Research.LeutholdGroup

In difficult market periods, Steve Leuthold liked to distinguish between conventionally oversold markets and those that had become “Jesus Christ oversold.” Recent action clearly qualifies as the latter. There are many ways to define a “dangerously” oversold condition, but the one that always raises our antenna is now flashing extreme selling pressure that might take longer than usual to mitigate.

• Read more

If it can recover from its February setbacks, the bull market will turn 11-years-old some time in March, and our Golden Retriever will turn 13 at the end of the month.

• Read more

With the wavering state of consumer and business confidence, even a modest stock market correction of 8-10% might deliver the fatal blow to confidence—and therefore to the U.S. economic expansion.

• Read more

There have been long-time divergences between blue chips and other market segments signaling that all is not “in gear” beneath the surface—but this cautionary activity never foretells the “timing.” Recently, Small Caps, the Value Line Arithmetic Composite, and Dow Transports staged pathetic bounces off the January 31st “Coronavirus 1.0” low, while the blue chips had strong momentum into mid-February. Normally, such divergences typically last for at least 3-4 months before they become meaningful.

• Read more

The massive performance dispersion of the past two years makes it difficult (if not hazardous) to draw a simple conclusion about U.S. stock market valuations. But it’s safe to say that cap-weighted indexes like the S&P 500 and S&P Industrial Index remained significantly overvalued at the low point of the February correction.

• Read more

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.

• Read more

We can’t count the number of times in the last week we’ve heard analysts worry about “what the Fed might know that we don’t.” In the words of John McEnroe, “You cannot be serious!”

• Read more

If the U.S. economy falls into recession in the months ahead, it might be the only one in history that will be remembered as having been triggered by a “black swan.”

• Read more

There’s no question that it’s been a rough couple of years for stock market technicians. We noted earlier that if February 19th stands as the final high of the bull market, it would be only the third time in the last 100 years that the NYSE Daily Advance/Decline Line failed to provide at least a few months’ advance notice of the oncoming bear.

• Read more

The past 26 months have been wild ones for equity investors, but one could have essentially matched the S&P 500’s healthy return of +18.1% with a portfolio that was evenly split between the “fear” assets of Treasury bonds and gold. REITs have been solid, too, but EAFE and the Russell 2000 are now both total return losers since the beginning of 2018.

• Read more

A dramatic shift of country weights within EM indexes has become an inadvertent challenge for a country rotation strategy. Due to this, we tested the integration of a momentum-based sector rotation model to attain exposure to the top-rated sectors to represent the markets of the largest country components instead of seeking to obtain “whole market” exposure.

• Read more

After last year’s spectacularly successful pivot following the December 2018 plunge, the thinking is that future rate hikes are the bull market’s only threat. Perhaps that will be the case; the belief is certainly well-supported by postwar U.S. economic history, but it also reveals a shocking lapse in short-term memory.

• Read more

The simultaneous “New Era” ascension in margins and P/E ratios hasn’t generated anything exceptional from a return perspective. To the contrary, annualized S&P 500 total returns over this 25-year period of margin magic and (mostly) escalating P/E ratios merely match “Old Era” returns.

• Read more

Based largely on the bearish trends in our monetary and liquidity measures, we were correctly negative on stocks throughout most of 2018. It’s therefore especially painful for us that 2019’s market rebound has been credited almost entirely to the “pivot” in most of those measures.

• Read more

Market bulls rightly note that in the late 1990s, dozens of stocks exhibited Tesla-like action before the fun eventually came to an end. But we’d remind investors that the last few years have featured other “busted parabolics,” and all of them were followed in short order by broader market troubles.

• Read more

We’ve discussed market analogies with the year 1999 at length, and will give it a rest for awhile—in part because parallels to the year 2000 have cropped up! In the first five weeks of 2020, the NASDAQ 100 has already outperformed the NYSE Composite by about 7%, while in the first five weeks of 2000 the spread was 8%.

• Read more

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).

• Read more

With crude trading at only about half the level seen in the first few years of this expansion, there might be a tendency to view its current price as depressed. But from an inflation-adjusted perspective, today’s price sits right on top of its modern-era (post-embargo) median.

• Read more

Bulls who fashion themselves as contrarians argue that the public is nowhere near as infatuated with the stock market as they were in the late 1990s. It may come as a shock to our readers, but we agree with them.

• Read more

In the past we’ve made the observation that adding/deleting stocks to/from a popular index can have a profound impact on the target stocks’ short-term trading volume and performance.

• Read more

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.

• Read more

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.

• Read more

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.

• Read more

After last year’s 30% S&P 500 gain, many strategists are now suggesting that the real melt-up still lies ahead. We think a melt-up has already occurred, and the bulk of it has been booked.

• Read more

Last year the Federal Reserve dumped historic stimulus onto a full-employment economy and an already richly-valued stock market. The stock market obviously loved it.

• Read more

Economists argue the best thing the stock market has going for it is the continuation of the U.S. economic expansion. Maybe.

• Read more

Following the deflationary bust of 2007-2009, the last decade was expected to be one of deleveraging. Only U.S. consumers appeared to get that memo, however.

• Read more

We are troubled that the bullish optimism has spilled over into the 2020 estimates for S&P 500 earnings. Zero growth in 2020 is probably not a bad guess for NIPA figures, but S&P numbers don’t always follow suit.

• Read more

In the aftermath of the Great Financial Crisis, we reminded investors that it would be historically unusual for the thematic leaders of a bull market to repeat as the winners of the subsequent bull.

• Read more

It’s no surprise that U.S. Large Caps were the #1 asset class performer in 2019. We were surprised that last year was the only one of the decade in which the S&P 500 won the annual performance derby. Here we review the annual performance of “Bridesmaid” asset class and sector, “Perfect Foresight,” and Lowest P/E sector.

• Read more

During the first five years of our career, we worked for a group of stockbrokers who, by each year’s end, seemed to have been gifted with perfect foresight on the major asset markets. Admittedly, we never saw their clients’ actual returns.

• Read more

For those not blessed with clairvoyant asset selection ability, we’ve developed a simple single-asset portfolio strategy that’s handily beaten the AANA Portfolio and the S&P 500 over the long-term.

• Read more

Here are the historical annual performance results for the hypothetical Bridesmaid strategy.

• Read more

We know that risk measurements have become passé, what with the S&P 500 having annualized at +13.6% in the last decade without a single drop of 20%. But the Bridesmaid strategy looks great relative to the available asset classes on a risk-adjusted basis.

• Read more

Our work on the Bridesmaid momentum effect dates back to 2006, and was originally based on equity sectors rather than asset classes. Again, the hypothetical approach is to ignore macroeconomic trends, sector fundamentals, valuations, and the like, and to base sector selection solely on the prior year’s sector total return rankings.

• Read more

2019 was the fourth consecutive year of underperformance by the annual Bridesmaid sector pick. Those poor results have trimmed the annualized “alpha” of the strategy to just +2.2% since 1991.

• Read more

With the possible diminution of “alpha” in price momentum strategies, we recommend that sector allocators consider approaches that are more countertrend or contrarian in nature.

• Read more

The “robustness” of the “Cheapest Sector Strategy” concept is illustrated by strong results across all rebalancing frequencies.

• Read more

A way to gain perspective on the present is by trying to view it from the future. Ask yourself, “What are the signs of impending decline, now ignored by investors, that will one day be memorialized by the same investors as the most obvious in retrospect?”   

• Read more

Over the nearly two years since the stock market’s “momentum” peak in January 2018, the S&P 500 has gained less than 9%, while the Value Line Arithmetic Composite is unchanged. Mid Caps and Small Caps have made no upside progress during this period and most foreign markets are down.

• Read more