A brief overview of two (very different) Attractively-rated Discretionary groups that are longstanding SI portfolio holdings that have managed to maintain their “Attractiveness” throughout the tumult.

The latest action in rates is not what would be expected during a strong stock-market rally off a bear market low, but the constantly changing nature of the stock/bond relationship should not come as a big surprise. We propose a more refined four-state definition of the stock/bond relationship.

Late last year, we presented data showing that profitability has become more elusive for small companies despite a record-long period of economic expansion. We discussed the potential causes underlying this phenomenon.

Asset allocation decisions are fairly straightforward for groups of profitable and growing companies that fit nicely into a discounted cash flow model, but it is more difficult to describe the valuation of groups that include unprofitable companies.

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The current rally is either the first upleg of a new bull market, or the second-largest bear market rally in the last 125 years. The lone development that can settle the issue is for the S&P 500 to move above its February 19th closing high of 3,386.15.

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Raise your hand if you’ve heard this one before:

        (A)  80% of active funds underperformed their index over the past 10 years.

Now, keep your hand up if you have also heard this:

        (C)  Therefore, investors should buy passive index funds.

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When we first met Steve Leuthold in the old company office in a renovated warehouse, he was updating a several-foot-long chart of either the DJIA or S&P 500, by hand, and we got a brief lecture on the importance of using logarithmic scale on price charts.

The CPI numbers missed expectations. COVID-19 is the divide between inflation winners vs losers. Our inflation scorecard continues to point to lower inflation and it’s driven by a demand shock. Lower capacity utilization and money velocity also indicate a disinflationary trend ahead.

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We review the somewhat out-of-character performance of the Utilities sector to try to pinpoint what is influencing results. This article touches on several potential drivers for the sector’s relative strength.

Valuations aside, the absence of any sustained market pain over the last ten years argues for challenging times for stocks in the new decade.

One would think that one of the most explosive market rallies of all time would trip-off all the traditional “breadth thrust” signals, or maybe even invent a few of its own. Sorry, no luck.

Small Caps lagged during the bounce off the March lows before a late-April spurt briefly pulled them ahead of the S&P 500. Still, considering that Russell 2000 losses were so much steeper than the S&P 500’s (-43% versus -33%), we would have expected something better.

This study examines the traditional protocol for bear markets to find which tactics worked as expected and which were caught misbehaving. Overall, we conclude that investors were not ready to commit to a full leadership rotation.

Valuation dispersions remain at extreme levels. Dispersions within Large Cap stocks remain above Tech Bubble levels, but are on par with Mid and Small Cap stocks on an absolute basis. Spreads within sectors also present historic stock selection opportunities.

From a top-down view, since 2003, Value’s performance has been much more closely tied to various asset markets and macro drivers. From a bottom-up perspective, we believe the change in Value’s migration behavior might be the key to its failure. We believe macro tailwinds and positive surprises are both necessary for a true Value revival.

Health Care has been the best performing sector following mid-February’s market peak. Its robust relative performance during this bear market isn’t terribly surprising given the sector’s defensive qualities, but it has impressively outpaced other safe haven areas.