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Paulsen's Perspective

Dec 10 2019

Small Biz Feeling Better About Profits?

  • Dec 10, 2019

The November NFIB Small Business Optimism Index rose by a healthy amount this morning. Among the 800 small companies surveyed, there were solid gains across an array of different business trends.

Dec 10 2019

What’s Wrong With LOW Yields?

  • Dec 10, 2019

Are incredibly low yields a signal of imminent peril and a clarion call for caution? Or, alternatively, could they represent an amazing investment opportunity?

Dec 05 2019

A New Recession Gauge

  • Dec 5, 2019

Tomorrow is another “Payroll Friday” and, after a disappointing ADP employment report yesterday, Wall Street will be watching for any indication that businesses are pulling back on job creation. 

Dec 02 2019

Unused Capacity?

  • Dec 2, 2019

Based on the calendar, both the economic recovery and bull market are the oldest in U.S. history. Other measures also support this view: 1) the unemployment rate is below 4%, suggesting the job market is at full employment; 2) compared to long-term benchmarks, both the U.S. stock market and bond market are richly priced; 3) several global bond yields are negative; 4) central bank balance sheets have been abnormally expanded; and, 5) the current U.S. federal deficit (as a percent of GDP) is one of the largest non-recessionary deficits of the post-war era.

Nov 21 2019

Cyclical Stocks?

  • Nov 21, 2019

True to their name, cyclical stocks are volatile. They are not to be used in big doses, they are not for the faint of heart, and they are not to be “bought and held!” The overall stock market and therefore most portfolios are exposed to some cyclicality. The question is always, “how much?” While it is admittedly challenging, well-timed tilts away or toward some cyclical sectors can add handsomely to total portfolio performance. 
 

Nov 19 2019

Discounted Destiny?

  • Nov 19, 2019

The dividend discount model is a popular, conventional method of valuing a stock using the present value of its future dividend payments. The two major components comprising this valuation approach are earnings (from which dividends are paid) and the bond yield (or discount rate used to determine the present value of the future dividend stream).  
 

Nov 14 2019

Powell’s PRESSURE?

  • Nov 14, 2019

After a tumultuous year trying to ignore the president of the United States’ constant public criticism, Federal Reserve Chairman Powell reported during his testimony yesterday, “Monetary Policy is in a good place!”
 

Nov 08 2019

If The U.S. Succeeds… Buy Foreign!

  • Nov 8, 2019

President Trump is focused on improving “fair” trade. He has renegotiated several U.S. trade agreements aimed at making U.S. producers more competitive, reducing significant U.S. trade deficits, and ensuring the U.S. dollar is priced appropriately. 

Nov 04 2019

A "Dollar Downer?"

  • Nov 4, 2019

Although it has been essentially flat since early 2015, dollar strength in 2019, in combination with a slowdown in the global recovery, has been particularly hurtful for the U.S. economy.

Oct 31 2019

We Need Some Manufacturing Momentum!

  • Oct 31, 2019

Tomorrow is the monthly jobs report. It’s always widely anticipated since it frequently moves the financial markets. Moreover, it concludes a week that has been filled with potential blockbuster events, including significant earnings reports, ongoing official trade-war commentary, a Fed decision, the elimination of an ISIS leader, and a formal Congressional presidential impeachment inquiry. 
 

Oct 28 2019

Cyclical Scarcity

  • Oct 28, 2019

Scarcity is a good attribute for an investment. A limited supply tends to curb downside risk and fuel upside price potential once the asset is in vogue. In the stock market, scarcity is often associated with a temporary restriction (e.g., an oil crisis) or with a company possessing a monopoly of an innovative must-have product. For an investor, a scarce asset that becomes popular when most don’t own it is a beautiful thing! 

Oct 22 2019

A Crescendo Of FEAR… And… CHANGE Afoot?

  • Oct 22, 2019

Despite a significant stock market rally, this year has been beset by escalating recession fears. The list of worries include broad-based slowing in the global economic recovery (centered in the manufacturing sector), a never-ending trade war, persistent political and geo-political drama, a chronic decline in global bond yields, a surge in negative yielding bonds, an inversion in the U.S. yield curve, and an expansion that recently celebrated a birthday which makes it the oldest ever in U.S. history!

Oct 14 2019

Too Much Courage Or Fear?

  • Oct 14, 2019

The underlying character of the financial markets is often a good indication of investor sentiment. It takes courage (or stupidity in retrospect?) to buy certain assets, while the purchase of other investments is driven mostly by fear. In this fashion, a good read on whether the stock market is being propelled by excessive hope or angst can be obtained by monitoring the character of its leadership. 

Oct 07 2019

A “Mini-FANGs” Swap?

  • Oct 7, 2019

Despite a slowdown in old-era business investment (manufacturing) during the last year, new-era business spending (information processing equipment and intellectual products) remains healthy. This argues for continued leadership among technology stocks. 

Oct 03 2019

ISM or CYC?

  • Oct 3, 2019

The ISM manufacturing and services reports have significantly increased recession anxieties and have been wreaking havoc with the stock market over the last couple days. And, who knows, the real pain for equity investors may come tomorrow morning when the monthly payroll employment numbers are released?

Sep 30 2019

Preemptive Policy

  • Sep 30, 2019

One of the features arguing for an extension of this economic recovery and its corollary bull market is aggressive and “preemptive” economic policies! Hesitancy has frequently spelled trouble during past economic expansions. 

Sep 23 2019

Earnings Set To POP?

  • Sep 23, 2019

Several factors helped the stock market resume a climb to marginal new highs this year. Valuations came down, inflation pressures moderated, yields collapsed, and policy officials became universally supportive. However, a key element remains elusive and, without it, a further significant advance in this bull market seems doubtful. 

Sep 19 2019

Private Sector Press Conference

  • Sep 19, 2019

Yesterday, the Federal Reserve held one of its regularly scheduled press conferences, which are “must see TV” for investors. We all tune in to hear what the Board thinks about the economy and what they plan do about it. 

Sep 17 2019

A Shift In Leadership?

  • Sep 17, 2019

In the last couple weeks, the stock market has undergone a significant shift in leadership. Perhaps it is the long-awaited swing from “growth” to “value,” but so far it appears more like a shift from “defensive” to “cyclical.” 

Sep 12 2019

A Silent Productivity Miracle

  • Sep 12, 2019

Lost in the roar surrounding the trade war, the inverted yield curve, an expanding wave of negative global bond yields, and persistent recession chatter, is a “silent U.S. productivity miracle!” Largely AWOL in this expansion until recently, and despite being barely acknowledged due to widespread recession fears, productivity has finally arrived, adding yet another wildcard to the remaining years of this economic recovery. 

Sep 05 2019

A Low-Vol Signal SWITCH!

  • Sep 5, 2019

Investors have been playing defense in recent months, piling into bonds despite low yields, sleeping well at night with gold purchases, staying with the perceived safety of U.S. stocks, avoiding risky small cap companies, and buying traditional low-risk sectors including Utilities, Consumer Staples, and REITS.

Sep 03 2019

Stock Market STIMULUS!

  • Sep 3, 2019

What’s driving the stock market? Trade wars, inverted yield curves, Presidential Tweets, manufacturing weakness, negative yields, Fed confusion, earnings woes? Yes, all the above! 

Aug 30 2019

Segmenting Seasonality

  • Aug 30, 2019

Investors have long recognized that the stock market often does better in certain months compared to others. That is, stocks have a seasonality which can be exploited. The January Effect, the Santa Rally, “Sell in May and Go Away”; and, the carnage created by August, September, and October are appreciated and feared by “seasoned investors.” 

Aug 20 2019

Will Stimulus “Strike Out”?

  • Aug 20, 2019

Many increasingly fear the global economic recovery is in severe peril because overused economic policies have become futile. Bloated central bank balance sheets, large fiscal budgetary fiascos, and the unprecedented global phenomenon of widespread negative bond yields leaves an impression that economic help is spent!

Aug 16 2019

Positive Economic Surprises With... ANGUISH!

  • Aug 16, 2019

The stock market is re-testing its August 5th collapse low, the U.S. 10-year bond yield is nearing its lows of this recovery, yet another yield curve inversion (tens vs. twos) was breached this week, silence from the Federal Reserve, negative yielding global debt now totaling more than $15 trillion, an escalating riot in Hong Kong, and trade-war negotiations hanging by a thread as ongoing communications are now only by phone! Whew, it’s tough being a bull. Maybe foolhardy?
 

Aug 15 2019

Investment Bifurcation

  • Aug 15, 2019

Adding to current anxieties are the growing fears that businesses may be curtailing spending plans. Real nonresidential investment spending declined in the second quarter for the first time since early 2016. However, this decline was due entirely to ‘old-era investment spending’ while ‘new-era spending’ remains healthy. 

Aug 07 2019

Conflicting Counsel?

  • Aug 7, 2019

This is why financial market prognostications are so difficult and why some believe fruitless! Currently, two recession indicators – both with equally impressive accurate historical prowess – are giving entirely contradictory signals? As shown by the accompanying charts, the yield curve has inverted while fiscal stimulus has been expanding. At least since 1965, this has ‘never’ happened. 

Aug 05 2019

Show Me The Money!

  • Aug 5, 2019

Despite the current drama, the stock market will not likely be sustainably driven by the Federal Reserve, ongoing trade negotiations, or by presidential politics. Although these spectacles will continue to bounce the market around, ultimately, its direction will most likely be tied to corporate earnings. 

Aug 02 2019

Try To Relax, Policy Uncertainty Is UP And This Is Good For Stocks?

  • Aug 2, 2019

Whew, what a week! Confusion reigned surrounding monetary policy on Wednesday after Chairman Powell’s press conference, and then trade policy uncertainty surged on Thursday when President Trump announced new tariffs on Chinese goods

Jul 26 2019

The BH Ratio (not to be confused with the BS Ratio?)

  • Jul 26, 2019

Despite a widespread impression that business confidence is declining under the weight of ongoing global uncertainties, it was reported yesterday that, after being flat for almost a year, new orders for nondefense ex-air capital goods (core business capital goods spending) rose to a new recovery high in June. 

Jul 25 2019

Putting Humpty Together Again?

  • Jul 25, 2019

When Humpty Dumpty fell from the wall, all the king's horses and all the king's men could not put Humpty together again.

Jul 19 2019

Some Optimism For Earnings?

  • Jul 19, 2019

Little is expected from the current earnings season. At best, corporate profits may eke out a small gain compared to last year’s second quarter. Moreover, with Trump’s trade war still threatening to worsen, the yield curve still inverted, and because the U.S. economy is now in the longest expansion in its history, many are understandably worried that earnings growth may remain challenging. 

Jul 15 2019

A Dollar Downgrade?

  • Jul 15, 2019

As shown in Chart 1, since 2015, the trade-weighted U.S. Dollar index has generally ranged between 90 and 100. Its recent stability, at a level much higher than it was during the first half of this economic recovery, has played an important role in shaping the economic and financial-market landscape. 

Jul 08 2019

A Picture Is Worth 1,000 Words ... and it was a holiday week and I felt lazy

  • Jul 8, 2019

There is still plenty to worry about. The never-ending trade war enters yet another round of negotiations, geopolitical risks simmer, many economic reports (both in the U.S. and around the globe) remain weak, the size of negative-yield debt is becoming nearly as large as U.S. GDP, the U.S. stock market continues to exhibit a worrisome “triple-top” pattern, small cap stocks continue to trail, the yield curve is still inverted and, because of a “strong” jobs report on Friday, there is now doubt about whether the Fed will cut interest rates later this month. 

Jul 01 2019

Beware… Fiscal Policy May Screw Up The Conventional Playbook?

  • Jul 1, 2019

Like today, the Federal Reserve usually sucks all the oxygen out of the national economic-policy conversation. And, why not? It is comprised of a small elite group who hold conferences in exotic locations (Jackson Hole), have regular strategy meetings culminating in ‘must-see’ press conferences, make dot-plots sound interesting, and, between meetings, members regularly spout-off contradictory opinions. 
 

Jun 26 2019

Who Has The Outlook Correct… Stocks Or Bonds?

  • Jun 26, 2019

U.S. bond yields have been declining all year despite a stock market which continues to trend higher. The stock market appears optimistic about the future of this recovery, whereas the bond market is acting increasingly nervous. 

Jun 21 2019

A Three-Gun Gooser

  • Jun 21, 2019

This week the Federal Reserve delivered the requisite preamble signaling an inevitable cut in the Fed funds rate. Following that, the 10-year Treasury yield declined below 2%, financial markets now point to a 100% probability of a rate reduction, and the old adage ‘Don’t Fight the Fed’ has been ringing in investors’ ears.

Jun 18 2019

Watch What I Do… Not What I Say!

  • Jun 18, 2019

Surveys are conducted frequently on Wall Street as investors are always assessing whether there are too many bulls or too many bears. The problem with surveys is people do not always do what they say (perhaps as we found out leading up to the last presidential election).

Jun 17 2019

The Odd Couple?

  • Jun 17, 2019

A survey asking equity investors whether the stock market does best with a strong or weak U.S. dollar would likely yield a variety of contradicting opinions—and they would all be correct! Like many couples, the stock/dollar relationship is complicated. Sometimes they get along blissfully, other times they separate because they find they rarely agree and, often, they simply seem indifferent to each other. They are an odd couple!
 

Jun 10 2019

Will Stimulus “Trump” Trade?

  • Jun 10, 2019

U.S. economic growth has recently slowed and most attribute the weakening to trade wars now being fought on several fronts (China, Mexico, Europe?). Bond vigilantes have become so concerned about the potential for negative economic fallout that they have inverted the yield curve.