The Leuthold Group
The 60/40’s Annus Horribilis
The balanced portfolio strategy of allocating 60% to equities and 40% to fixed income generated a highly satisfactory 7.9% annualized return over the last 30 years.
Signs of Margin Pressure Ahead
Banks’ lending standards for C&I loans (typically to large businesses) tightened quite a bit in Q1, which bodes ill for both investment and overall economic growth going forward. Private investment and industrial production data seem to have confirmed the ongoing slowdown.
John Bogle: Investment Philosopher
We take issue with some of the recent reporting on passive investing. In the spirit of Bogle’s own approach of straight talk and no-nonsense thinking, we felt compelled to offer a differing viewpoint.
Too Many Clocks: Adjusting Earnings Has Left Investors with Too Many Watches to Consult
Whatever your philosophical leaning, the practice of adjusting earnings has left investors with too many watches to consult. Stocks may look expensive on one earnings number but cheap on another, and investors need to be aware of the differences in earnings metrics as they try to determine a company’s true economic earnings and valuation.
Today’s Barbelled Market Performance Has Only Occurred in 15% of the Months—and It Hasn’t Gone
The relative performance of small cap stocks is an important indicator of business fundamentals and market sentiment. We’ve recently noticed that the market has been sending mixed messages about size. Intrigued by these contrary signals, our curiosity prompted a closer look at the all-important size factor.
EM Country Rotation Based On A Stock Factor Model
With the rapid development of single country ETFs, capturing factor alpha at the country level may prove to be an efficient, practical alternative to individual stock selection. In this study, we look at how effectively our internally-developed EM stock selection model can guide country overweights/underweights. Back testing shows that stock-level factor alpha can indeed be captured at the country level.
A Statistical Take On The Fourth Quarter
Technicians are fond of saying that the most bullish thing a market can do is to make a new high. This simple study takes a more nuanced view, finding that the sustainability of a new high is related to its underlying technical, monetary, and economic underpinnings. On that score, this market—as overvalued as it may be—is currently “thrice-blessed,” and we expect even higher highs in the fourth quarter.
Boom/Bust Doesn't Point to Recession
The odds of recession in the next 12 months appear low based on a number of financial indicators, including the yield curve, corporate credit spreads, and of course the stock market. We generally prefer these market-based measures over government generated statistics for economic forecasting purposes. The Boom/Bust Indicator, however, combines a market-based measure (commodity prices) with a weekly government report on the employment situation.
Bonds And Aristocrats
One of this year’s many perplexing leadership trends has been the weak relative action of the once-coveted S&P 500 Dividend Aristocrats in the face of a solid bond market rally. We certainly aren’t complaining, since we’ve been highlighting the valuation risks embedded in these bond-like stocks for what seems like forever.
Goldilocks—Enjoy It While It Lasts
All things considered, while we recognize that uncertainties abound and inflation headwinds are gaining strength, the underlying economy still shows enough vitality, and financial conditions are still favorable enough to justify our goldilocks view. Enjoy it while it lasts!
Still In Thrall With Low Vol
While we wouldn’t go so far as to tar it with the “bubble” epithet, the ongoing investor obsession with stability strikes us as considerably more dangerous than the situation in the Technology sector. While many see market parallels with 1999, we instead see a mirror image.
A Subdued 8th Birthday Celebration
Children eventually reach an age when they outgrow the need or desire for an elaborately staged birthday party. In the case of a certain bull born back in March 2009, that age appears to be eight.
Trump Inherits Poor ‘Initial Conditions’
Don’t tell The Donald, but the stock market doesn’t take him seriously. The market took JFK seriously. In April 1962, Kennedy clashed with steel companies. The S&P 500 plummeted 24% over the next two months as the confrontation continued.
Impact Of Lower Corporate Tax Rate
A stock market wild card in 2017 is the potential for a significant reduction in the corporate tax rate. President Trump’s desire to lower corporate taxes, if implemented, would have multifaceted impacts on businesses. Tax expense is a direct reduction of income, and any possibility to lessen that burden is a plus for equities.
Today's Bull Versus The 1990s
The advance since March 2009 has just surpassed the bull market of 1990-1998 to become the second longest bull of all time, and it will move into the top spot if it can survive until next March 15th (the “Ides of March”). Intrigued by this market’s similarities with the 1990s, we updated a study that reinforces a point we’ve made for a while: Among the six major measures examined here, the stock market looks least overvalued on the basis of the S&P 500 5-Yr. Normalized P/E.