There is Statistical Merit to this Oversold Condition in Stocks as Buying Opportunity
The oversold condition in stocks that has developed over the last several weeks is more than trivial. I highlighted on Christmas Eve the baker’s dozen reasons why equity markets could tactically rally from that point, showing extremes in a variety of indicators.
Santa’s Gift to Investors: Global Oversold Conditions Present Buying Opportunity
The S&P 500 experienced a waterfall decline in December, something rarely seen. Measuring the decline using a 30-day Wilder Relative Strength Index, it is clear the extremes recently experienced.
A Bakers Dozen Reasons Why Stocks Can Tactically Rally From Here
Stocks plunging to new lows on the year and to the lowest level since early 2017 is no way to bring in the holidays. Investors are in panic mode, with precious few precedence of this level of sustained selling outside of the 2008 meltdown.
Is 2019 Going to be the Year of the Profit Margin Problem?
2018 has been kind to corporate profit margins. In fact, the margin expansion we’ve seen so far in 2018 is unprecedented in a late cycle economic environment when wages are rising briskly, at least looking back over the last thirty years.
Prognosis for Fourth Quarter Growth
One of the more well-recognized Now-Casting data series is the GDPNow series produced by the Federal Reserve of Atlanta. Every day they incorporate economic data releases and update their estimate for GDP growth in the current quarter. GDPNow is a great source of information on the real-time performance of the US economy.
Was Today’s (11/28/18) Rally the All Clear Signal or More Noise?
The equity markets no doubt experienced a powerful move today on the back of Fed Chair Powell’s dovish remarks mid-day. Specifically, his comments laid the groundwork for a pause in interest rate hikes in the first quarter of 2018.
The Interest Rate Sensitive Sectors of the Economy are Getting Hit by Higher Rates, Which is Next?
It goes without saying that the most rate sensitive areas of the economy should feel the burn from higher rates first. It’s useful, therefore, to look at the performance of those sectors to get a read on the impact that changes in the rate environment are having on the real economy.
Value Investing Isn’t Dead Yet, Just Wounded
Value investing, which is often traced back to Ben Graham in the 1940s, is among the most influential trends in finance in recent decades. Value investing is based on the idea that lots of stocks are out of investors’ favor because of a myriad of reasons, such as recent losses, management upheaval (think GE), product failures, etc.
There is a Huge Disconnect Between Energy Credit and Equity
Oil prices have swung drastically over the last couple months. The market was unprepared for the US to grant waivers amounting to nearly one million barrels/day to fill the void expected to be left by the drop in Iranian exports. Instead of Iranian exports plunging to almost zero by November...
Machine Learning to the Rescue
I am not optimistic about reversing the trend of the ever-rising estimates, but I found a way of substantially improving their accuracy and reliability, thereby enhancing the usefulness of reported earnings and asset values to investors.
Good For a Bounce in Stocks, But How Much More?
The selling over recent weeks has been fast and intense, providing investors almost no relief. This type of short-term selling pressure has reached fever pitch levels that is usually indicative of some sort of relief rally, even if the ultimate lows are still ahead of us.
Energy Sector Performance in Context
Energy is the best performing sector in four of six market-regions. (From two market groups, Developed and Emerging, and three regions, Americas, EMEA, Asia, we get six market-regions.) Among Developed Market sectors, energy is 5th YTD, down about 5% less than the MSCI All Country World Index.
A GDP Report That Screams Trade Wars and Government Spending
Third quarter real GDP came in at a 3.5% QoQ annualized rate for the third quarter, above expectations for a 3.3% growth rate. The growth rate itself wasn’t much of a surprise, and frankly, neither were the drivers of growth.
Beware! Estimates Dominate Financial Reports
Everyone knows that accounting is boring (not when I teach it, though), but, at least, people think it’s factual. No fake news. After all, accounting comes from counting―counting money, units of inventory, etc. All facts. Nothing further from the truth.
American Evolutions from Sears to Google
Today’s story begins with the once-behemoth that is the American retail firm, Sears. In the last week of September Sears’ stock dipped below $1 a share, reducing the company’s market value below $100 million. Sears may still linger on a bit, but when a big firm falls into penny-stock territory, its outright liquidation is a foregone conclusion.
Trade War is Boosting US Economic Activity … in the Short-Term
Overnight, new data released in China suggests businesses are having a tough time lately. Cheung Kong University produces an alternate PMI Business Conditions Index in association with the China Federation of Logistics and Purchasing. The latest data point plunged more than 10 points from its end of July reading and is currently sitting at 41.88, deep into contraction territory.
Are We in for a Bond-pocalypse or Something Much Milder?
Is last week’s 18 basis point selloff in 10 year government bonds the start of a bond bear market or a market adjusting to the realities of the time, albeit in a somewhat disorderly way? The answer to this question has obvious implications for not just bonds, but all asset classes from equities to commodities to real estate.
Three Hints on the Direction of Chinese Assets
The Chinese stock market is closed this week for the Golden Week holiday. On this side of the Pacific the markets have been busy this week with US Treasury bond yields breaking out and stocks selling off—especially technology—based on the revelation that China implanted devices in technology products shipped to the US.
Higher Mortgage Rates are Starting to Bite the Housing Market
Sooner or later, higher mortgage rates (which are keyed off of the 10-year treasury yield) were always bound to start slowing the housing market. It was more a matter of what level of rates would be necessary to take the first bites out of housing.
Small Caps Fail to Break Out
Among the major groups of stocks around the world that we follow, US small-cap stocks have been the best performer over the last decade as the USD experienced a strong bull market. US small caps have outperformed our mid/large group of developed companies by almost 40% over the last 10 years.
Wages Are Rising and The Phillips Curve is Not Dead
The Phillips Curve (the relationship between wages and the unemployment rate) finally awoke from its slumber with today’s unemployment report showing private sector wages rising 2.9% year-over-year and non-supervisory wages rising 2.8% year-over-year, the fastest growth rate since 2009.
Thoughts on the Term Premium
As many have documented, the main channel of transmission for the Fed’s quantitative easing policy was via the term premium component of US treasuries. As the Fed’s balance sheet doubled from 2010 to 2015, the term premium embedded in US Treasuries fell from 2.5% to -75bps. The Fed is now shrinking its balance sheet, which on the surface would seem to suggest a rising term premium.
Performance Trends Outside the US are Downright Bad
Chalk it up to strength of the US dollar, trade, policy risk, or whatever, stocks outside of the US are in bad shape. One of the ways we systematically measure the relative attractiveness of a stock in a particular sector, region or country is to calculate the percent of stocks in a group that are currently flashing a red performance alert.
Offsides Positioning in Gold, Bonds and the US Dollar Will Make for an Interesting Fall
We are living through a period of extremely crowded trades at the moment, as Jeff Gundlach notably quipped several days ago. The risk in crowded trades is of course that what would otherwise be relatively minor risk reversals can cause massive covering of positions resulting in large moves in the underlying.
A New Super Factor: the Investment Case for Knowledge
We’re pleased to share a new white paper on the market anomaly that rose above value, size, quality, low volatility and momentum factors. Written by Bryce Coward, CFA, the study details the results of first market test of the Knowledge Effect, the tendency of highly innovative companies to deliver excess returns.
Are Commodities Signaling a Shift Away US Equity Leadership?
Most commodities have suffered lately with the backdrop of tariffs and China’s devaluation. But some have fared worse than others, and there is information content to the relative move in commodities. While copper catches many of the headlines (i.e. Dr. Copper, the metal with a Ph.D in economics) the most significant decline has occurred in lumber.
If This Market is Anything, it’s Narrow
On a day like yesterday when more than half of the US tech sector was down more than 2%, we are reminded of the benefits of diversification. Yet, diversification would not have helped one participate in the market’s rise to the highest level since February.
Quarterly Strategy Update: What We Know, What We Think & What We Are Unsure Of
Recently, fears of a slowdown in global growth brought on by a trade war have led to turbulence in cyclical assets. The US Dollar has risen while commodities and emerging markets have struggled.
Tale of the Tape: Equity Investors More Concerned About Rising Inflation Than Slowing Growth
We calculate statistics for all developed and emerging equity markets around the world. For our mid/large cap indexes, we take the top 85% of all stocks in a given region or country and convert all prices into US Dollars.
Has the Storm Passed in the Emerging Markets?
Stock and currency markets often take their cues from the credit markets, so we find it instructive to keep a close eye on credit spreads and credit default swaps (CDS). Looking at the credit markets in the emerging markets, we think there may be initial signs that the storm that has engulfed emerging market assets may be over.
Yield Curve Inversion: Not What it Appears
There has been considerable discussion lately about the slowly inverting yield curve and what it may signal for growth prospects going forward. Commonly used as a proxy for the yield curve is the spread between 10-Year US Treasury yields and 2-Year US Treasury yields.
The Inflation Story is Alive and Well in Five Charts
In light of Fed Chairman Powell’s congressional testimony, we thought it relevant to revisit the inflation story and provide yet more evidence that the trend in inflation continues to be higher. For now, the Fed has assessed the risks to inflation and growth as balanced in both directions, which is Fed-speak for a policy that is on auto pilot.
Project Independence: Possible this Year if US Petroleum Production Continues to Ramp
The US shale boom has led to a surge in the production of crude oil, and much of this production has been exported in recent years. In the chart below, I plot the gross exports of crude oil from the US. Beginning with almost nothing several years ago (in part because crude exports were banned until December 2015), US daily crude exports have eclipsed two million barrels per day.
5 Indicators That Suggest The Selloff In EMs Has Gone Too Far
Emerging market stocks have taken it on the chin so far in 2018, down 9% and unperperforming the MSCI World Index by about 8%. There are of course plenty of excuses for such bad performance, from trade related issues to the breakdown of the synchronized global growth story.
Which is More Impactful to the US: Crude Oil or China Trade? Can Someone Tell Currency Traders?
Talk of a trade war with China has recently dominated the discussion in financial markets, overshadowing the other major story playing out in the US economy—normalization of the energy markets. I thought I would answer the question of whether trade with China or oil was a bigger economic issue.
Mid-Quarter Update: The Monetary Policy Pitchfork
The big three central banks (Federal Reserve, European Central Bank and the Bank of Japan) met this week to review their monetary stance. In this mid-quarter update, we share our analysis, The Monetary Policy Pitchfork.
A Reflationary Inflection in Oil Inventories
Venezuela has experienced a collapse in oil production this year as the country sinks into chaos. Daily production is down from 1.7M barrels/day at the end of last year to just 1.44M barrels/day at the end of May. Year-over-year production declines are even larger, down about 500k barrels/day.
“Bubble-Like Stock Valuations Miss $3.4 Trillion in Hidden Assets” – or Why Intangibles Matter
Last week, in Bubble-Like Stock Valuations Miss $3.4 Trillion in Hidden Assets, Bloomberg detailed how traditional accounting can make a company’s fundamentals “look a lot worse than they are.” In the article, New York University’s Professor Baruch Lev weighs in. “You get numbers which are highly inflated for some companies and are understated for other companies.”
Semiconductor Leadership Highlights the Rotation Into Value Stocks
Semiconductor and semiconductor capital equipment stocks have been stellar performers lately, a trend we have been a bit slow to recognize. So, I decided to do a deep dive on semis and semiconductor capital equipment stocks to see if there is opportunity left to capture.
Divergent Path of US Corporate Profits
Yesterday we got the latest glimpse into US corporate profitability. Depending on the series observed, corporate profits are either flat-lining or rising. Before-tax corporate profits, the blue series in the chart below, are actually net down by $32 billion from the peak in 2014.
Sitting Here in Limbo
As investors, it does feel like we are in limbo, stuck between the push of higher growth and employment and the pull of higher inflation, higher rates, and policy risk. And and the end of the day, despite quite a lot of directional volatility so far this year, the S&P 500 trades at the same level as it did back on January 4th.
The Selloff In Oil/Oil Stocks is Buyable
Energy stock fundamentals remain appealing. Global developed market energy stocks are still trading at recessionary valuation levels with the median dividend yield of 2.5% being near the highest recorded over the last two decades.