Latest Research
Problems Aplenty
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Recently, when Federal Reserve Chairman Jerome Powell and President Donald Trump both blinked—one on rate hikes and the other on trade wars—the S&P 500 surged by more than 6% in about a week! Many sensed the primary challenges holding back stocks were finally resolving and sentiment quickly turned bullish as investors did not want to miss the Santa Rally!
Read moreMTI: Inflation Measures Have Faded Sharply
The Economic/Interest Rates/Inflation category was not a big mover on the week, but its relative stability of late has masked a major shift within key indicator groupings. Leading inflation measures have faded sharply, with upgrades across the board in the commodity readings.
Read moreP/E Pressures
The valuation of the stock market has been under steady pressure this year. The S&P 500 trailing price-earnings (P/E) multiple has declined by about 25% from a recovery peak of 23 in January to about 18. The hope for this bull market is that P/E contraction is almost over, allowing stock prices to again rise with earnings gains.
Read moreMTI: Fundamentals Improve
While the improvement in the fundamental categories is encouraging, the weight of the evidence continues to support a cyclically defensive stance toward the stock market.
Read moreMTI: Extensive Overvaluation Vs. 1999/2000
A critical difference we’ve discussed repeatedly is that market overvaluation in the 1999/2000 episode was concentrated in roughly the top-50 Mega Caps, while current overvaluation—though arguably not as extreme—afflicts nearly the entire list of publicly-traded U.S. stocks.
Read morePopular/Panned (PP) Ratio — An Update
We first published the accompanying chart in March of this year. The PP Ratio had just spiked sharply upward in the previous three months, as it did near the end of the dot-com era in 2000. Since March, in a very similar fashion as shown, the PP Ratio has eerily traced the same path as during the dot-com era.
Velocity Quietly Rises?
he velocity of the money supply measures the pace at which cash is spent in the economy, or the amount of total GDP activity created by each dollar of the money supply. Monetary velocity has long been a focal point for the Federal Reserve, economists, and investors because its growth often shapes the character of the recovery.
Read moreAsset Allocation: As Bad As It Gets
Asset Allocation in 2018 is about as bad as it gets. No major asset class has done well.
Read moreNovember 2018 Green Book Summary
We wrote in October’s Green Book that “many once reliable seasonal market patterns have been out of sync in recent years.” The market gods punished us for having the audacity to write such a thing (and during October, of all months!), taking the S&P 500 down to within 0.1% of “correction territory” at the October 29th low. But the punishment outside the U.S. commenced long beforehand, and last month’s losses drove several foreign market measures into bear territory. We expect U.S. blue chips to follow.
Read moreMTI: Too Early For Bullish Valuation Case
Although the Intrinsic Value category is now about 100 points above the worst levels recorded in early January, it is far too early to begin making a bullish valuation case for the stock market. Interestingly, some of the same pundits who warned “valuation is not a timing tool” on the way up are the ones trotting out these premature, value-based arguments—which are typically built on extremely-optimistic forecasts for 2019 operating EPS.
Read moreRates Hurting Households
Doubling of yields since 2016 has slammed households. Percentage increase in rates is more important than the absolute level.
Read more“Trending” To “Timing”
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From the mid-1920s until the mid-2000s, the performance cycles of small cap stocks relative to large cap stocks (i.e., the small/large market cap factor or SLF) were typically multi-year events.
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