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Paulsen's Perspective

Jun 17 2019

The Odd Couple?

  • Jun 17, 2019

A survey asking equity investors whether the stock market does best with a strong or weak U.S. dollar would likely yield a variety of contradicting opinions—and they would all be correct! Like many couples, the stock/dollar relationship is complicated. Sometimes they get along blissfully, other times they separate because they find they rarely agree and, often, they simply seem indifferent to each other. They are an odd couple!
 

Jun 10 2019

Will Stimulus “Trump” Trade?

  • Jun 10, 2019

U.S. economic growth has recently slowed and most attribute the weakening to trade wars now being fought on several fronts (China, Mexico, Europe?). Bond vigilantes have become so concerned about the potential for negative economic fallout that they have inverted the yield curve.

May 31 2019

What Doesn’t Kill You… May Make You Rich?

  • May 31, 2019

The bond market is now the primary fear for stock investors. Bond yields just keep declining, the yield curve has again inverted, and many wonder ‘why is the bond market so spooked?’ Could it be signaling a recession and therefore a bear market?

May 28 2019

Concepts On The Cranium

  • May 28, 2019

Just some unrelated thoughts this week. A few concepts for the cranium! 

May 20 2019

Say Hi To Goldie?

  • May 20, 2019

Despite the current trade war with China, the U.S. economy has taken on an air of ‘Goldilocks’ since the December stock market swoon. Real economic growth has slowed, and both inflation and interest rates have moderated. The pace of growth is no longer too hot—as it was last year—nor has it yet become too cold—as most feared earlier this year. 

May 13 2019

The Fed Hit The Pause Button But Investors Pressed ‘Replay’

  • May 13, 2019

After the December stock market swoon, amidst escalating recession fears, the Federal Reserve hit the pause button on interest rate hikes. Investors, though, had a déjà vu moment, sensing the 2018 experience as reminiscent of a few years earlier and, considering the aftermath of the prior occurrence turned out to be profitable, investors in 2019 opted to hit the replay button! 
 

May 06 2019

Is U.S. Expansion Old Or Just Middle-Aged?

  • May 6, 2019

An aging economic expansion can be hazardous for investors. It tends to develop vulnerabilities (e.g., indebtedness, a lack of savings, over-indulgences, etc.) which threaten a premature ending. Often, old recoveries develop a capacity shortage leading to worsening inflation, interest rate pressures, and restrictive economic policies.

Apr 29 2019

Relationship Problems?

  • Apr 29, 2019

Investors have struggled this year with the relationship between stocks and bonds. The stock market seems very optimistic about the future, whereas bonds appear much more reserved, if not frightened, by the outlook. Should investors be concerned by the seeming contentiousness between stocks and bonds? 

Apr 26 2019

Trade And Fiscal Juice?

  • Apr 26, 2019

This morning’s U.S. GDP report should help calm fears about a pending recession and perhaps set the stage for a surprising acceleration in economic growth? Fears of recession have caused the Federal Reserve to pause its tightening campaign, slightly boost the pace of money supply growth, and significantly lower long-term yields. Improved monetary accommodation definitely raises future economic growth prospects.

Apr 22 2019

‘Wall Of Worry’ Taller Than Trump’s Border Wall!

  • Apr 22, 2019

Compared to post-war norms, the contemporary economic expansion has been odd in many ways. Persistent sub-par economic growth, a lack of normal lending and borrowing activities, declining labor-force participation rates, a stubbornly high underemployment rate, an inflation no-show, negative yields, and bizarre economic policies (e.g., TARP, cash for clunkers, stress tests, and quantitative easing). 
 

Apr 18 2019

Cyclicality is Scarce?

  • Apr 18, 2019

Better economic reports in the U.S. and about the globe are slowly reducing imminent recession worries. For example, today’s favorable reports on U.S. retail sales, unemployment claims, and the Leading Economic Indicator reinforces the likelihood the expansion perseveres. 

Apr 15 2019

Exposed To ‘Margin’ Investments?

  • Apr 15, 2019

U.S. profit margins have widened significantly in the last couple decades. Total U.S. corporate profits as a percent of GDP averaged only about 8% in the 20 years leading up to 2000, but has since risen by almost 30%, averaging 10.5%. Similarly, the overall profit margin among S&P 500 companies has increased steadily in this recovery to record highs! 

Apr 08 2019

Embrace Your New Sugar Daddy!

  • Apr 8, 2019

Many believe the contemporary bull market has been nothing more than a Sugar High produced by massive and unprecedented monetary easing. In the last couple years, however, the Federal Reserve has raised interest rates and allowed its balance sheet to run off, weaning the markets from its sugar. 
 

Apr 02 2019

A Rally With Fundamental Foundations?

  • Apr 2, 2019

A legitimate concern facing investors is how quickly, and how much, the stock market has recovered while economic and earnings fundamentals have deteriorated. Without improving fundamentals, this rally appears overdone—based on hope—and increasingly suspect.

Mar 28 2019

Has The Yield Curve Been TRUMPed?

  • Mar 28, 2019

The U.S. yield curve has inverted (at least the 10-year Treasury yield to either the 3-month T-bill or the Fed funds rate) and captured the full attention of investors. Rightly so, since a yield curve inversion has historically been an excellent indicator of a pending recession. However, a condition that has always existed in the post-war era when the yield curve has inverted is absent today.

Mar 25 2019

How SWEET It Is!

  • Mar 25, 2019

Stocks do best in times of general price stability. In the post-war era, the stock market has provided investors with significantly higher returns and lower risk whenever the annual rate of consumer price inflation has been between 1% and 3%. However, when outside this “Sweet Spot”—when the porridge is either too hot or too cold—investment results are far less hospitable. 

Mar 18 2019

Growth & Inflation?

  • Mar 18, 2019

U.S. economic growth has recently slowed and may weaken further in coming months. Moreover, inflation still lingers—commodity prices have bounced, both core consumer and producer price inflation remain near recent highs, and wage inflation is steadily rising. Investors face two big questions.

Mar 11 2019

Bond Market Message?

  • Mar 11, 2019

The stock and commodity markets have been messaging confidence in the future of this economic recovery since the December stock swoon. The S&P 500 has surged by about 10% so far this year on strong breadth led by economically-sensitive small cap stocks and cyclical sectors, while traditional defensive equities have lagged. 

Mar 04 2019

‘Betting To Beat’ The Market?

  • Mar 4, 2019

The macro-investment environment can be simply described by two dimensions—the directions of real growth and inflation. Since the performance of both the stock and bond markets are highly responsive to these two factors, investors need to be mindful of their macro bets. 

Feb 25 2019

Balance Sheet Recession Risk?

  • Feb 25, 2019

Arguably, the biggest risk facing the stock market is a recession. Currently, traditional recession gauges are mostly comforting and a key indicator—balance sheet health—is remarkably strong. Often, recessions occur when financial health deteriorates, limiting household or business capabilities and lowering confidence.

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