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

Aug 07 2018

Company Leverage And The Impact Of Rising Interest Rates

  • Aug 7, 2018

Higher corporate leverage and rising short-term interest rates have not yet led to problems in the credit markets, but investors should be mindful of potential risks.

Aug 07 2018

“Unlevered” Treasuries Aren’t A Bubble

  • Aug 7, 2018

It’s been popular to argue that U.S. government bonds are a bubble while U.S. equities are not. But even if we agreed, the potential cyclical total return losses in Treasury bonds are a fraction of those likely to occur in an equity bear market.

Aug 07 2018

Service Sector Slowdown?

  • Aug 7, 2018

While service industries have minimal direct exposure to trade disputes, they will begin to suffer from knock-on effects if the tensions continue to escalate.

Aug 07 2018

Is The Trade War Short-Term Bullish?

  • Aug 7, 2018

We believe the U.S. free-trade initiatives of the last 25 years have been wildly bullish for the stock market.

Aug 07 2018

A Market Breadth Mystery

  • Aug 7, 2018

It’s difficult to knock a stock market in which Small Caps and major breadth measures are making frequent new highs, however, there are performance anomalies that suggest liquidity is no longer sufficient to “float all boats.” Recent underperformance of the Equal Weighted S&P 500 is a case in point, at the same time, the current dichotomy in market breadth pales in comparison to the 1999-2000 episode.

Aug 07 2018

Assessing The Correction

  • Aug 7, 2018

How do today’s cyclical conditions stack up with those accompanying other stock market declines? 

Aug 07 2018

Y2K All Over Again?

  • Aug 7, 2018

We’ve been reticent to draw links between the current bull and that of the late 1990s; we felt the last phase of the earlier episode was so extraordinary it was unlikely we’d see anything similar again in our lifetimes. But statistical parallels are on the rise, including the attempt by the S&P 500 to recoup its 2018 correction losses.

Aug 07 2018

A Launching Pad??

  • Aug 7, 2018

A few clients pointed out that the longest-ever recovery from an intermediate correction (Apr. 1994–Feb. 1995) became the base from which the S&P 500 would eventually triple over the next five years. We’re not equipped to address that possibility in an objective fashion, so we’ll let you be the judge.

Aug 07 2018

The Flags Are A-Flappin’!

  • Aug 7, 2018

The S&P 500 is on the verge of reversing its early-2018 losses and, if achieved, it would initially be accompanied by six “Red Flags”—which are based on key market indexes failing to record new highs in the 21 trading days preceding a new S&P 500 high. The last time the tally reached “six” was in May 2015—occurring at the final high before an S&P 500 loss of nearly 15% over the ensuing nine months.

Aug 07 2018

Negative Feedback?

  • Aug 7, 2018

To summarize (and oversimplify), here are some of the frequent client responses to our prevailing “cautiously bearish” stance:

Jul 07 2018

Trade-War Thematic Group

  • Jul 7, 2018

Trade wars or trade tensions, quietly started in 2017, hadn’t captured the market’s attention until early March this year—as demonstrated through a review of internet keyword search data of “Trade War” and “Tariff.” We present our Trade War thematic group which captures U.S. companies that could suffer the most from a trade war between the Trump administration and the rest of the world.

Jul 07 2018

Apple Back Tickling 4%

  • Jul 7, 2018

Apple has added 10% to its market value since the end of January, and this action has pole-vaulted the Cupertino firm back into the rarefied air of the “4% Club” (S&P 500 weighting) for the fourth time in six years.

Jul 07 2018

Foreign Stocks “De-Coupling”

  • Jul 7, 2018

Market action has been broader and better than we expected given monetary conditions, and Small Cap strength seems to lend credence to contention that rates aren’t yet high enough to bite.

Jul 07 2018

An Old Chart Whose Time Has Come?

  • Jul 7, 2018

No, it’s not a 1990s-like love affair with the stock market. But it’s surely a sign of the times when TV pundits seem to have dropped even passing references to valuation when spinning their mostly bullish market yarns.

Jul 07 2018

A New ISM “Composite”

  • Jul 7, 2018

Over the past year, we’ve highlighted three mechanical market models based solely on components of the ISM monthly manufacturing report (Charts 1-3).

Jul 07 2018

Inflation Warning Flags?

  • Jul 7, 2018

After yet another benign figure on wages for June, the idea that inflationary pressures might be a problem for the stock market seems far-fetched.

Jul 07 2018

Trouble Is “Spreading”

  • Jul 7, 2018

Junk bond option-adjusted spreads (OAS) have remained relatively tight throughout the stock market pullback and recovery (Chart 1), assuring some bulls that the action is nothing more sinister than a “healthy and overdue” correction.

Jul 07 2018

Where’s The Spring In The Step?

  • Jul 7, 2018

Old age alone may not kill the bull, but it can make it more susceptible to an array of life-threatening maladies.

Jul 07 2018

Multiple Personality Disorder?

  • Jul 7, 2018

Market behavior is always nebulous enough to generate diverging opinions, but lately it’s been sufficiently strange to give rise to a diverging set of facts.

Jul 07 2018

The Bulls And Bears Agree!

  • Jul 7, 2018

Yes, bulls and bears now hold their respective positions for the same reason—i.e., the U.S. economy is exceptionally strong. The stock market is accommodating this rare bipartisanship with sufficient reason to support either position.

Jul 07 2018

Party On?

  • Jul 7, 2018

The nine-year stock market “party” may not yet be over, but it’s getting pretty late.

Jun 07 2018

Shun ETFs With Largest Inflows

  • Jun 7, 2018

We found that ETFs with the largest one-month, two-month, and three-month fund inflows underperformed going forward. When further broken down by sub-asset class strategies, this pattern is pronounced among equity ETFs, while fixed income ETFs do not appear to be affected by fund flows.

Jun 07 2018

Analysts, Summon Your Inner-Angler!

  • Jun 7, 2018

Quantitative investment firms are increasingly touting the cross-disciplinary backgrounds of their research staffs, with prior high-level experience in areas such as medical research and engineering not uncommon.

Jun 07 2018

A Smart-Money Split

  • Jun 7, 2018

The Supply/Demand category carries the smallest weighting among the five factor groupings in the Major Trend Index, and this weighting is further diminished by the fact that its components rarely line up in a way which loudly proclaims that an  “accumulation” or a “distribution” phase is underway. Today is just another of those typically inconclusive times.

Jun 07 2018

What The Curve Does And Doesn’t Tell Us

  • Jun 7, 2018

The gap between the 10-year Treasury yield and the federal funds rate has narrowed sharply in the last year but remains a long way (~110 basis points) from inverting.

Jun 07 2018

Is Market Breadth Misleading?

  • Jun 7, 2018

The stock market has narrowed, but not in the way we envisioned—nor in a way that’s consistent with most historical bull market tops. Small Caps and market breadth measures are traditionally the first to wilt when monetary tightening begins to hit the stock market. Instead, they are the leaders.

Jun 07 2018

Is The Bull Just Napping?

  • Jun 7, 2018

Old age has certainly put no limitations on the bull’s exploits, so we should be cautious in reading too much into its meandering recovery path. However, it’s possible that action since the February low is not a recovery process but rather a countertrend bounce within a larger downtrend.

Jun 07 2018

What A Difference A Year Makes

  • Jun 7, 2018

Early this year we chatted with the retired founder of a Midwest investment management and research firm. After living and breathing markets for six decades, this bearded and iconoclastic character had avoided financial publications, Bloomberg, CNBC, and the like for more than a year.

May 05 2018

EM Country Rotation Based On A Stock Factor Model

  • May 5, 2018

Back testing shows stock-level factor alpha can be captured at the country level. With the rapid growth of single-country ETFs, this may prove an efficient, practical alternative to individual stock selection.

May 05 2018

Cycle Collision?

  • May 5, 2018

The coming months form a bearish cross-section of two of the most prominent calendar anomalies: “Sell In May,” and the Presidential Election Cycle (in which the mid-term year is statistically the weakest). Between the two, we’d have to rate the former as more powerful and statistically persistent.

May 05 2018

Staples Still Stomped Upon

  • May 5, 2018

Consumer Staples has historically been the sector most resistant to intermediate stock market corrections, exhibiting an average “downside capture” of less than 40% during all such declines dating back to 1989.

May 05 2018

A New Hurdle For An Old Bull?

  • May 5, 2018

The first quarter S&P 500 earnings “beat” rate stands to be the highest in history, as any CEO with a pulse has learned to lower the hurdle.

May 05 2018

The Gap Is Back!

  • May 5, 2018

We celebrated the official closure of the GDP Output Gap in December, but that milestone was revised away in April by the statisticians at the CBO through a downward adjustment to the estimated rate of “full employment.”

May 05 2018

Earnings Soar While Liquidity Circles The Drain

  • May 5, 2018

Question: How can you be cautious on the stock market with recent earnings results so spectacular?

May 05 2018

A “Busted” Bond BUY Signal

  • May 5, 2018

Last October our VLT algorithm recorded a bond BUY signal—one that we said, at the time, conflicted with our outlook.

May 05 2018

Cashing In On The LEI?

  • May 5, 2018

The consensus view is that the stock market will be fine as long as there’s no recession in sight.The same LEI that has displayed a fine GDP forecasting record has shown essentially no relationship with S&P 500 forward twelve-month performance. In fact the regression line shows a slight negative slope!

May 05 2018

The “Correction” Clock Is Ticking

  • May 5, 2018

2018’s S&P 500 setback qualifies as an “intermediate” correction. Historically, the duration of intermediate corrections is brief, and recovery time to move back above prior highs has also been brief. This year’s retracement route is already among the most meandering of all recovery paths since 1950.

May 05 2018

The Market Told You So

  • May 5, 2018

First quarter profits have been terrific, and this quarter’s will be too. Enjoy them, but remember that the market “paid” you for them many months ago. Don’t submit another invoice…

Apr 06 2018

Trade War Beneficiaries?

  • Apr 6, 2018

After months of research and econometric modeling, we’ve come up with a list of U.S. and foreign industries, companies, and individuals we expect to benefit from a trade war between the U.S. and China.

Apr 06 2018

Feeble Recovery For The Feds?

  • Apr 6, 2018

In light of the remittances they are about to drop in the mail, many readers will find it incredible that the U.S. Treasury has largely sat out the last two years of the stock market and economic upswing.