Read this week's Major Trend. 

Investors looking for the long-awaited rebound in the Value style point to the potential for rising interest rates as a possible driver of style rotation. Higher rates would benefit many Financial companies, a sector closely linked to the Value style. In fact, many commentators believe that the Value style cannot experience a major run without the participation of Financials. We launched a research effort to examine the link between Financials and Value, seeking to understand whether there is truth in this old saw, or whether this connection is more properly classified as market folklore.

The Core CPI numbers are slightly below consensus. With equities at extreme valuations, having well-contained inflation is not a bad thing at all. Enjoy the “goldilocks” while it lasts.

For decades, stock market observers have viewed January’s action as a harbinger for the rest of the year. Is there any merit to that belief?  

The January moves in heavily shorted Micro Caps were more bizarre than anything we saw during the wildest days of the Tech bubble. Despite these signs of rampant stock speculation by the retail crowd, we still wouldn’t characterize today’s sentiment backdrop as frenzied as the peak levels of 1999-2000.

With yields on the 10-Yr. Treasury finally breaking above 1.00% last month, the consensus has quickly evolved to the view that stocks and yields can continue to rise alongside one another for a while. Small Caps have shown a decisive performance edge during the recent episodes.

The recent months’ surge in Small Caps has been historic, and the Russell 2000 continues to register ridiculously “overbought” readings on many technical oscillators. In the short-term, that might be a cause for caution on the overall market. However (and perhaps counter-intuitively), this extreme strength cements our view that a long-term leadership cycle in Small Caps is underway. 

The Redditors came for the hedge funds, and chaos ensued. We think that when the dust settles, the Reddit crowd will be the spark that allowed more powerful market players to inflect the real pain. Our thoughts, from experience, on why this happened and how we try to avoid it.

We look at the recent short squeeze and examine how these populist movements affect the market performance in populist vs. establishment countries, and dig deeper into the regional versus sector effect.

As new home sales skyrocket alongside plummeting mortgage rates, we revisit the historical relationship between Homebuilding stock returns and industry-specific factors that impact housing affordability and homebuilders’ bottom lines.

Investors looking for the long-awaited rebound in the Value style point to the potential for rising interest rates as a possible driver of style rotation. Higher rates would benefit many Financial companies—a sector closely linked to the Value style. In fact, numerous commentators believe that Value cannot experience a major run without the participation of Financials.

Read this week's Major Trend. 

We’ve read far too much about what Joe Biden and a newly-blue Congress might do in the months ahead, but less so about the conditions Biden and his team inherit. Such “initial conditions” usually have a heavy hand in policy outcomes, market outcomes, and even a president’s legacy.

Read this week's Major Trend. 

Read this week's Major Trend. 

Investment styles and factors are generally interpreted as having an inherent preference for either bullish or bearish market environments. The theoretical tilt of each style is based on its design and its sensitivity to economic, profit, and valuation cycles. However, theory and practice do not always agree, and we must look to actual performance to confirm our impressions.

The CPI numbers are largely in line with expectations. A blue sweep and a new Fed regime is a powerful combination that should be taken seriously. We now believe the odds of higher inflation are materially better than just a month ago.

Read this week's Major Trend. 

Forecasting GDP is hardly our forte, but 2021 should see a very big gain in real output. Our current guess is for real GDP to grow 5% this year. Statistically, though, that doesn’t imply that the stock market’s move will also be large (or even of the same “sign”). 

Inflation surprises have run hotter in the U.S. than in the rest of the world, no doubt reflecting the strength of major currencies versus the U.S. dollar.