Momentum is one of the most widely accepted alpha-generating factors, used by quantitative and fundamental managers alike. Its biggest drawback, however, is high turnover. Herein we explore momentum from the perspective of sector weights.

The calm appearance of the 10-year yield masked a big curve-flattening move that has accelerated the last few months.

Momentum has had a terrific year relative to all other quant factors, but Wednesday’s action forewarns of the mayhem that will likely accompany the eventual rotation out of Momentum (and Growth) and into Value stocks.

Years ago, Monty Python’s classic comedy sketch introduced us to the Department of Redundancy Department.

The latest CPI numbers are in-line with expectations. The divergence between inflation break-evens and the yield curve is worth close monitoring. Given that the global recovery is still intact, we don’t think the current inflation picture justifies the flatness of the yield curve.

In 2010 and 2011, we were sometimes chastised for not paying more attention to exploding federal  deficits, which at the time were running between 8% to 10% of GDP. We argued that a substantial share of these budget shortfalls was cyclical in nature, and would eventually be reversed by an improving economy.

Market history teaches us that investors behave differently in groups than they do as individuals.

Starting back in the early 1990s, The Leuthold Group began constructing and sending out an annual list of stocks that appeared to have been the subject of unusual selling pressure late in the year.

Sometimes we feel compelled to report findings that conflict with our outlook. And then there are the even rarer times we actually do it.

We remain bullish on stocks but with very limited visibility into 2018.

Our data shows the traditional Phillips Curve relationship between the unemployment rate and wage inflation still holds.

Homebuilding Stocks Are On A Stellar Run—Can The Streak Continue?

While this year’s rally has been a broad, “equal opportunity” affair, some of the weakest relative action we’ve observed has—oddly enough—been among equal-weighted stock market indexes. Equal-weighted indexes for Large, Mid, and Small Caps are all trailing their cap-weighted counterparts year-to-date, and the gap for the S&P 500 is now almost 400 basis points after an especially bad October.

With the Major Trend Index positive and the market about to enter the seasonally most bullish part of the calendar, we’ll offer both a trendy sector and a contrarian one for allocators looking to cap off an already good year. Specifically, we’d recommend heavy exposure to both the Information Technology and Financial sectors, which rate #3 and #1 in the October Group Selection (GS) framework.

From a purely technical perspective, the bull market has hardly been lacking for feathers in its cap. Yet it earned another one on Tuesday when the DJIA Smart Money Flow Index (SMFI) broke out to a new bull market high (Chart 1), erasing a “non-confirmation” that had stood since March 1st. This index thereby joins the broad list of market bellwethers—chronicled in the last Green Book—that have participated in the parade of new highs.

During a stock market rally we find difficult to comprehend, it somehow seems appropriate to publish a chart we’re almost at a loss to explain. The first chart shows the 90-year history of the trailing one-year (252-day) correlation of daily returns across market sectors. Correlations have been in a free-fall of late, and now appear to have a good shot at undercutting the all-time low established midway through the 2000-2002 bear market.

Question: Your “Estimating The Downside” section shows the S&P 500 would lose 26% if it reverts to its 1957-to-date median valuation level. The downside estimate for the S&P Industrials Index, however, is almost -40%. Why such a huge difference?

On a cumulative basis, YTD through August, equity and bond funds (ex. money market) have captured more money than ever before over the same period.

Rapid growth, coupled with regulatory support, has the potential to bring autonomous vehicles (AV) to the streets sooner than some may anticipate.

Overall, the impact of balance sheet reduction on interest rates is weak, at best. Inflation is a much bigger longer-term driver of interest rates.