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Valuations

Sep 05 2020

Does An Economic Rebound “Inoculate” The Stock Market?

  • Sep 5, 2020

The 2020 decline exhibits a strong resemblance to the “incomplete” bear market of March 2000-September 2001—in that neither decline sufficiently deflated the extreme valuations of the preceding bull, and each was followed by an immediate rebound in reliable valuation measures to top decile levels.

Sep 05 2020

The Tab For “Freebies” Keeps Escalating

  • Sep 5, 2020

There’s an underlying faith that bureaucrats at the Fed and Treasury will keep good and bad businesses, alike, afloat—and overvalued. We’re still trying to unearth a single historical analog that merits such confidence.

Sep 05 2020

Musings On A Manic Market

  • Sep 5, 2020

Officially, those quick to pronounce the move off March lows as a new bull market have been proven correct with new S&P 500 all-time highs. Fundamentally, though, there’s enormous risk in Large Cap valuations, regardless of where one believes we are in the economic cycle.

Aug 06 2020

A “Litmus Group” For The Bulls

  • Aug 6, 2020

As troubled sectors vary from downturn to downturn, commercial banks have shown an uncanny ability to leap in front of each cycle’s proverbial pie truck. This time, it’s hard to identify the precise epicenter—especially amidst all the bailouts.

Aug 06 2020

A “Low-Risk” BUY?!?

  • Aug 6, 2020

So what do we make of July’s “low-risk” VLT BUY signal on the DJIA—the index on which the indicator’s creator (Sedge Coppock) did his original work? Sadly, not much.

Aug 06 2020

Implications Of The “Breakout”

  • Aug 6, 2020

July’s developments led to us investigate the market valuations accompanying all past month-end S&P 500 breakouts which (1) eclipsed the prior month-end bull market high; and (2) made a new all-time high in the process.

Jul 10 2020

The Growth Style’s Twin Peaks

  • Jul 10, 2020

The strong market rebound in the second quarter lifted the relative return of Growth vs. Value to an all-time high by the end of June. Chart 1 reveals that the cumulative S&P 500 Growth / Value return spread hit a new record last month, surpassing the previous high reached at the end of the Tech bubble in June 2000. 

Jun 05 2020

The Wrong Kind Of “Head Start”

  • Jun 5, 2020

The rally’s initial resemblance to the first up-leg off the secular 2009 market bottom is remarkable. Both rallies started in March, and achieved gains of almost 40% within 50 trading days. Both, of course, sprung from a backdrop of unprecedented monetary stimulus.

Jun 05 2020

“Not Quite” Super

  • Jun 5, 2020

The average “super-overbought” MBI reading occurred 54 days after a market low; June 4th marks the 51st trading day since the March 23rd low. Thus, any signal in the days ahead would arrive essentially “on time,” but the slippage (the S&P 500 gain already realized) would be enormous at around 40%!

Jun 04 2020

Small Cap Valuations: Zombies And Ragamuffins

  • Jun 4, 2020

Asset allocation decisions are fairly straightforward for groups of profitable and growing companies that fit nicely into a discounted cash flow model, but it is more difficult to describe the valuation of groups that include unprofitable companies.

May 29 2020

Can The Rally Recover From Its 0-For-8 Start?

  • May 29, 2020

The current rally is either the first upleg of a new bull market, or the second-largest bear market rally in the last 125 years. The lone development that can settle the issue is for the S&P 500 to move above its February 19th closing high of 3,386.15.

May 07 2020

Calculate The Next Low... With The Last Peak?

  • May 7, 2020

How does one value a stock market in which 12-month forward EPS estimates show their widest dispersion in history? A good start might be with methods we use when forward estimates show practically no dispersion (like three months ago). In either case, we place little weight on such estimates; each revision usually has only marginal impact on our 5-Year Normalized EPS.

May 07 2020

There’s More To It Than That

  • May 7, 2020

It’s a down year for stocks, yet John Bogle must still be chuckling. A full-employment economy that had propped up one of the two most overvalued stock markets in U.S. history just suffered a cataclysmic “sudden stop.” Yet Bogle’s buy-and-hold disciplines have so far dodged the bear.

Apr 07 2020

Are Foreign Stocks Cheap Enough?

  • Apr 7, 2020

For those who must remain fully invested, an interesting (if not sickening) feature of the bear market is that those who entered it loaded with the most expensive and “trendiest” stocks and sectors have lost the least.

Apr 07 2020

Are SMIDs Cheap Enough?

  • Apr 7, 2020

A composite measure of Mid Caps and Small Caps are at bottom-decile valuations relative to their 26-year histories. From a shorter-term viewpoint, though, we find it scary that valuations are so low just a single month into the recession.

Apr 07 2020

A Bear Market In Price, But Not Time

  • Apr 7, 2020

We have a hard time accepting that the excesses associated with an eleven-year bull market and expansion can be fully expunged in 27 trading days, no matter how ugly those days were… keep some powder dry!

Mar 27 2020

Remembering Another “March Milestone”

  • Mar 27, 2020

While the bull didn’t live to see his 11th birthday, this month did mark the anniversary of another historic event: Twenty years ago this week saw the peak bubble-era close in the S&P 500 of 1,527.46. 

 

Mar 20 2020

Valuations: A “Progress” Report

  • Mar 20, 2020

As deep as the losses in the DJIA and S&P 500 have been, most professional investors recognize that those averages have masked the extent of the damage suffered by most stocks.

Mar 17 2020

Valuation Dispersions Reach 2009 Levels

  • Mar 17, 2020

The recent market turmoil has only served to exacerbate equity style trends that have been in place for years, with Value, Small Caps, and High Beta all underperforming relative to Growth / Momentum, Large Cap, and Low Volatility, respectively. 

Mar 16 2020

Estimating The Downside

  • Mar 16, 2020

With the markets in freefall, we’ve seen a dramatic spike in interest in our monthly “Estimating the Downside” vignette. We think a mid-month snapshot is in order to give some idea as to how much meat has been taken off the valuation bone.

Mar 06 2020

A Developing Opportunity In The “SMIDs?”

  • Mar 6, 2020

The underperformance of Mid and Small Caps in the last few years has taken valuations from top-decile readings (and, indeed, a few all-time records) just 25 months ago, down to the middle—and even lower reaches—of their 30-year valuation boundaries.

Mar 02 2020

Interim Memo

  • Mar 2, 2020

The coronavirus epidemic/pandemic is getting the bulk of the blame for the sudden collapse in U.S. equities, and certainly qualifies as one of the few “black swans” seen in modern market history. We do not think the ultimate path of the coronavirus contagion can be analyzed at this point, and medical experts foresee possible outcomes ranging from a serious epidemic to a short burst of illness that fades with the summer weather. 

Feb 07 2020

EM Equity Purgatory

  • Feb 7, 2020

Nine months ago we established a “pilot” position of 4% in Emerging Market equities in the Leuthold Core Fund, based mostly on the bullish inflection in a long-term technical indicator (VLT Momentum).

Jan 08 2020

A Spectacularly Average Thirty Years

  • Jan 8, 2020

In the spirit of good holiday cheer, we made a partial concession to the True Believers with a December “Chart of the Week” in which we narrowed our stock market valuation analysis to the historically elevated levels of last 30 years.

Jan 08 2020

A Blast From The Past

  • Jan 8, 2020

With 2020 representing The Leuthold Group’s 40th year of publishing Perception For The Professional, we perused the first few Green Books for relevant nuggets from 1981, but the backdrop could not have been more different. Therefore, we instead turned the clock back 20 years, thinking it might yield insights more resonant with today’s environment.

Jan 08 2020

A New Year, Or A Blast From The Past?

  • Jan 8, 2020

It was during the very first days of the great 2019 market rally that we noted its similarities to the bubbliest of all the bubble years—1999. Wow. We had it in our hands and frittered it away.

Jan 07 2020

Industry Returns: The Decade’s Winners & Losers

  • Jan 7, 2020

This “decade in review” edition examines the performance of sectors and industries, looking at the best and worst groups to reveal the stories they have to tell.

Dec 20 2019

Valuations: An Updated “Modern” Take

  • Dec 20, 2019

An occasional critique of our valuation work is that we consider “too much” market history to form a judgment as to what constitutes “high” or “low.” This type of feedback declined during and after the financial crisis (when historic valuation thresholds were temporarily revisited), but it has become more pointed as the U.S. market has soared to new highs.

 

Dec 18 2019

A Small Cap Strategy Session

  • Dec 18, 2019

Leuthold’s research team has recently flagged a number of items that suggest it may be time to consider small cap stocks. This asset class has been showing signs of life and the decision to overweight small caps is starting to seem relevant – and perhaps nicely profitable - again.

Dec 06 2019

A New Take On Small Cap Valuations

  • Dec 6, 2019

For valuation work, we’ve traditionally favored the 1,200 company Leuthold Small Cap universe over the S&P SmallCap 600 because we get almost a full additional decade of perspective. But figures for the latter shed extra light on just how significant the revaluation in Small Caps has been.

Dec 06 2019

A “Best Case” Bear Scenario?

  • Dec 6, 2019

We intentionally curtailed our discussion of stock market valuations the last few months to allow the “dead horse” to recover from the thrashings administered in recent years. Now we’re rested, refreshed, and ready to deliver a few more lashes.

Nov 20 2019

Taking A Punt On U.K. Stocks?

  • Nov 20, 2019

The June 2016 Brexit referendum kicked off a tortured process for the United Kingdom to leave the European Union. However, the wheels of international politics turn slowly, and the original date of formal withdrawal was set as March 29, 2019. As the calendar rolled into 2019 it became obvious that the March closing date was not going to be met, and concerns mounted over delays, procedures, deal-or-no-deal, a new prime minister, and even calls for another vote.

Sep 07 2019

Commodity Stocks: “Low” But Not Cheap

  • Sep 7, 2019

A general rule of thumb for thematic equity investors is that the dominant leadership sectors and groups in a given bull market normally don’t repeat as leaders in the subsequent bull.

Aug 15 2019

Can Equity Investors Eat Their Cake And Have It Too?

  • Aug 15, 2019

Investor sentiment seems to be unusually conflicted these days. There are worries aplenty, including numerous political skirmishes of consequence around the world, a slowing global economy, and lofty U.S. equity valuations. On the other hand, fiscal stimulus is high for this stage in an economic cycle and the Fed is easing monetary policy, two policy drivers it rarely pays to bet against.

May 07 2019

Commodity Stocks: More Of The Same

  • May 7, 2019

Someone forgot to tell commodity trades this is an era of diversity of inclusivity: This year’s leap in the S&P/Goldman Sachs Commodity Index has been entirely the result of its heavily-weighted energy inputs.

May 07 2019

Adding EM On A Rent-To-Own Basis

  • May 7, 2019

The Major Trend Index has remained in neutral territory during the last several weeks of upside action, suggesting there remain significant fundamental and technical shortcomings beneath it all. But this precarious MTI stance didn’t preclude us from acting on a new bullish reading for Emerging Market equities at the end of April.
 

Apr 05 2019

Small Cap Biotech Getting Pricey Again

  • Apr 5, 2019

In May 2015, we warned about rich valuations for small cap Biotech stocks and looked at various ways to evaluate those companies, as the majority have no approved drugs on the market, thus no revenue; therefore, valuing these companies using the conventional methodology is problematic.

Apr 05 2019

The “Breakout” And Its Aftermath

  • Apr 5, 2019

A common criticism of our long-term valuation work is that valuations shifted north into a new trading range during the 1990s, meaning Leuthold’s benchmarks (dating back to 1957 and earlier) are no longer relevant.

Mar 15 2019

Be Wary Of The “E” In P/E

  • Mar 15, 2019

U.S. equity valuations remain considerably higher than those of any major foreign market, but there’s no denying they’ve improved from the cyclical peak made in January 2018. That’s true across the capitalization spectrum, and on the basis of both normalized and non-normalized fundamentals.

 

Mar 07 2019

A Scary Chart, Revisited

  • Mar 7, 2019

For a couple years, we’ve labeled the S&P 500 Price/Sales ratio as the scariest chart in the Leuthold database, and last year’s decline did little to improve its intimidating appearance.