Advisors.LeutholdGroup

Economic programs traditionally take time to improve unemployment after a recession. However, the COVID-19 crisis created a unique divergence within the job market that will not be solved by customary economic policies, but rather, by vaccinations!

Read this week's Major Trend. 

With new leadership in Washington and--with large-cap growth’s decade-long stranglehold on outperformance looking shakier than ever--a potential leadership change in equity markets as well, Leuthold Group CIO Doug Ramsey will share his current views and what he will be looking out for in 2021.

There are always conflicting signals surrounding the stock market. Today is no exception. Valuations are extremely high, but yields are near record lows. Recent economic reports have weakened due to the winter’s COVID-19 surge, but current vaccinations (although slow) highlight how close the U.S. is to a more extensive economic reopening.

Like the Saturday Night Live “Cowbell” skit, among policy officials and politicians, the solution to “everything Pandemic” has been, We Need “MORE Stimulus!”

Undoubtedly, the COVID-19 crisis has been a rare if not unique situation, incredibly serious, and has caused widespread and immense hardship. Due to that, we received a $2 trillion fiscal CARES package last spring, a massive increase in quantitative easing resulting in an 80% increase in the Federal Reserve’s balance sheet since last February, and a surge to an all-time-high 26% annual growth in the U.S. M2-money supply.

As the stock market continues to surge higher in the New Year, investor anxieties surrounding excessive valuation risk are also rising. Many increasingly worry that the bull market has entered a manic bubble reminiscent of the late 1990s.

Read this week's Major Trend. 

As we turn the page on 2020, a peek ahead to the S&P 500’s 2021 operating earnings is probably in order. You never know, earnings and valuations might be important again one day.

Read this week's Major Trend.

Every year, there is plenty of investment advice on the best “buys” for the New Year! However, in 2021, it may prove just as important to avoid certain areas of the financial markets.

The current consensus forecast for U.S. real GDP growth is 3.9% in 2021, representing the fastest rate since 2000. Our prediction is for 6% growth—the fastest since 1984! Either way, due to massive policy stimulus and the expectation that vaccinations will finally bring COVID-19 under control, U.S. economic growth should be strong this year. Whether currently a bull or a bear, the fact that real U.S. economic growth is poised for a healthy advance should make everyone leery of traditional “defensive investments.”

Read this week's Major Trend. 

Bring on the New Year! Bring on Vaccinations! Bring on Re-openings! Bring on Mobility! Bring on Socializing! Bring on Freedom (from my basement)! Bye Masks, Purell, 6-feet of distancing, Quarantine, Zoom, Curbside Pickups, and Sickness! And “Farewell” to far too many Loved Ones! Good Riddance COVID-19!

Here are a few guesses, conjectures, and maybe even some stupid thoughts for the New Year.

Read this week's Major Trend. 

Read this week's Major Trend

The stock market has received plenty of support during this pandemic. Massive bond-buying has ballooned the Federal Reserve’s balance sheet from about $4 trillion to $7.5 trillion. The annual M2 money supply has surged from 6% to 26%, and federal-deficit spending as a percent of nominal GDP has exploded from less than 5% to more than 15%. What’s more, policy officials around the globe have replicated this unprecedented support!

The trade-weighted U.S. Dollar Index (DXY) has been weak since mid-May. This week’s downside pressure has pushed it below 90—within an eyelash of its early-2018 bottom. If it breaches the 2018 low, there is very little technical resistance until it moves down to near 80. This year, the dollar peaked above 100, so a drop to 80 would represent a significant 20% cheapening in just a few months.

Valuation metrics consistently suggest the S&P 500 stock price index is extremely highly-priced. How far can the stock market run when it’s already at record high levels? Although its valuation relative to its trailing 12-month earnings per share (EPS) is equally excessive, the S&P 500 was similarly priced at the start of each of the last three bull markets. It is worth considering how those past bull markets prospered in the face of equally lofty valuations—do their examples provide a pathway for the contemporary bull market?

Driven by massive government stimulus, an imminent vaccine rollout, and the expectation of record earnings in 2021, investors seem to be on the verge of embracing a move away from Large Cap Growth stocks in earnest. The leading candidates offered as broad-based alternatives to Large Growth (LG) include Value, Small Caps, and Emerging Markets.

Read this week's Major Trend. 

Lately, investor-sentiment measures have become an increasing concern. Several metrics, including the AAII Bulls less Bears, the put/call ratio, CNN’s Fear & Greed Index, the smart-money/dumb-money indicator, and the investment newsletter writers’ sentiment index all suggest optimism has become excessive.