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Chart Of The Week

Apr 03 2020

Sentiment Has Been Crushed, But Might Need To Just Languish For A While

  • Apr 3, 2020

We didn’t see the coronavirus coming and, like millions or perhaps billions of others, underestimated its likely economic impact when it began to spread. But stock market risks were high well before the virus hit.

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 20 2020

How Sharp Is This Falling Knife?

  • Mar 20, 2020

While it’s possible that Monday’s S&P 500 low of 2,386 will represent an important trading low, we believe it is too early to expect the market to form a major bear market low.

Mar 13 2020

Better Than Bonds And An All-Time Record

  • Mar 13, 2020

The collapse of U.S. Treasury yields and the simultaneous end of the bull market has produced a new all-time record for the S&P 500, albeit under less-than-desirable circumstances.

Feb 28 2020

Let’s Concentrate For A Moment

  • Feb 28, 2020

In the immortal words of Lloyd Bridges, “Looks like I picked the wrong week to quit drinking.” Let’s put aside this week’s market turmoil and concentrate for a moment on... “concentration.” Market concentration, that is. Close your eyes and think back to those carefree days of mid-February.

Feb 20 2020

Factor Failure: Don’t Blame FANMAG

  • Feb 20, 2020

Our recent commentary “1” For The Record Books noted that just one of seven S&P smart beta factors was able to outperform the S&P 500 last year, even though each style basket limits its holdings to constituents of the parent index.

Feb 13 2020

The Easy Fed and the “Other” Inequality

  • Feb 13, 2020

Super-easy monetary policy has been blamed for the rise in income and wealth inequality in recent years, and more recently we’d fault the Fed for performance inequality within the stock market.

 

Jan 31 2020

“1” For The Record Books

  • Jan 31, 2020

Dark energy makes up 68% of the universe, yet astrophysicists are having a devil of a time explaining what it is, why it is, or how it works. Quant investors are facing their own dark-energy mystery in understanding style returns of 2019.

Jan 24 2020

What’s Embedded In The Consensus?

  • Jan 24, 2020

Market momentum now seems to outweigh simple math in the minds of most investors, and we are not entirely immune. Today our tactical funds are positioned with net equity exposure of 50%, the midpoint of the normal 30-70% range. That’s a higher allocation than if we considered only business cycle dynamics and equity valuations.

 

Jan 16 2020

A Chart You’ll Never See Again

  • Jan 16, 2020

We’d like to remind readers that forwarding our research to unauthorized recipients is a serious offense. That’s especially the case when the recipient happens to be a U.S. economic policymaker.

 

Jan 10 2020

The Stock Market Is Trading Like Trump’s A Democrat!

  • Jan 10, 2020

Around the time of Donald Trump’s inauguration in January 2017, we observed that prevailing valuations argued against him witnessing big stock market gains during his first term.

Jan 03 2020

Closing The Books On Another “1999”

  • Jan 3, 2020

It’s been a while since we looked at 2019’s stock market parallels to 1999. Sorry about that… we’ve been too busy reliving 1999 on almost a daily basis, and often not in a good way. 

 

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 13 2019

How Much Should We Pay For Market Momentum?

  • Dec 13, 2019

If the S&P 500 closes in the green today, an RSI "overbought" signal will be triggered.

Nov 22 2019

AAPL—The Trillion Dollar “Itsy-Bitsy Spider”

  • Nov 22, 2019

OK, OK–maybe Apple isn’t so “Itsy Bitsy.” However, when viewed through the lens of our “4% Club” vignette, the stock has certainly followed the Sisyphean pattern of that popular nursery rhyme (and accompanying fingerplay, of course) over the last seven-plus years.

Nov 15 2019

Questioning The Monetary Rebound

  • Nov 15, 2019

This year’s upswing in money-supply growth has been one of many factors that’s prevented our economic work from triggering a recession warning. Following a two-year decline, year-over-year growth in M2 bottomed near 3% late in 2018 and has trended upward all year, reaching 6.7% in the latest week (Chart 1).

 

Nov 01 2019

The Market Puzzle Gets Even More Complicated

  • Nov 1, 2019

At last night’s close, the Russell 2000 generated a “low-risk” BUY signal on our Very Long Term (VLT) Momentum algorithm, a possibility we’d alluded to in the September and October Green Books.

Oct 25 2019

Low Rates Don’t Justify Higher P/E Ratios (And U.S. Investors Should Be Glad)

  • Oct 25, 2019

The fear (or hope) that U.S. bond yields would fall to zero or below subsided over the last month. However, the belief that low yields merit significantly above-average P/E ratios remains stronger than ever.

 

Oct 18 2019

Giving Up The Ghost

  • Oct 18, 2019

The approach of Halloween brings thoughts of jack-o-lanterns, scary movies, and buckets full of candy. The season also marks the time when investors finally give up the ghost on the optimistic, even wishful, earnings forecasts made early in the year.

Oct 11 2019

If Your Team Is Out Of The Playoffs, Here’s A New Gamble

  • Oct 11, 2019

With promised breakthroughs on Brexit and the trade war miraculously occurring on the same day, few pundits now believe the market is anywhere close to an important peak. (A peak in the S&P 500, that is, since peaks occurred long ago in the ACWI, MSCI Emerging Markets, NYSE Composite, Value Line Arithmetic, S&P MidCap 400, and the Russell 2000.)

 

Sep 27 2019

The Odd Couple

  • Sep 27, 2019

The Momentum style—in which investors buy what has been going up recently—represents an optimistic, hopeful, “I’ll take some of that” mentality. The Low Volatility factor entails a pessimistic, fearful outlook in which investors want (or need) to stay invested in stocks but desire downside protection in case the market performs badly.

Sep 20 2019

Box Jumpers Beware!

  • Sep 20, 2019

Style rotation! Regime change! Market action of the first two weeks of September coaxed the few remaining Small Cap Value managers off ledges from New York to San Francisco.

Sep 13 2019

Is The Patient Too Old For A Transplant?

  • Sep 13, 2019

This week’s massive stock market leadership flip has certainly remedied some of the breadth weakness we discussed in this month’s Green Book. But we can’t help wonder whether the move is analogous to performing a transplant on a 95-year-old. The patient might survive the surgery, then die while under anesthetic.

Aug 30 2019

Is A Strengthening Dollar A Form Of Policy Tightening?

  • Aug 30, 2019

Executive summary (for those leaving early for the holiday weekend): No.

We’ve found no reliable relationship between swings in the U.S. Dollar and subsequent variations in U.S. economic growth.

Aug 23 2019

Portraits Of A Split Market

  • Aug 23, 2019

There’s an old Wall Street adage: “When the wind blows hard enough, even the turkeys fly.” A sophisticated meteorological instrument known as the “price chart” says the wind died down considerably beginning in January 2018

Aug 16 2019

Here’s One Reason Sentiment Is So Subdued...

  • Aug 16, 2019

Market bulls remain mystified by the lack of enthusiasm for stocks given the proximity of U.S. indexes to all-time highs. They view this relative indifference as a contrarian positive—the “wall of worry” argument.

 

Aug 09 2019

The Stock Market’s Clark Kent

  • Aug 9, 2019

Mild-mannered and humdrum on the surface but a superhero underneath—that’s Clark Kent and, in recent months, the Low Volatility factor. Low Vol stocks are unexciting by definition, and the factor’s current holdings focus on utilities, REITs, and insurance companies.

Aug 02 2019

Icing Over?

  • Aug 2, 2019

Will this economic cycle end with “fire” (overheating) or “ice” (a whiff of deflation)? Interestingly, hedges against both outcomes have performed well in recent months, with both gold and Treasury bonds spiking. For many reasons, though, we believe the U.S. expansion is more likely to end in a deflationary bust.

Jul 12 2019

Factor Tilts at Mid-Year

  • Jul 12, 2019

Factors provide investors with the ability to shift their portfolio’s characteristics to fit a particular economic and market outlook.  Value might look appealing under one set of conditions while Quality might be more desirable in another. We developed a research platform that analyzes various drivers of factor returns, summarized in Exhibit 1. 

Jun 28 2019

Limbo Rock!

  • Jun 28, 2019

As global rates have taken a precipitous dive the last few months, it’s been hard not to hum “Limbo Rock.” And just like Chubby Checker, we’ve been asking our screens “How low can you go?” on a daily basis.

Jun 21 2019

The Market Is On Fire… Unless It’s Ice

  • Jun 21, 2019

Yesterday’s S&P 500 new all-time high triggered a few simple internal studies we’ve used to help shape second-half expectations for the stock market.

 

Jun 14 2019

Deflation And Deception

  • Jun 14, 2019

We think the current economic cycle is more likely to end in a deflationary bust than with a bout of late-cycle “overheating,” and analysts and investors should recognize that such a cycle ending could be especially difficult to detect.

 

May 31 2019

An Economy This Healthy Is Hostile To Profits

  • May 31, 2019

It’s hard to grow profits when an economy’s resources are already fully employed, a fact we highlighted when the U.S. Output Gap turned positive several quarters ago. Therefore, the first quarter drop in NIPA corporate profits, reported yesterday, shouldn’t have come as a surprise.

 

May 23 2019

First Quarter Earnings Waterfall

  • May 23, 2019

What a difference a year makes! In early 2018 we were celebrating 20% earnings growth, driven by a strong economy and the massive corporate tax cut. Sales were rising at a double-digit rate and the tax burden was shrinking dramatically, setting up one of the best earnings years in history.

May 17 2019

Microsoft Reclaims The Iron Throne

  • May 17, 2019

Even our staid and august firm isn’t above a little Game of Thrones clickbait.

After nineteen years in the wilderness, an old king has returned for his throne. The House of Microsoft is once again the most valuable company in the S&P 500 and, as of last month, is the sole occupier of the “4% Club” (i.e., weighting in the index).

 

May 10 2019

Non-Energy Commodities Signal A Major Slowdown

  • May 10, 2019

Late in the cycle, blue chip indexes like the DJIA and S&P 500 can fool investors by hiding subtler deterioration in the broad list of stocks. That’s been underway in the last couple of months, but it’s nothing in relation to the divergence that’s opened in the commodity market, where there’s an almost 20% YTD performance gap between the headline S&P/GS Commodity Index and its non-Energy components (Chart 1).

May 03 2019

Adding Some Emerging Markets On A “Rent-to-Own” Basis

  • May 3, 2019

Emerging Market equities have been modest underperformers during the current rally, but they’ve marshaled enough strength to trigger a new low-risk BUY signal on our VLT Momentum algorithm at the end of April.

Apr 26 2019

Oil And The Dollar At New Highs: Is Something About To Give?

  • Apr 26, 2019

Crude oil and the U.S. Dollar Index accomplished a relatively rare feat by moving to simultaneous six-month highs earlier this week (Chart 1).

Apr 18 2019

Small Caps And The Recent “Rate Hike”

  • Apr 18, 2019

The 1999 leadership parallels we discussed in the latest Green Book remain intact—U.S. over foreign, Growth over Value, and Large over Small. Small Caps have given up most of the “beta bounce” enjoyed in the first two months off the December low, with one Small Cap measure—the Russell Microcap Index (the bottom 1000 of the Russell 2000)—undercutting last year’s relative strength low and those of 2011 and 2016.