feat, occurring only during periods of extreme enthusiasm for technology, conglomerates or oil. The blessing of membership soon turned into a curse, with most taking just a cup of coffee behind the velvet ropes before being thrown to the curb because of dramatic underperformance to the rest of the Index. Our two most recent inductees seem to be following the proper established Club protocol for not lingering at the party too long. The two other members, however, have been receiving their mail at the Club for quite some time.

Feb 05 2022

Easy Money? Not In Small Caps

  • Feb 5, 2022

One might have predicted that big beneficiaries of war-time-style levels of federal spending, financed by money printing, would be Small Cap stocks. And from March 2020 until March 2021, they were. But the larger picture is sobering. 

Jan 07 2022

New-Era Profits, New-Era P/E Multiples

  • Jan 7, 2022

The current mania won’t last forever. But our use of the “New Era” label in describing the last-quarter century or so of stock-market dynamics is still useful—in part because it highlights fundamental developments that simply cannot be repeated indefinitely. 

Dec 07 2021

The Donut: A Not-So-Healthy Snack

  • Dec 7, 2021

In April, we suggested that an antidote for high valuations on the S&P 500 might be an extra bite or two of the “Donut” Portfolio—an equal-weighed portfolio of several of the usual asset allocation suspects excluding the S&P 500. That proved to be good advice for about two months.

Nov 18 2021

Powell’s Dovish Accomplice

  • Nov 18, 2021

Last week we argued that U.S. money growth remains way too high to reasonably expect a peak in consumer price inflation during the next few months. At the peaks of the last five bouts of inflation of 5% or more, real growth in the M2 money supply had turned negative in four cases and had slipped to less than 1% in the other one. Today, real M2 is growing at nearly a 7% rate.

Nov 05 2021

“Into The Weeds” With Normalized EPS

  • Nov 5, 2021

The environment where massively above-trend federal outlays have generated massively above-trend readings in both current and projected S&P 500 EPS, the idea of normalizing EPS over a period as long as five years might seem hopelessly out of touch. But it’s during times of extraordinary conditions—both good and bad—that render this work especially valuable.

Sep 22 2021

Q'Val: A Factor Powerhouse

  • Sep 22, 2021

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?

 

Sep 08 2021

Let Us Add To The Bullish Cacophony

  • Sep 8, 2021

It’s been a heck of a stock market year, and there are still four months left. What else could go right? Monetary conditions, for one thing—at least as proxied by our Dow Bond Oscillator (DBO).

Aug 06 2021

Golden Milestone

  • Aug 6, 2021

Fifty years ago this month, Richard Nixon formally suspended the convertibility of U.S. dollars into gold. Editorials commemorating this have tended to have a celebratory tone, and why not? Abandoning the gold standard greatly expanded the arsenals and imaginations of policymakers, both of which have been on historic display over the last 18 months.

Aug 06 2021

A Look At The Small-Cap Setback

  • Aug 6, 2021

The Russell 2000 has blown the 14% lead it had built against the S&P 500 earlier this year, and now trails the index by almost 5%. Has that type of intra-year reversal happened before, and, if so, did it portend a major change in leadership?

Jul 08 2021

Peak Earnings Yield A Rock-Bottom Forecast

  • Jul 8, 2021

At today’s 30.8x, the Peak P/E stands in the 99th percentile on all time horizons except the “New Era” (1995-to-date). Yet, that’s still five “handles” below the 35.8x all-time high recorded in December 1999. If that figure is matched, the S&P 500 will top 5,000. 

Jul 08 2021

Hard Facts Behind An Easy Job Market

  • Jul 8, 2021

Statistically, when jobs are “easy to get”—as all the survey evidence now indicates—attractive long-term returns for stocks typically become “hard to get.”

Apr 08 2021

Snack Time?

  • Apr 8, 2021

As discussed elsewhere in this section, we had a novel idea for asset allocators tired of chasing the S&P 500: Hop off the treadmill and take a “Donut” break!

Apr 08 2021

Time For A “Donut” Break?

  • Apr 8, 2021

Despite a resurgence in Small Cap stocks and Commodities, it still feels like an “S&P 500 World” for asset allocators. The financial media remain obsessed with S&P 500 targets, S&P 500 earnings, and S&P 500 stocks. And why wouldn’t they be?

Mar 12 2021

Stocks And Yields Revisited

  • Mar 12, 2021

The S&P 500 and 10-Year Treasury bond yield could accomplish something fairly rare today by closing at “joint” 52-week highs. The relevant levels to meet or exceed are 3934.83 on the S&P 500 and 1.49% on the bond yield.

Mar 05 2021

Bond Yields “Take Down” An Old Favorite

  • Mar 5, 2021

The “lower for longer” interest-rate thesis propped up the S&P 500 Low Volatility Index for more than a decade. Rising bond yields have since helped drive this former darling to an 18-year relative-strength low. Yet, assets in the S&P Low Volatility ETF are still five-times larger than its High-Beta counterpart.

Feb 05 2021

Climbing The Wall Of Confidence?

  • Feb 5, 2021

Stock market valuations may be considered the ultimate in fundamental measures, but they can just as easily be considered long-wave sentiment indicators. What causes equity investors to pay as little as 10x for S&P 500 Normalized Earnings at one point (March 2009), but pay more than 30x a dozen years later? The Fed printing press was in overdrive at both points; only emotions can account for the difference.

Jan 29 2021

An Historical Look At Biden’s “Future”

  • Jan 29, 2021

We’ve read far too much about what Joe Biden and a newly-blue Congress might do in the months ahead, but less so about the conditions Biden and his team inherit. Such “initial conditions” usually have a heavy hand in policy outcomes, market outcomes, and even a president’s legacy.

 

Dec 05 2020

Super-Rarified Air

  • Dec 5, 2020

The 2020 post-election stock surge looks and feels a lot like the 2016 “Trump Bump.” But, of course there’s a spoiler. The Biden Bump started with a Normalized P/E level about 30% higher than the one prevailing on election eve of 2016 (26.8x versus 20.5x, respectively). 

Nov 16 2020

S&P 500 Dividends? Thank You, No!

  • Nov 16, 2020

Dividends are a cornerstone of equity investing and over the decades they have produced a significant portion of the stock market’s total return.  Previous Leuthold research has identified a strong dividend influence on total returns for small and midcap companies.  Looking at S&P 500 constituents, we see that dividend growers outperformed companies that had flat or declining dividends – an expected outcome.  However, we also found that companies not paying dividends convincingly outpaced dividend payers.  This is contrary to the results in other market segments, but the explanation for this becomes apparent in the course of our research.

Nov 06 2020

VLT’s Struggles Are Telling Us Something

  • Nov 6, 2020

Our Very Long Term (VLT) Momentum algorithm has been a very good “confirmatory” market tool over the years, especially at the onset of a new cyclical bull market. But VLT has proven to be of little to no value in navigating this year’s gyrations. VLT’s latest flip-flops reinforce our view that the market leaderboard is set to be rearranged.

Nov 06 2020

Remembering Trump

  • Nov 6, 2020

Donald Trump will be remembered as the most polarizing political figure in U.S. history, but he was an unwitting consensus-builder on an issue that was long thought to be “settled science.”