Research.LeutholdGroup

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.

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Investing overseas has mostly been a black hole through this bull market. Price momentum remains terribly weak for international stock markets and this has given investors pause every time they consider reallocating some assets offshore.

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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.

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Extraordinarily low bond yields—often negative bond yields outside the U.S.—have significantly elevated investor anxieties, leaving the impression of facing a high-risk, low-return world. Consequently, during much of the contemporary expansion, the existence of very low yields has pushed several investors toward a more conservative portfolio allocation.

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The S&P 500 did not suffer a bear market last year. At least not by the conventional definition of a 20% decline. However, it was razor close—dropping 19.8% from its highest- to lowest-daily close. Given that, in every way except for -0.2%, the U.S. stock market did suffer a Bear last year, how does its 2019 rally compare thus far to the average “Bull Market Rally?”

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During a decade characterized by surging equity markets and the proliferation of smart beta products, the best performing quantitative factor was Sales Stability.

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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.

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Small Caps are showing signs of life and the decision to overweight small caps is starting to seem relevant – and perhaps nicely profitable - again.

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

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Despite these signs of caution, there are several factors that suggest this expansion still has considerable “Unused Capacity.”

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Doug Ramsey expands on the relationship between Money Supply growth and the Yield Curve.

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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.

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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).

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