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

Jun 05 2021

What Should Quants Count?

  • Jun 5, 2021

On May 25th, Fed Chair Jerome Powell promised to pull back emergency support “very gradually over time and with great transparency.”

“Very gradually?” No one doubts that. But “with great transparency?” Not a chance...

Jun 05 2021

Time To Start Thinking About “Thinking About…”

  • Jun 5, 2021

The COVID collapse showed the Fed could abandon its clunky forward guidance and make the appropriate “pivot” when the facts changed. Now that facts have changed for the better, the Fed is right back to the rigid and dogmatic approach that characterized Fed-speak for almost all of the last economic expansion.

Jun 05 2021

We’re The Government And We’re Here To Help

  • Jun 5, 2021

Our trusted civil servants must have found a list of our old Economic/Interest Rates/Inflation components and began to “discontinue” those once invaluable to us and other Fed watchers. It’s a hindrance, but we still have the one that is most correlated to stock prices and it’s free: The ever-expanding balance sheet.

Jun 05 2021

Inflation: Nothing To Fear But The “Lack Of Fear”

  • Jun 5, 2021

The refusal of the bond market to acknowledge the worsening inflation readings seems to have strengthened the consensus view that any inflation trouble will be “transitory.” Do bonds still know best when there’s a systematic, price-insensitive buyer hoovering up $120 billion of them per month? 

Jun 05 2021

The Earnings Recession Is History

  • Jun 5, 2021

We expected that the earnings recovery from the shortest-ever U.S. recession would be the fastest on record. Trailing figures for the MSCI USA Index now confirm this: Trailing EPS and Cash Flow Per Share have surged to new highs only 14 months after their March 2020 peaks. 

Jun 05 2021

Housing: Saner Than You Think

  • Jun 5, 2021

On a technical basis, Homebuilding stocks have only just emerged from their decade-long post-bubble bust. With P/B 24% below the mid-2005 peak and 15% below the “overvalued” threshold, they look reasonably priced in a world that’s almost entirely devoid of value.

Jun 05 2021

Ulterior Fed Motives?

  • Jun 5, 2021

In an echo of last decade, the Fed has come under fire for keeping crisis-based monetary policies in place well after a crisis has subsided. Predictably, the Fed rationalizes its uber-accommodation by citing the slowest-to-recover data series from a set of figures that already suffer from an inherent lag (labor market indicators).

Jun 05 2021

A Small-Cap Theory Of Relativity?

  • Jun 5, 2021

Small Cap median valuations are among the highest in our 40-year database, but they are bottom quintile versus the nose-bleed level of the median Large Cap. If this Small Cap leadership cycle only matches the shortest one on record, it will last another three years. Based on the valuation gap, that guess seems conservative.

Jun 05 2021

The Global EPS Rebound

  • Jun 5, 2021

For years, we’ve noted the increasing valuation gap between domestic and foreign stocks. And for years, we contended that the most likely catalyst for a narrowing of that gap would be a recession-induced cyclical bear market in stocks. Evidently the 2020 bear market was not big enough to do the job.

Jun 04 2021

After The SPAC: De-SPAC Performance

  • Jun 4, 2021

The ultimate measure of a SPAC sponsor’s success is stock performance post merger: De-SPAC results. We analyze historical returns of De-SPACs that had initial market caps greater than $200 million.

May 07 2021

Young Bull, Old Threat

  • May 7, 2021

By our count, the current bull market is the 13th of the postwar period. The 88% gain achieved by the S&P 500 in less than 14 months already places this bull sixth in terms of cumulative gains. We considered it a hindrance that this bull commenced from higher valuation levels than any other in history. Instead, they seem to have provided a head-start. 

May 07 2021

Stock Market Observations

  • May 7, 2021

The speculative peak for this market rally may have occurred in either January (when GameStop and other “left for dead” short candidates soared), or February (when indexes tracking the “newborns”—IPOs and SPACs—both peaked). But even if we knew that for certain, a major peak in stock prices could still be months away.

May 07 2021

Sizing Up The Profit Recovery

  • May 7, 2021

We don’t make much use of “Forward” EPS for the S&P 500 because analyst forecasts have tended to be hopelessly optimistic. But if their short-term projections are on target, when numbers for the current quarter are reported, 12-month trailing GAAP EPS will exceed the $139.47 pre-COVID peak.

May 07 2021

New Era Valuations?

  • May 7, 2021

We understand the various rationale for the upward shift in equity valuations seen over the last quarter century or so. Unfortunately, wiping away all market history prior to 1995 does not make stock valuations appear significantly less inflated. 

May 07 2021

How Much Leverage Is Too Much?

  • May 7, 2021

FINRA’s latest report shows a 72% annual gain in margin debt. Yet, in relation to the gain in stock prices, growth in Margin Debt is still well below the peaks of early 2000 and mid-2007—suggesting investors could take on considerably more leverage in the months ahead.

May 07 2021

Inflation Watch

  • May 7, 2021

April ISM readings, both for Manufacturing and Services, were hot across the board. That’s good news for a still-recovering Main Street, but it manifested in ways that have frequently caused problems for a famous Street located in Lower Manhattan.

May 07 2021

The “Tape” Doesn’t Always “Tell All”

  • May 7, 2021

Technicians are collectively bullish because of the absence of any serious internal divergences. But, severe corrections can erupt with little, or no advance warning from a deterioration in breadth and leadership. In fact, the first few years of the last bull market  provided two such examples (mid-2010 and mid-2011). 

May 07 2021

Time For “Timing?”

  • May 7, 2021

Valuations aren’t known as effective timing tools, but they can certainly help one decide when an attempt at timing may be appropriate. And if that time isn’t now, then when?

May 07 2021

Two More Reasons For Yields To Rise

  • May 7, 2021

Bond yields have paused in the last several weeks, but we think it’s likely to be a pause that “refreshes.” Many bond indicators, including the Copper/Gold ratio popularized by Jeffrey Gundlach, suggest yields should be moving dramatically higher in the months ahead.

May 07 2021

“Surprise” Or “No Surprise?”

  • May 7, 2021

Navigating the investment landscape over the past year has been a journey full of surprises. No data other than “earnings surprises” can better demonstrate how unpredictable companies’ financial performance has become.