Inside The Stock Market ...trends, cross-currents, and outlook
Echoes Of 2021
The NY FANG+® Index is up 68% YTD and +21% in the last month, with the Equal-Weighted S&P 500 up less than 2% YTD. Yet a measure of internal market disparity has 2023 barely cracking the top-ten of “incongruent” market years—meaning it can get worse before it gets better.
Youthful Rally Already Looks Old
For more than a year, we’ve characterized the U.S. economy and policymakers’ decisions as increasingly late-cycle in nature, but that probably doesn’t do justice to the U-turn in the investment backdrop.
Stocks Versus “Safe Havens”
While we aren’t clamoring to add long-term Treasuries in tactical accounts, we believe that the past 18-months’ action has left them more attractive versus stocks than during most of the last 15 years. However, compared to gold, the S&P 500 still trails on a total return basis measured back to Y2K.
Just A Typical Pre-Recessionary Rally?
Is the stock market disconnected from a souring economy? It might seem that way, and the topic dominated the discussion at the recent Market Technicians Association annual symposium.
Revisiting The 1966 Forecast Failure
Developments over the last four months leave us even more skeptical that the November yield-curve inversion will join 1966 as a “false positive.” The number one reason being the subsequent shift in the yield curve itself.
Watching The Wealth Effect
“Real” stock-market wealth has declined considerably since late 2021 without yet delivering a knockout blow. But if the other key evidence detailed throughout this section is on the mark, that wallop is lurking in the very near future.
This Curve Threw Us A Curve...
Future economists learning of zero interest rates and Fed balance-sheet expansion during the 2021 inflation surge may wonder if policymakers were “on” something. Jay Powell is clearly “onto” something with his focus on a measure that few are familiar with: the Near-Term Forward Spread (NTFS).
The Pre-Election “Put”
Years preceding presidential elections are more likely than others to feature stock-price action that is favorably disconnected from the fundamentals. Since 1926, the average S&P 500 gain in a pre-election year is +14.2%—about double the next-best year of the cycle.
A Look At Where Rate Hikes Are “Working”
Speculative spirits are back, and the index that’s suddenly close to its 2021 high is the one we viewed as the epicenter of the mania—the NY FANG+® Index!
A Rear-View Peek At The Future
Question: Some tactical managers provide long-term forecasts for stock market total returns (7-10 years or longer). Do you publish such estimates?
Even The Labor Market Looks Recessionary
We think the stock market is skating on pre-recessionary thin ice, an endeavor that, admittedly, can be both irresistible and (temporarily) profitable.
Waking From A Slumber?
We’re very skeptical that the rally from last October’s low represents the first leg of new bull market. But if it is—as many believe—then it has unquestionably inherited the worst set of genes we’ve ever observed in the species.
Growth and Tech have been the flagrant winners YTD, yet the SVB crisis triggered further bifurcation: Since SVB failed, it’s been important to own only “big” Growth and “big” Technology, amplifying the multiples of monster stocks, like MSFT and AAPL. Can a major market low occur when investors are herded in a handful of the most richly-priced public companies in history?
A Thrust Is Not Enough
The S&P 500 rally off last October’s low reached +16.9% at its peak on February 2nd. That’s well below the largest post-WWII bear-market rally of +24.2%
The “K” Has Been “KO’d”
Volcker stormed to the scene to extinguish a blaze lit by others, while Powell battles a conflagration of his own making. Even if Powell executed a perfect, disinflationary soft landing, there may be something else in the cards: The magnitude of M2 shrinkage has resulted in the Marshallian K’s worst ever reading.
We have no special insights into the likely depth or duration of the banking crisis, but the impact on credit has already been severe. That might seal the fate of the economic expansion. It’s worth noting that in 2008, the recession seemed to have “caused” the credit crunch—not the other way around.
Inflation: Following The Script?
We know that historical analogs and averages can be overdone in market analysis, and our statistical approach (and maybe our longevity) makes us even more susceptible to looking for patterns that might not exist.
A G-Rated Take On Valuations
In the wake of the 2020-21 mania, any dose of valuation sanity is obviously greeted with eye-rolls. We are going out of our way to present the numbers in the least-shocking way possible.
Small Caps Getting Cheaper By The Day
It was September 2020 when we suggested that a new multi-year phase of Small-Cap-stock leadership had begun. Almost immediately, the Russell 2000 reversed a big chunk of the prior decade’s underperformance. Unfortunately, that was the extent of the run.
Small Caps Missed The Memo
For the first time since 1946-47, the super-bullish, six-month window beginning with the mid-term elections through the following April, failed to see a material upswing in Small Caps.