Green Book April 2023
One Of A Kind
Steve Leuthold, the founder of our firm—friend and mentor to everyone on our Leuthold team as well as prior employees of the last 40+ years—passed away last month in Carlsbad, California. He was 85. Steve excelled as an investment strategist, asset allocator, equity & fixed income portfolio manager, and short seller—four very different jobs (which now require five of us to execute).
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Featured Articles
Pause, Then “Paws?”
Despite the Fed’s tough-talk about getting the funds rate above 5%, monetary and liquidity measures are significantly less bearish. Thank SVB depositors, who required a bailout big enough to reverse five months of QT in just two weeks. The market reaction looks like that after September 2019’s Overnight Repo-market turmoil, which forced the Fed to end its first experiment with QT.
Yield Curve Re-Steepening—At A Critical Crossroads
We studied market behavior around yield curve re-steepening and identified six historical cases. Of those, three were successful and preceded major recessions. The other three instances failed and reversed to new lows. The gist of the study: We are at a critical crossroads.
Something BAA-d Brewing?
Tightening peaked in Q4-2022, with the BAA yield at 266 bps above its year-earlier level—the most contractionary move since the early 1980s. If the standard lead-time applies, the full impact will be felt in Q4-2023.
Research Preview: Oh Bond Pain
Here we evaluate the returns of fixed-income ETFs since the Fed began its boosting campaign last March; for many mainstream offerings, the picture is not a pretty one. We recap the pain felt by investors in conventional fixed-rate bond funds.
Growth Scare Hits Factors
Volatility returned, as two large bank failures had investors questioning growth expectations. Value was hit the hardest; growth was the main beneficiary.
The Cycle That Never Was
At 144 months, this is now the longest Large-Cap cycle on record, but its dominance will have to prolong to eclipse the second-longest leadership phase (1946-1957), in which Large Caps achieved a 190% performance spread above Small Caps.
Banks: Happy Anniversary!
This year marks the 25th anniversary of a slew of major bank mergers: Wells Fargo/Norwest, Banc One/First Chicago, NationsBank/BankAmerica, Star Bank/Firstar, First Union/CoreStates Financial, and SunTrust/Crestar Financial. Who knew the KBW Bank Index would celebrate the occasion by returning to its price level of that same era?!
Table of Contents
Stock Market
- One Of A Kind
- Pause, Then “Paws?”
- What’s “Priced In?”
- Was That A Pivot?
- Something BAA-d Brewing?
- ISM: Down, But Not Out
- Normalizing The Abnormal?
- The Cycle That Never Was
- QE Fuels Inequality—Even Among Stocks
- Banks: Happy Anniversary!
- Yet Another Thing The Fed Has Screwed Up...
- VLT: You Read It Here Last
Of Special Interest
Macro Monitor
- The MOVE Is Now A Better Risk Gauge
- Yield Curve Re-Steepening—At A Critical Crossroads
- Risk Aversion Index: Stayed On “Higher-Risk” Signal
Equity Strategies
Quant
Market Internals
- Earnings Growth Still Relatively Scarce
- Small Cap vs. Mid Cap vs. Large Cap
- Growth vs. Value vs. Cyclicals
- Additional Factors
Portfolios
Major Trend
Estimating the Downside
At Random
Pause, Then “Paws?”
Despite the Fed’s tough-talk about getting the funds rate above 5%, monetary and liquidity measures are significantly less bearish. Thank SVB depositors, who required a bailout big enough to reverse five months of QT in just two weeks. The market reaction looks like that after September 2019’s Overnight Repo-market turmoil, which forced the Fed to end its first experiment with QT.
Yield Curve Re-Steepening—At A Critical Crossroads
We studied market behavior around yield curve re-steepening and identified six historical cases. Of those, three were successful and preceded major recessions. The other three instances failed and reversed to new lows. The gist of the study: We are at a critical crossroads.
Something BAA-d Brewing?
Tightening peaked in Q4-2022, with the BAA yield at 266 bps above its year-earlier level—the most contractionary move since the early 1980s. If the standard lead-time applies, the full impact will be felt in Q4-2023.
Research Preview: Oh Bond Pain
Here we evaluate the returns of fixed-income ETFs since the Fed began its boosting campaign last March; for many mainstream offerings, the picture is not a pretty one. We recap the pain felt by investors in conventional fixed-rate bond funds.
Growth Scare Hits Factors
Volatility returned, as two large bank failures had investors questioning growth expectations. Value was hit the hardest; growth was the main beneficiary.
The Cycle That Never Was
At 144 months, this is now the longest Large-Cap cycle on record, but its dominance will have to prolong to eclipse the second-longest leadership phase (1946-1957), in which Large Caps achieved a 190% performance spread above Small Caps.
Banks: Happy Anniversary!
This year marks the 25th anniversary of a slew of major bank mergers: Wells Fargo/Norwest, Banc One/First Chicago, NationsBank/BankAmerica, Star Bank/Firstar, First Union/CoreStates Financial, and SunTrust/Crestar Financial. Who knew the KBW Bank Index would celebrate the occasion by returning to its price level of that same era?!
Stock Market
- One Of A Kind
- Pause, Then “Paws?”
- What’s “Priced In?”
- Was That A Pivot?
- Something BAA-d Brewing?
- ISM: Down, But Not Out
- Normalizing The Abnormal?
- The Cycle That Never Was
- QE Fuels Inequality—Even Among Stocks
- Banks: Happy Anniversary!
- Yet Another Thing The Fed Has Screwed Up...
- VLT: You Read It Here Last
Of Special Interest
Macro Monitor
- The MOVE Is Now A Better Risk Gauge
- Yield Curve Re-Steepening—At A Critical Crossroads
- Risk Aversion Index: Stayed On “Higher-Risk” Signal
Equity Strategies
Quant
Market Internals
- Earnings Growth Still Relatively Scarce
- Small Cap vs. Mid Cap vs. Large Cap
- Growth vs. Value vs. Cyclicals
- Additional Factors
Portfolios
Major Trend
Estimating the Downside
At Random
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