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39 results found.
A Statistical Take On The Fourth Quarter
by Doug Ramsey of The Leuthold Group,
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
by Doug Ramsey of The Leuthold Group,
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
by Doug Ramsey of The Leuthold Group,
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.
Still In Thrall With Low Vol
by Doug Ramsey of The Leuthold Group,
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.
Trump Inherits Poor ‘Initial Conditions’
by Doug Ramsey of The Leuthold Group,
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.
Today's Bull Versus The 1990s
by Doug Ramsey of The Leuthold Group,
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.
Who’s Selling Bonds?
by Doug Ramsey of The Leuthold Group,
Yields on 10-Year U.S. Treasury bonds sunk to an all-time low of 1.37% on July 5th, yet so far there’s been a mysterious absence of contrarians willing to step up to say that “the” secular low in bond yields is at hand. Evidently, strategists and economists have learned the painful lesson of the “widow-maker” trade (shorting Japanese government bonds). While there are few public bond bears, we’ve watched with interest in recent months as “commercial hedgers” in Treasury bond futures have steadily built up a sizable short position.
Margins: Mean-Reversion Works
by Doug Ramsey of The Leuthold Group,
We’ve said this before but it bears repeating. Operating (EBIT) margins failed to reach previous cycle highs and came under pressure only three years into the current economic recovery—evidence that the gravitational forces of capitalism remain in effect. Net margins remain above average mainly because interest expense remains low—a benefit that’s set to wear off following the last three years’ corporate borrowing binge.
The Bullish Case: A Mental Exercise
by Doug Ramsey of The Leuthold Group,
Our quantitative tools have delivered an emphatic bear warning, and we are subjectively convinced the message is correct. But it’s precisely these times when our conviction level is highest that we find it helpful to entertain the other side of the investment argument. We won’t back off our bear market call unless our model does, but we don’t want overplay our hand, either. The charts and tables herein are the ones we find the most challenging (even frightening) to our bearish stance—the ones that appear during those fitful nights when we worry, “What could go right?”
Surveying The Commodity Carnage
by Doug Ramsey of The Leuthold Group,
Commodities and commodity stocks have been a disaster in recent years, but fortunately one that our Group Selection (GS) Scores managed to avoid. Underperformance in both the Energy and Materials sectors during the last 12 months in particular (Chart 1) is so severe that any contrarian with a pulse probably can’t help but take a peek. We’ll admit the wreckage is beginning to look interesting, and—what with our cautious stance on the stock market—it would be fun to be bullish about something. But both our GS Scores and our intuition suggest it’s still too early.
The Bear Case: "Before And After"
by Doug Ramsey of The Leuthold Group,
While our gut instincts and quantitative disciplines aren’t always in agreement, that conflict doesn’t exist today. The evidence comes down decisively in the “bear market” camp. The action leading up to the S&P 500 bull market high of May 21st traced out a “textbook” top in many ways.
What’s Next For The Dollar?
by Doug Ramsey of The Leuthold Group,
The U.S. Dollar Index has recovered about half the losses from a two-month, -7% setback from the 12-year peak it established in March. We expect continued dollar strength over the next year as monetary policies in the rest of the developed world remain even looser than in the United States.
Faded Photographs: Obituary Of The Bull Market
by Doug Ramsey of The Leuthold Group,
We’re always impressed with those lengthy, and unnaturally eloquent, obituaries that pop up online within minutes of the passing of an elderly celebrity or public figure. Such an exercise might be fun when applied to another subject, specifically, the cyclical bull market in stocks (b. 2009—d. 20XX). How will today’s bull market be viewed through the eventual clarity and objectivity of hindsight? We’ve pulled together several still frames…to maximize the effect, run each page through a fax machine to produce the nicely faded, black-and-white images that might accompany an obituary.
Mythbusters: Style Performance During Bear Markets
by Doug Ramsey of The Leuthold Group,
Will Rogers said, “It isn’t what we don’t know that gives us trouble, but what we know that ain’t so.” Investors have long “known” that Value stocks provide a safer place to hide than Growth stocks during a cyclical bear market, an assumption probably based on: (A) experience since the early 1970s; and (B) common sense, in that speculative investments with low price tags and low expectations should be expected to suffer less when animal spirits deflate.
The Bull Market Turns Six
by Doug Ramsey of The Leuthold Group,
We cautioned investors during the current bull market’s initial blast-off not to expect a repeat of the prior bull market’s leadership—namely, Emerging Market equities and commodity-oriented equity sectors. Excesses built up during a sustained leadership cycle (i.e., equity valuations, production capacity) require a long period to be surged, generally resulting in the former leaders “skipping” a market cycle from a relative performance perspective. That view has been on the mark…
2015 Leadership: An Early Take
by Doug Ramsey of The Leuthold Group,
Last year’s economically defensive winners held their grip on stock market leadership in January. This action is consistent with our view that the bull market is an aged, overvalued one that has begun a final “distribution” process that will eventually erupt into a cyclical bear. Like every other facet of the topping process, though, defensive leadership can persist for an extended period—to the point that it’s ignored when there’s a genuine warning to be heard.
Thoughts on Energy
by Doug Ramsey of The Leuthold Group,
We?re not certain that the historic rout in the Energy sector is over, and even if we were our Group Selection (GS) Scores would likely prohibit us from loading up on Energy subgroups for at least a few more months. Last decade we frequently discussed the ?Three Act Play? then unfolding in commodities, with the terminal act producing a 2006-2008 surge in commodity-oriented equities and a commensurate binge in capital spending. While all of the commodity sector participated, Energy certainly played either a lead or a co-starring role.
Can The Dollar Save Small Caps?
by Doug Ramsey of The Leuthold Group,
The dollar’s moonshot in recent months has resuscitated a stock market leadership argument we haven’t heard for a long time—namely, that Small Cap stocks are better insulated than Large Caps from the loss of competitiveness and the currency translation impact of a stronger buck. Is there merit to this argument, or are Small Cap proponents grasping for straws after a flat year? It turns out there’s reasonable support for the Small Cap enthusiasts’ view, based on evidence from the U.S. (trade-weighted) Dollar Index.
Commodity Bears (i.e., Everyone) Should Read This
by Doug Ramsey of The Leuthold Group,
The commodity "oversupply" story remains intact, with high levels of capital spending in the Energy and Materials sectors persisting, despite the 3 1/2-year downtrend in commodity prices. But for those wishing to buck that longer-term bearish trend, now might be an interesting time. The negative reaction appears disproportionate to the actual damage. Don't look for further substantial declines in commodity prices over the very short term, except perhaps in gold.
Why We Think Tapering Is Tightening
by Doug Ramsey of The Leuthold Group,
While Fed watchers continue to debate the timing of the first post-2008 hike in the Federal Funds rate (first or second quarter of 2015), we believe the first move toward tighter policy occurred in January when the Fed first reduced the rate of its monthly bond purchases by $10 billion to $75 billion. Our opinion isnt based on any intricate knowledge of Fed liquidity flows, but simply on the subsequent action of two key stock market segments.
Market Internals—Breadth Weakness Troubling But Not Dire
by Doug Ramsey of The Leuthold Group,
Last month we argued "stock market participation is too broad for an imminent cyclical top to form," and we're not retreating from that statement. But interim market tops of varying degrees of importance can form with little or no warning. We've characterized stock market action alternately as uniform or in gear throughout most of 2014, but it's clear that market participation has not been nearly as "egalitarian" as it was throughout 2013. We've marveled at how well measures of market breadth were able to shrug off Small Caps' dramatic relative strength breakdown.
Small Cap Weakness Is Not A Market Death Knell
by Doug Ramsey of The Leuthold Group,
The celebration of the DJIAs new record high on April 30th was notable for its absence. Small Cap stocks, in fact, commemorated the event by falling to an 11-month relative strength low, and many technicians point to this divergence as evidence that a dangerous period of distribution is now underway. Were not so sure.
The Bull Market Turns Five
by Doug Ramsey of The Leuthold Group,
The post-2009 stock market upswing now qualifies as only the sixth cyclical bull market since 1900 to last five years or more. Life expectancies at such an advanced age are limited; only three of the previous five-year-old bulls lived to see a sixth birthday. Many media and market pundits seem to believe a rising age somehow leads to rising life expectancy. The consensus opinion that a new secular bull market has begun is much more confident today than at the bull?s first, second, third or fourth birthdays.
Secular Bull Or Bear?
by Doug Ramsey of The Leuthold Group,
At the January highs, the S&P 500 had gained almost 175% in just 58 months, while secondary stocks and equal-weighted market measures have gained considerably more. If it?s already over (and we don?t think it is), this cyclical bull will go down as a memorable one. But is this move the first leg of a new secular bull market? ? We think the next cyclical bear market will drive the market to levels low enough that debate will rage over the true date of the secular bear market low: was it 2009, or 201X?
Commodities In 2014: Supply Remains A Concern
by Doug Ramsey of The Leuthold Group,
If a reacceleration of EM demand for raw materials were imminent, one would think the MSCI BRIC Index would be the first to sniff it out. Yet that index remains among the poorest performing market composites in the world. Still, commodity demand will eventually right itself. Our worry is supply. Capital spending levels remain elevated, and are far above the levels seen just over a decade ago-on the eve of Chinas great commercial and residential construction boom. Commodity producers didnt anticipate that boom, which is precisely why it was so powerful.
The Mundane Truth Behind Margins
by Doug Ramsey of The Leuthold Group,
The margin expansion story of the last 20 years is a financial one, not an operating one. Investors routinely attribute todays near-record margins to operating efficiencies like factory automation and the outsourcing of labor to lower-wage foreign locales. This is certainly an attractive story, but the reality is that competition demands these actions, and many more, to merely maintain margins. We dont understand why economists who seem to be perfectly good capitalists in every other way think these innovations should result in a permanent jump in profitability.
Decomposing Today's Record Profit Margins
by Doug Ramsey of The Leuthold Group,
Again, the popular perception is that this cycles record margins stem from dramatic strides in corporate efficiency, driven in good part by the outsourcing of manufacturing/assembly operations to lower labor cost countries. But most margin expansion since the 1990s is attributable to a couple of other players -- specifically, the Bond Bulls and the Bookkeepers (we know, it sounds like a cheap romance novel).
Is The Dividend Mania Ending?
by Doug Ramsey of The Leuthold Group,
In the last couple of months, theres been an unusually high number of stocks making new 52-week lows even though the S&P 500 remains 24% above its own 52-week low set last November. This disjointed type of internal market action is usually not healthy, but it can persist for awhile before the warning flag turns from yellow to red.
A New Leg In The Commodity Decline?
by Doug Ramsey of The Leuthold Group,
For more than two years weve discussed the supply-side risks to commodity producers stemming from capacity built during the manic Third Act of last decades Three Act Play in commodities. Commodity-oriented equities have indeed underperformed since 2011 (chart 1), but to date, most pundits have laid blame squarely on the demand side (i.e., the sharp deceleration in Chinese economic growth). We dont have a strong opinion on the short-term direction of the Chinese economy, but the capacity overhang looks like a multi-year story to us, independent of China
Commodities: Still Worried About Supply
by Doug Ramsey of The Leuthold Group,
Golds 2013 fall has been the lone development in the two-year commodities decline that seems to have captured much attention. The CRB Raw Industrialsa spot index of 13 commodities exhibiting a much tighter linkage to the global economy than goldpeaked in mid-April 2011, coinciding with the bull market relative strength highs in the both S&P 500 Energy and Materials sectors and the absolute price highs in the MSCI stock market indexes of commodity exporters Brazil, Canada and Russia.
What To Sell, If Selling In May
by Doug Ramsey of The Leuthold Group,
While the Sell In May market anomaly is well-known, theres little recognition of the impact this seasonal anomaly has historically had on stock market leadership. Theres one effect in particular I found so eye-popping that I broke ranks with Rogoff/Reinhart and rechecked my numbers.
Twin Peaks Target Achieved, What's Left?
by Doug Ramsey of The Leuthold Group,
Pithy sound bites arent our forte. So when we came up with the Twin Peaks idea (last decades S&P 500 highs of 1527 and 1565) a few months back, we hoped wed stumbled on a market theme that might last a while. That wish was dashed on March 28th, when the S&P 500 exceeded its October 2007 peak of 1565.15.
Trying And Failing To Make The Math Work For Long-Term Bonds
For the past 31 1/2 years, owners of 10-year U.S. Treasury bonds have earned "real" total returns of 6.7%on par with the long-term real return to equities. Long before government bonds matched real stock returns, they suffered a 55-year period that offered investors a real return of zero. The short-term implications of higher U.S. Treasury rates on asset allocation decisions.
The Outlook for Commodity Stocks
by Doug Ramsey of The Leuthold Group,
Popular sentiment holds that commodities remain in a secular uptrend, but commodity-oriented stocks (Energy and Materials) have been underperforming for more than a year-and-a-half. Were increasingly convinced their 2008 relative strength highs won't be challenged for a very long time. Yes, Emerging Market demand may rebound next year. But remember Econ 101, and the day your professor discussed supply? This side of the equation doesn't look as good. Among the two commodity-based sectors, Energy looks cheaper and appears much more washed out from a sentiment perspective.
Does Party Matter to the Markets?
by Doug Ramsey of The Leuthold Group,
We've argued lately the S&P 500 could soon eclipse its 2000 and 2007 highs (of 1527 and 1565, respectively), but there's another looming target few are discussing: S&P 1443. Why is 1443 significant? Because a close above this figure at next January's inauguration would make Barack Obama's presidential term the second most profitable for stock investors since 1928, trailing only the +162% rebound off Great Depression lows in FDR's first term.
Short-Term Bullish...But U.S. Stocks Not Yet Cheap Enough to Deliver Even Average Long-Term Returns
by Doug Ramsey of The Leuthold Group,
Our investment disciplines currently mandate that we are near-term bullish with heavy (but not maximum) equity exposure across our tactical strategies. But the simple math that underpins long-term stock market returns doesnt currently support a long-term bullish stance (i.e., "buy and hold"). This view is contrary to prevailing market thought, in which stocks are viewed as having substantial near-term risk but good long-term return prospects.
39 results found.
