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Inside The Stock Market ...trends, cross-currents, and outlook

Jul 08 2021

Music For The “Mania”

  • Jul 8, 2021

At some point during the June/July streak of seven-consecutive S&P 500 daily-closing highs, an album from 1980 popped into our heads: Nothin’ Matters And What If It Did—released when John Mellencamp was still known as John Cougar. It brought to mind some “nothin’s” that seem not to matter.

Jul 08 2021

The Short-Term Tea Leaves: Suddenly Wilting?

  • Jul 8, 2021

The “Nothin’ Matters” market lifted the S&P 500 to eight all-time highs in the nine trading days through July 7th. It’s been difficult to assail the stock market’s technical merits, but there are suddenly some short-term cracks among the handful of market indexes we consider “bellwethers.” 

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.”

Jul 08 2021

The Inflation Surge In Context

  • Jul 8, 2021

Inflation is already “too high” for the current cyclical setting, and the level of inflation that equity investors are willing to tolerate will drop further as the economy recovers.

Jul 08 2021

Are High Prices A Form Of “Tightening?”

  • Jul 8, 2021

It’s certain that today’s cyclical bout of inflation will prove “transitory,” if only because the word itself is practically meaningless. Our time on earth will also prove transitory, and so too will the current stock market mania—to the shock of most of the nearly 20 million “investors” on the Robinhood platform.

Jul 08 2021

Why The Fed Is Hog-Tied

  • Jul 8, 2021

We’ve long considered ourselves lucky to have escaped from our graduate-economics program after only a year. Among the few nuggets we managed to retain was the startling conclusion to a paper written by a famed department professor asking, “Do Large Deficits Produce High Interest Rates?”

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

“Provincialism” Pays

  • Jul 8, 2021

After the last two months’ violent reversal of the “re-opening” trade, the major indexes for U.S. Large Cap, Small Cap, Growth, and Value all stood with YTD gains in the 14-16% range. Yes, a few nimble portfolio managers might have migrated out of “re-opening” stocks in early April and into the “old” Large Cap Growth leadership but the surest route to superior performance has been to avoid what’s become an almost annual pitfall since the Great Financial Crisis: Foreign stocks. EAFE and MSCI Emerging Markets already trail the S&P 500’s 16.0% YTD gain by about 8% and 12%, respectively.

Jul 08 2021

2020 Post-Mortem

  • Jul 8, 2021

This summer marks the first anniversary, not of the COVID-19 stock-market low, itself, but of the much belated “confirmation” of that low.

Jul 07 2021

Infrastructure Spending & Beneficiaries

  • Jul 7, 2021

While not yet set in stone, it is the consensus view that infrastructure spending will be raised to a higher level for the next few years compared to past baseline expenditures. Although the exact numbers are still unknown, we examined the President Biden-endorsed bipartisan plan to provide a picture of the relative scale of the anticipated spending in the context of historical trends. In addition, we identified a group of industries that may be beneficiaries of the proposal.

Jun 05 2021

What Should Quants Count?

  • Jun 5, 2021

On May 25th, Fed Chair Jerome Powell promised to pull back emergency support “very gradually over time and with great transparency.”

“Very gradually?” No one doubts that. But “with great transparency?” Not a chance...

Jun 05 2021

Time To Start Thinking About “Thinking About…”

  • Jun 5, 2021

The COVID collapse showed the Fed could abandon its clunky forward guidance and make the appropriate “pivot” when the facts changed. Now that facts have changed for the better, the Fed is right back to the rigid and dogmatic approach that characterized Fed-speak for almost all of the last economic expansion.

Jun 05 2021

We’re The Government And We’re Here To Help

  • Jun 5, 2021

Our trusted civil servants must have found a list of our old Economic/Interest Rates/Inflation components and began to “discontinue” those once invaluable to us and other Fed watchers. It’s a hindrance, but we still have the one that is most correlated to stock prices and it’s free: The ever-expanding balance sheet.

Jun 05 2021

Inflation: Nothing To Fear But The “Lack Of Fear”

  • Jun 5, 2021

The refusal of the bond market to acknowledge the worsening inflation readings seems to have strengthened the consensus view that any inflation trouble will be “transitory.” Do bonds still know best when there’s a systematic, price-insensitive buyer hoovering up $120 billion of them per month? 

Jun 05 2021

The Earnings Recession Is History

  • Jun 5, 2021

We expected that the earnings recovery from the shortest-ever U.S. recession would be the fastest on record. Trailing figures for the MSCI USA Index now confirm this: Trailing EPS and Cash Flow Per Share have surged to new highs only 14 months after their March 2020 peaks. 

Jun 05 2021

Housing: Saner Than You Think

  • Jun 5, 2021

On a technical basis, Homebuilding stocks have only just emerged from their decade-long post-bubble bust. With P/B 24% below the mid-2005 peak and 15% below the “overvalued” threshold, they look reasonably priced in a world that’s almost entirely devoid of value.

Jun 05 2021

Ulterior Fed Motives?

  • Jun 5, 2021

In an echo of last decade, the Fed has come under fire for keeping crisis-based monetary policies in place well after a crisis has subsided. Predictably, the Fed rationalizes its uber-accommodation by citing the slowest-to-recover data series from a set of figures that already suffer from an inherent lag (labor market indicators).

Jun 05 2021

A Small-Cap Theory Of Relativity?

  • Jun 5, 2021

Small Cap median valuations are among the highest in our 40-year database, but they are bottom quintile versus the nose-bleed level of the median Large Cap. If this Small Cap leadership cycle only matches the shortest one on record, it will last another three years. Based on the valuation gap, that guess seems conservative.

Jun 05 2021

The Global EPS Rebound

  • Jun 5, 2021

For years, we’ve noted the increasing valuation gap between domestic and foreign stocks. And for years, we contended that the most likely catalyst for a narrowing of that gap would be a recession-induced cyclical bear market in stocks. Evidently the 2020 bear market was not big enough to do the job.

Jun 04 2021

After The SPAC: De-SPAC Performance

  • Jun 4, 2021

The ultimate measure of a SPAC sponsor’s success is stock performance post merger: De-SPAC results. We analyze historical returns of De-SPACs that had initial market caps greater than $200 million.