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Everyone is understandably concerned about the recent surge in COVID-19 cases. Outbreaks in the U.S. have risen to the highest level since the pandemic arrived. Now a primary concern for investors is, will it significantly slow momentum in the economic recovery?

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Scott Opsal looks at S&P 500 forward earnings for 2021 and how they stack up against pre-pandemic economic healthy year of 2019.

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Trendline analysis is a useful tool for assessing valuation risk and upside potential within the stock market. Unlike conventional valuation tools, it does not directly compare the stock market level to its fundamentals. Rather, it appraises performance relative to time, which indirectly relates price to fundamentals. Why? As Warren Buffet regularly points out, “stocks rise in the long run” because, with a very high probability, economies grow.

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As we Chinese watch the elegant display of the western democratic process this election season, we can’t help but think there are indeed people less fortunate than us “commies.” Worse yet, some of these people are Value investors.

 

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Governmental powers are still trying to put together another economic relief package. However, despite the July expiration of unemployment benefits provided by the CARES Act, here, two-and-a-half months later, U.S. economic momentum is remarkably healthy.

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The nation hollers for more economic stimulus! The President says we need more, the Federal Reserve Chairman agrees, Republicans concur, and Democrats think no one is advocating for enough. The screams for help are amplified everyday by the media. Supposedly, the economy is hanging on by only a thread, desperately waiting for more support.

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Factor analysis is a point of emphasis in Leuthold’s tactical research activities, and this note summarizes our Factor Tilt outlook going into the fourth quarter. Factors are return drivers such as Value, Momentum, and Quality, and research has found that factor results vary over time—but that does not mean they are random.

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With monetary and fiscal policies both running full-throttle, many investors are considering inflation hedges. Some traditional favorites—commercial real estate and energy stocks—have several issues holding them back (e.g., COVID-19 and environmental concerns), even with higher inflation. Cash and Treasury Inflation-Protected Securities (TIPS) may keep pace with inflation but offer little more because yields are so low.

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As throughout the post-war era, valuation tools provide guidance for investors to assess whether the stock market is cheap, reasonably priced, or simply too expensive. That is, looking back over the post-war period, the lowest-valuation quartile typically produced higher future stock market returns than valuations stemming from the highest quartile.

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We examine a variety of industry groups with noteworthy relative price action on both “reopening” and “closed economy” days. Our objective is to shed more light on the industry groups that are consistently moving together on these days.

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The big jump in Small Caps over the last two weeks has entirely reversed the segment’s summer underperformance and has technicians feverish about another “breath thrust.” Technically, it’s impressive, but we are more intrigued by the fundamental potential for continued Small Cap (and Mid Cap) outperformance.

 

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For many, the stock market rally since March remains suspect. Its leadership has not broadened beyond new-era growth stocks to include economically sensitive cyclical sectors and small-cap stocks. Perhaps, though, leadership in this new bull market is more established than it appears.

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Read this week's Major Trend.

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The COVID-19 pandemic rages on, the economy is still officially in recession, almost 8% of the workforce is unemployed, and layoff announcements remain commonplace. Furthermore, downtown office buildings are uninhabited, many businesses are operating far below capacity (e.g., restaurants, hotels, airlines), and corporate profits are much lower than pre-COVID.

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As steadfast believers that “price paid” is a major determinant of an investment’s risk and return, we snap to attention whenever we hear that an asset is selling at a multi-decade low.

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Look, quick! Before it reverses! The Top-5 firms in the S&P 500 have underperformed in September! I’m sorry, you’ll have to forgive my sense of urgency, but the astounding speed and consistency in which these firms have outperformed may have burned the notion into my brain that they can only “go up” (or at the very least beat the index).

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