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Chart Of The Week

Aug 10 2018

Active vs. Passive Return Drivers - June 2018 Update

  • Aug 10, 2018

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.

Aug 03 2018

No, It’s Not Y2K Again…But The Lights Could Still Go Out

  • Aug 3, 2018

For the last year, we have labeled the S&P 500 Price/Sales ratio—which has returned to its Y2K bubble levels—the “scariest chart in our database” (Chart 1). Recall that the initial visit to present levels was followed by the S&P 500’s first-ever negative total return decade.

 

Jul 27 2018

How The S&P 500 Could Hit 2,500… Ten Years Out

  • Jul 27, 2018

Yesterday was the six-month anniversary of the S&P 500 bull market high, and the index celebrated the event by nearly setting a new peak. Meanwhile, the S&P 500 Total Return Index did make a new high on Wednesday.

Jul 20 2018

Rates Are Up, But Are They High Enough To Punish?

  • Jul 20, 2018

While momentum has been the best-performing stock selection factor in 2018, there’s a less well-known and purely fundamental factor that rates almost as well: A company’s ability to lose money!

Jul 13 2018

The Kindness of Strangers

  • Jul 13, 2018

We have recently been struck by the tremendous valuations being awarded to companies that have never turned a profit. Tesla, Spotify, Workday, and Square all sport market caps above $25 billion based not on their recent earning power (which is zip), but on the hopes that they will one day move well into the black.

Jun 29 2018

Emerging Markets: Down A Lot, But Not Really Cheap

  • Jun 29, 2018

The stock market liquidity squeeze we’ve discussed this year hasn’t played out quite like we expected. Traditionally, Fed tightening and slowing money growth hit Small Caps earlier, and harder, than the blue chip stocks...

Jun 22 2018

Altitudes Are Too High— And Attitudes Are Getting There

  • Jun 22, 2018

An important feature of this bull market—and a reason for its longevity—is the slow recovery in investor attitudes relative to valuation altitudes...

Jun 15 2018

Full Employment And Rising Prices Aren’t Stock-Friendly

  • Jun 15, 2018

Annual Producer Price Inflation rose to 4.0% in May, a key threshold above which the S&P 500 has historically delivered essentially flat returns. But the fact that this reading occurs against a backdrop of full employment is cause for even more concern. Context is key...

Jun 01 2018

If You Think This Market’s Fishy, You’re Right

  • Jun 1, 2018

Tomorrow is the Minnesota season-opener for muskies, but the fanatics who chase them are likely disappointed that it comes a few days after an event that’s known to trigger these beasts: the full moon. The screenshot is from our $9.95 “iSolunar” iPhone app, and shows that Saturday merits only a “three fish” day (out of a possible “four fish”)—based on the moon’s fading illumination. 

 

May 25 2018

Breadth Is Great— Except Where It Matters The Most

  • May 25, 2018

Last week’s piece challenged the now popular view that new highs for the Russell 2000 are a decisively bullish factor for the stock market in the near term. To our surprise, we found that market returns during periods of well-defined Small Cap leadership are significantly lower than when Smalls are laggards.

 

May 18 2018

Is Small Cap Leadership Bullish?

  • May 18, 2018

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...

May 11 2018

Attention Shoppers: Contrarian Plays In Aisle 3

  • May 11, 2018

The 2017 run that pushed the nine-year bull market to all-time highs made it very difficult to find anything that looked cheap, and few choices that looked average. Even the Tech bubble of 1999 allowed investors to find moderately priced stocks among the mundane old-economy companies...

May 04 2018

Market Corrections And The Hazards Of Old Age

  • May 4, 2018

In difficult markets, we have become more appreciative of some of life’s small gifts. For example, it’s been quite a while since we’ve heard it argued that this is “the most hated bull market of all time.”

Apr 27 2018

Have Stocks Already Priced In “MAGA?”

  • Apr 27, 2018

Athletes aren’t the only ones known to sometimes suffer a “sophomore slump.” Presidents do, too… at least according to the historical verdict of the stock market...

Apr 20 2018

After The Tax Cut, Watch Out For This Hike

  • Apr 20, 2018

Analysts are still coming to terms with the impact of the big corporate tax cut, as shown by the dispersion still existing across S&P 500 EPS estimates in 2018. But they should also be watching the line item that’s contributed the most to the breakout in profit margins above historical levels: interest expense...

Apr 13 2018

The Bear Market No One Discusses

  • Apr 13, 2018

Yields on 10-year Treasury bonds have still not breached the 3.00% level that many believe will stick the proverbial “fork” in the secular bond bull market that began in 1981. That could well in happen in the next few weeks, but we believe it’s important to step away from the daily fray and reflect upon the damage that’s already been done.

Mar 29 2018

Change In Market Character

  • Mar 29, 2018

The Major Trend Index fell into its negative zone last week and we trimmed the already below-average net equity exposure in tactical accounts by a few more points, to a current 41-42%.

Mar 23 2018

Should Bond Bears Barbell?

  • Mar 23, 2018

The deterioration in stock market liquidity remains at the forefront of our concerns and is a key reason that the Major Trend Index is hovering just above its bearish threshold of 0.95...

Mar 15 2018

Foreign Stocks: What Will Turn The Tide?

  • Mar 15, 2018

After a brief respite last year, EAFE has reverted to its old form by falling 300 basis points behind the S&P 500 so far in 2018. EAFE’s main transgression might simply be that it represents good relative value in a market that’s been rewarding only momentum...

Mar 08 2018

The Ups and Downs of 2018

  • Mar 8, 2018

Ten weeks into 2018, we have already seen three mini-cycles in U.S. equities. A rip-roaring surge in January was followed in early February by one of the shortest corrections in history...

Mar 02 2018

What’s Ailing The Staples?

  • Mar 2, 2018

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%...

Feb 23 2018

The Commodity Stock Disconnect

  • Feb 23, 2018

While watching a forecast go awry is painful, there’s an alternative that we consider to be even worse: the failure to be paid on an accurate forecast. The resulting feeling of helplessness must be similar to that of a corporate director who manages to lose money on inside information.

Feb 16 2018

Why Is Discretionary Leading?

  • Feb 16, 2018

For at least the last year we have argued that late bull market conditions would tend to reward momentum strategies over mean-reverting ones. That’s played out not only during the market’s melt-up phase, but also (to our surprise) during the recent two-week air-pocket, at a time when we would have expected to see at least a temporary setback in the ratio above.

Feb 09 2018

Active vs. Passive Return Drivers: Updated Through Year-End 2017

  • Feb 9, 2018

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..

Feb 02 2018

Are Higher Rates Set To Hit The Low Vol Stocks?

  • Feb 2, 2018

The Low Volatility theme has been the darling of this bull market, benefiting from years of skepticism surrounding the economic expansion and the related lack of competition from fixed income instruments...

Jan 26 2018

A Fond Remembrance Of Y2K… And Great Values

  • Jan 26, 2018

We’ve participated in this year’s upside market surge, while at the same turning a bit wistful in remembrance of a simpler and saner stock market era—an era when one could buy more than a third of the Leuthold 3000 stock universe for less than 14x earnings. Yes, that’s the comparative period of stock market sanity that existed in late February 2000, just days before the NASDAQ Composite made its historic bubble-era peak.

Jan 19 2018

Late In Bull Market, But Not Terminal

  • Jan 19, 2018

The bull market continues to behave like one that’s in a late—but not terminal—phase. After a stumble late last year, the Momentum leaders have already reasserted their dominance, opening up a four percent lead on the Value stocks YTD after crushing them in 2017.

 

Jan 11 2018

Growth: Too Much of a Good Thing?

  • Jan 11, 2018

Growth has trounced Value over the past year, continuing a decade-long trend of outperformance...

Jan 05 2018

A Long-Term Take On Sentiment

  • Jan 5, 2018

Tax cuts, a strong economy, and daily stock market records have lifted measures of investor sentiment to levels not seen in two decades. But sentiment is only a slightly better timing tool than valuations (which is not saying much), and there’s plenty of room for excitement to build before a final top is at hand.

Dec 29 2017

Temporary Power Outage?

  • Dec 29, 2017

With the northern U.S. stuck in a deep-freeze, there could hardly be a worse time for the nation’s utilities to fail. But conventional chart work suggests that is exactly what’s happened. The Dow Jones Utility Average fell below its 40-week moving average last Friday, dropping the simple four-indicator model, shown in the chart, into third gear after it had spent most of the year with “four on the floor.”

Dec 22 2017

Market Thoughts In The "Season Of Excess"

  • Dec 22, 2017

While investors look high and low for signs of excess that might portend the next bear market, they should pause and consider the excesses that have recently gone away.

Dec 14 2017

Is The Market Too Strong To Top Out?

  • Dec 14, 2017

We observed in July that at an age when most bull markets are prepared to see the mortician, this one still seems to need a pediatrician. And five months later, the bull is acting as immature as ever!

Dec 08 2017

Yawn? Another Sentiment Warning

  • Dec 8, 2017

The stock market has disregarded any and all caution flags throughout 2017, and the consensus is that it will continue do so through year-end.

Dec 01 2017

The "Mo-Mo" Market Probably Isn't Finished

  • Dec 1, 2017

Momentum has had a terrific year relative to all other quant factors, but Wednesday’s action forewarns of the mayhem that will likely accompany the eventual rotation out of Momentum (and Growth) and into Value stocks.

Nov 22 2017

It Still Doesn’t Look Like A Top

  • Nov 22, 2017

While there are certainly some performance disparities within the U.S. stock market, there’s no way we can argue (even if we’d like to) that it has become too selective.

Nov 17 2017

The Seasonality Of Earnings Season

  • Nov 17, 2017

Years ago, Monty Python’s classic comedy sketch introduced us to the Department of Redundancy Department.

Nov 10 2017

Tax Reform Or Not, The Budget Is Already Busted

  • Nov 10, 2017

In 2010 and 2011, we were sometimes chastised for not paying more attention to exploding federal  deficits, which at the time were running between 8% to 10% of GDP. We argued that a substantial share of these budget shortfalls was cyclical in nature, and would eventually be reversed by an improving economy.

Nov 03 2017

Time To Embrace "Equality"?

  • Nov 3, 2017

While this year’s rally has been a broad, “equal opportunity” affair, some of the weakest relative action we’ve observed has—oddly enough—been among equal-weighted stock market indexes. Equal-weighted indexes for Large, Mid, and Small Caps are all trailing their cap-weighted counterparts year-to-date, and the gap for the S&P 500 is now almost 400 basis points after an especially bad October.

Oct 27 2017

Two Sector Picks For The Home Stretch

  • Oct 27, 2017

With the Major Trend Index positive and the market about to enter the seasonally most bullish part of the calendar, we’ll offer both a trendy sector and a contrarian one for allocators looking to cap off an already good year. Specifically, we’d recommend heavy exposure to both the Information Technology and Financial sectors, which rate #3 and #1 in the October Group Selection (GS) framework.

 

Oct 20 2017

The Smart Money Sleeps In

  • Oct 20, 2017

From a purely technical perspective, the bull market has hardly been lacking for feathers in its cap. Yet it earned another one on Tuesday when the DJIA Smart Money Flow Index (SMFI) broke out to a new bull market high (Chart 1), erasing a “non-confirmation” that had stood since March 1st. This index thereby joins the broad list of market bellwethers—chronicled in the last Green Book—that have participated in the parade of new highs.