Leadership
Stock Market Observations
This bull market has appeared to be on shaky technical ground before, only for concerns to be swept aside. This time, we think it’s different.
On High Alert
August is “National Eye Exam Month,” but this is the rare year we can confidently recommend that you skip it.
Weakening Foundation
Over the last few months, we’ve presented a couple of simple quantitative studies meant to encapsulate the factors driving our Major Trend Index to the brink of bear territory. The chart and table might provide the best summary yet.
Fed Watching For The 21st Century
Deteriorating stock market breadth and worrisome leadership trends both suggest liquidity has already tightened; whether the Fed follows suit in September may now be just a formality.
Leadership: Winning Begets Winning
Many assume that stocks and industries exhibiting high price momentum suffer disproportionately during the eventual bear market. Surprisingly, the high momentum stock portfolio has suffered an average bear market loss that’s about a quarter less than that of the low momentum portfolio.
Flying By Instruments
The safest highs to sell in the stock market are “lonely” new highs. Fortunately, the April 24th bull market high in the S&P 500 was anything but, as that index enjoyed a varied swath of Large Cap, Small Cap, and foreign company (although the DJIA was a mysterious no-show).
Two Takes On The Ticker Tape
Conventional breadth measures show the U.S. market to be healthy, with key indexes confirming the April 24th S&P 500 high. However, sector leadership is behaving in a way that’s consistent with an approaching market top.
High Quality Stock Leadership Stalled
Last time we updated this work, we were surprised by how much High Quality stocks had outperformed. In Q4 2014, High Quality stocks were up 9.6%, while Low Quality stocks had edged up only marginally (+0.3%).
2015 Leadership: An Early Take
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.
Small Caps: A New Ratio!
Small Caps lagged the S&P 500 by almost ten percentage points in 2014, but their underperformance streak technically dates back to April 2011. Nonetheless, their cumulative, 45-month underperformance in relation to the S&P 500 (now about –18%) is still modest enough that any mention of the current “Large Cap Leadership Cycle” is bound to draw a few head scratches.
Stock Market Observations
Market gains have been less broad than in 2012 and 2013; market direction and leadership have been mismatched; and quantitative factors have been choppy.
Can The Dollar Save Small Caps?
The dollar’s moonshot in recent months has resuscitated a stock market leadership argument we haven’t heard for a long time.
The Surprising Winners In Emerging Markets
While we expect an eventual break in this relationship, today Emerging Market equities are following, fairly tightly, the cycle of industrial commodities—a cycle that rolled over (on a secular basis, we believe) in 2011.
What To Make Of Market Leadership
The renewed embrace of risk hasn’t extended to the sector level. After resisting decline in late September through mid-October, defensive sectors have matched the rebound in Cyclicals, almost point for point.
Market Internals: The Good And The Bad
Leadership isn’t warning of impending weakness in either the U.S. economy or the stock market. Market breadth, on the other hand, is highlighting risks that aren’t evident when inspecting leadership alone.
The Economy And Earnings
The YTD surge of 19% in the S&P 500 should ensure a stronger second half economy, and the big five-point jump in the latest Purchasing Managers Survey (ISM) might be the first evidence of this.
Nice Gains… But In The Wrong Groups
Sure looks like a bear market rally rather than start of new bull market. Many global indexes still down 20% or more from peak levels.
Thoughts On Long-Term Leadership
Bubble groups rarely return as market leaders until after experiencing a prolonged trading range pattern. Technology currently appears to have paid its dues and could develop into the next market leader.
Reasons To Own More Stocks
Looking for reasons to own more stocks? Doug Ramsey has a whole bunch of them.
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