Paulsen's Perspective
A Few Thoughts On Earnings & Inflation
The earnings season kicked off last week and, so far, it appears that corporate America had another solid performance in the third quarter. Since inflation is proving to be more persistent than expected, anxieties surrounding profit-margin pressures are escalating.
Give Me Frightful Or Boring… Just Not Ordinary!
The stock market’s past performance has long been recognized as a good indicator of future performance. A notable performance attribute that shows excellent prowess in predicting future stock-market returns is the degree of total-return divergence among the market’s underlying constituents.
Should Hotter Inflation Be FEARED Or EMBRACED?
Coming of age in the 1970s, I understand the current, widespread fears of runaway inflation. Although it’s unlikely, could the last couple of years’ abuse and overuse of monetary and fiscal policies bring back a 1970s’ Inflationary Disco-era?
Growing Into Itself
One of the more interesting (if not unique) aspects of the current economic expansion is its outsized need to “grow into itself.” In its infancy, every recovery displays this attribute.
Best Way To Play Rising Yields? Small-Cap Cyclicals!
For at least the last decade, small-cap cyclical stocks have had a very close, and positive connection with rising bond yields. From 2012 forward, the correlation between daily movements in small-cap cyclicals’ relative price performance and bond yields is a strong +0.65!
Are Policy Officials AHEAD Of Inflation?
Although supply-chain problems dominate the headlines, what is most unnerving is the seeming indifference of economic policy officials.
SCARED And LOADED
Based on the University of Michigan’s Consumer Sentiment Index, household confidence has collapsed in recent months. Other measures paint a less dire picture about consumer fears but most of them similarly suggest that enthusiasm has waned. Importantly, this decline in consumer confidence comes at a time of abnormally high consumer savings.
Surface Turbulence… But The Undertow Is Strengthening?!?
Under the surface of today's stock-market turbulence is an increasingly solid undertow of stock market support. Maybe it won’t be enough to ward off the pressures, but a foundation does seem to be forming in favor of another leg up for this bull market.
COVID Still Controls The Financial Markets
Fear has gripped the stock market. Some popular, technical indicators are flashing a warning, including a worrisome drop in the cumulative Advance/Decline Line and last Friday’s S&P 500 tumble to its 50-day moving average.
Messages From The Business Battlefield
Companies are always in the trenches. Sometimes winning, sometimes losing, and often simply striving to survive. So let’s listen in on some messages emanating from “Businesses on the Battlefield.”
Fear The Taper?
Everyone fears the Taper. Fed members constantly remind us that it’s coming soon, the financial media frequently preview the taper’s potential ugly market fallout, and a parade of Wall Street firms are warning that stocks will almost assuredly suffer at least some sort of taper tantrum.
Let’s Talk DEFENSE!
When the stock market finally succumbs to a long-overdue correction, conventional defensive plays may prove more inadequate in preserving capital than they have in the past.
When Will Transitory Inflation End?
It’s the question on everyone’s mind: When will we know if transitory is “no longer” transitory? Although no one can say for sure, perhaps monitoring the accompanying chart will provide some insight.
Careful What You Wish For?
Since the pandemic, economic policy has become an obsession for most investors. The thickness of former Federal Reserve Chairman Alan Greenspan’s briefcase seems pedestrian today. When fiscal and monetary authorities began adopting highly unconventional methodologies after the 2008 financial crisis (e.g., Tarp, Cash for Clunkers, and QE), the mantra on Wall Street became WWPOD (What Will Policy Officials Do?).
Think Small... Again?
Small-cap stocks had a ferocious leadership run beginning last October when vaccinations were at hand—and hope surged that the COVID pandemic was finally ending. As economic activities restarted, the Russell 2000 outpaced the S&P 500 by nearly 33% between September and mid-March.
Time For An Economic “Hat Trick?”
In recent weeks, the news surrounding the stock market has turned much more challenging. Most economic reports have come in below expectations, taper-talk swirls about the Federal Reserve, and company earnings reports—while mostly still robust—no longer seem to boost stock prices. In addition, the U.S. exit from Afghanistan has been disturbing, supply shortages and inflation evidence are rampant, and, most importantly, the escalating spread of the Delta variant is dampening economic activities.
Tapering May End Before It Officially Begins
This year, investors, policy officials, and the financial media have been obsessed with when the Federal Reserve will finally start tapering its quantitative easing (QE) program. And perhaps more importantly, is it possible to curtail QE without triggering a temper tantrum in the stock and bond markets?
When Consumer Sentiment Collapses… BUY Stocks!
Last Friday, the University of Michigan reported its Consumer Sentiment Index suffered a shocking collapse. It fell by 11 points, which is the sixth-largest monthly decline since its inception in January 1998. Amazingly, as shown in Chart 1, it deteriorated to a weaker level than April 2020—right after the U.S.-onset of the COVID crisis that essentially shut down the entire economy. Moreover, the Sentiment Index now resides at one of its most pessimistic levels of the last 23 years. Only during the Great Financial Crisis was consumer sentiment shaken noticeably more than today.
Economic Transformations?
Here are a few U.S. economic transformations that could have important investment implications—and a couple of economic conditions that remain status quo.
Has The Fed Made VOLATILITY “Valuable?”
Normally, volatility is feared. It’s a lesson learned early by investors. Experiences like the 1987 crash, the 2008-09 financial crisis, and the 2020 pandemic serve to educate investors. Strive for more return but only while being ever vigilant about risks (volatility). Move that risk/return profile as far as you can to the northwest investment quadrant!
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