Green Book October 2013
We’re Bullish, And It Doesn’t Get To Look Any Better
Global valuations rise, but the U.S. is still at a premium. The large valuation discount on foreign shares has narrowed, reflecting better relative action and relatively weaker fundamentals. Foreign markets might be the last pocket of yield that isn’t overvalued. A look at prior debt ceiling debates and patterns around resolution gives no surprises. We refine our Bounce methodology, giving both the “traditional” and “Bridesmaid” Bounce lists. Low volatility isn’t bearish, and it provides much near-term directional help. Housing is acting just like the bubbles before it. Life Sciences Tools & Services and Managed Health Care groups. With no taper more downside and higher volatility are likely.
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Featured Articles
Global Valuations Rising, But U.S. Still At A Premium
The large valuation discount on foreign shares has narrowed a bit, reflecting better relative action in foreign shares over the past 14 months and relatively weaker foreign fundamentals.
Valuations & Future Returns
The U.S. market rates anywhere from mildly overvalued to very overvalued relative to other developed markets. Foreign markets might be the last remaining pocket of yield that isn’t overvalued.
Debt Ceiling—Weakness Before But Strength After Resolution
A look at prior debt ceiling debates and patterns around resolution dates gives no surprises: markets are weaker in the two weeks before but stronger in the month after a resolution is reached.
Playing The Bounce - With A Twist
The historical batting average of this strategy has been decent, with gains in 9 of 18 years along with “excess” returns over the S&P 500 in 10 of 18 years. The best Bounce seasons have occurred when the market was either down for the year through September, or up only modestly.
Is Low Volatility A Warning?
Low volatility isn’t a bearish omen in and of itself, and we found stock market volatility levels to provide much near-term directional help.
Housing: Just Like The Bubbles Before It
Sectors that become the object of obsession during one economic cycle tend to remain cyclically depressed in the following one.
Life Sciences Tools & Services: Poised For Growth
This group moved back into the Attractive range in September. We like the group’s business model, industry M&A momentum, and stocks’ ability to generate free cash flow. All in all, companies in this group are good candidates for investors hunting for High Quality.
A Checkup On Managed Health Care
Despite continued question marks surrounding the effects of Health Care Reform, sentiment seems to have shifted for the better, and a number of broad industry drivers are trending in a promising direction. This group currently has three categories rating Excellent in our domestic group model.
No Taper—More Downside Likely On The 10-Year & Higher Volatility Ahead
A look at prior debt ceiling debates and patterns around resolution dates gives no surprises: markets are weaker in the two weeks before but stronger in the month after a resolution is reached.
Table of Contents
Stock Market
- It Doesn’t Get To Look Any Better
- Is Low Volatility A Warning?
- Housing: Just Like The Bubbles Before It
- Global Valuations Rising, But U.S. Still At A Premium
- Valuations & Future Returns
Of Special Interest
Macro Monitor
- No Taper—More Downside Likely On The 10-Year & Higher Volatility Ahead
- Debt Ceiling—Weakness Before But Strength After Resolution
- Inflation Still Going Nowhere In The U.S.
- Risk Aversion Index Falls To New “Lower Risk” Signal
- Our Position on U.S. Bonds
Equity Strategies
- Group Models: Info Tech Tops Domestic, Financials Remain Atop Global
- Life Sciences Tools & Services: Poised For Growth
- A Checkup On Managed Health Care
- Select Industries: Minimal Turnover
- Highlighted Attractive Domestic Groups
- The Short Side - Hangs On In September
Quant
Market Internals
- Earnings Momentum - Q2 Reports Below Average But Ahead Of Q1
- Small/Mid/Large Caps - Small Cap Premium Slips To 14%
- Growth Continues Leading In Mid And Small Caps YTD, Large Cap Growth Bounces Back
- S&P 500: Equal Weighted Outperforms In Q3; Maintains Lead YTD
Portfolios
Major Trend
Fund Flow Trends
Estimating the Downside
Appendix
Global Valuations Rising, But U.S. Still At A Premium
The large valuation discount on foreign shares has narrowed a bit, reflecting better relative action in foreign shares over the past 14 months and relatively weaker foreign fundamentals.
Valuations & Future Returns
The U.S. market rates anywhere from mildly overvalued to very overvalued relative to other developed markets. Foreign markets might be the last remaining pocket of yield that isn’t overvalued.
Debt Ceiling—Weakness Before But Strength After Resolution
A look at prior debt ceiling debates and patterns around resolution dates gives no surprises: markets are weaker in the two weeks before but stronger in the month after a resolution is reached.
Playing The Bounce - With A Twist
The historical batting average of this strategy has been decent, with gains in 9 of 18 years along with “excess” returns over the S&P 500 in 10 of 18 years. The best Bounce seasons have occurred when the market was either down for the year through September, or up only modestly.
Is Low Volatility A Warning?
Low volatility isn’t a bearish omen in and of itself, and we found stock market volatility levels to provide much near-term directional help.
Housing: Just Like The Bubbles Before It
Sectors that become the object of obsession during one economic cycle tend to remain cyclically depressed in the following one.
Life Sciences Tools & Services: Poised For Growth
This group moved back into the Attractive range in September. We like the group’s business model, industry M&A momentum, and stocks’ ability to generate free cash flow. All in all, companies in this group are good candidates for investors hunting for High Quality.
A Checkup On Managed Health Care
Despite continued question marks surrounding the effects of Health Care Reform, sentiment seems to have shifted for the better, and a number of broad industry drivers are trending in a promising direction. This group currently has three categories rating Excellent in our domestic group model.
No Taper—More Downside Likely On The 10-Year & Higher Volatility Ahead
A look at prior debt ceiling debates and patterns around resolution dates gives no surprises: markets are weaker in the two weeks before but stronger in the month after a resolution is reached.
Stock Market
- It Doesn’t Get To Look Any Better
- Is Low Volatility A Warning?
- Housing: Just Like The Bubbles Before It
- Global Valuations Rising, But U.S. Still At A Premium
- Valuations & Future Returns
Of Special Interest
Macro Monitor
- No Taper—More Downside Likely On The 10-Year & Higher Volatility Ahead
- Debt Ceiling—Weakness Before But Strength After Resolution
- Inflation Still Going Nowhere In The U.S.
- Risk Aversion Index Falls To New “Lower Risk” Signal
- Our Position on U.S. Bonds
Equity Strategies
- Group Models: Info Tech Tops Domestic, Financials Remain Atop Global
- Life Sciences Tools & Services: Poised For Growth
- A Checkup On Managed Health Care
- Select Industries: Minimal Turnover
- Highlighted Attractive Domestic Groups
- The Short Side - Hangs On In September
Quant
Market Internals
- Earnings Momentum - Q2 Reports Below Average But Ahead Of Q1
- Small/Mid/Large Caps - Small Cap Premium Slips To 14%
- Growth Continues Leading In Mid And Small Caps YTD, Large Cap Growth Bounces Back
- S&P 500: Equal Weighted Outperforms In Q3; Maintains Lead YTD
Portfolios
Major Trend
Fund Flow Trends
Estimating the Downside
Appendix
Perception for the Professional
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