Green Book September 2023
New Policies, Old Outcome
At long last, we’ve exited an investment world that was defined for more than a decade by zero interest rates and Quantitative Easing. Or so we thought.
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Confidence Cracking?
After hovering near the highs of the post-COVID expansion, in August, the Present Situation Index turned down, and is now below its 10-month moving average for the first time since December. When this measure is at a high level, but declining (like now), it is the worst backdrop for stock performance.
Small Caps: Unresponsive
Based on successful Russell 2000 VLT BUY signals, 1982-forward, the index had gained an average of 23% eight months later—and none had a losing position. Since the VLT BUY on January 31st (eight months ago), the Russell 2000 has dropped 3.9%. Furthermore, Small Caps bottomed 15 months ago, and in a normal cyclical bull market, the Russell 2000 would be up 50-70% by this time.
Don’t “Bank” On A New Bull…
The Broker-Dealer Index (XBD) is one of just a handful of indexes to surpass its old bull market high, but its gains are far below average for the first year of a major advance. Meanwhile, the BKW Bank Index (BKX) is revisiting price levels of 25 years ago—it is just one percent above the average daily close in 1998. Yes, as a group, the big banks have been dead money for 25 years (excluding dividends).
New Cycle High In U.S. 10-Year Yield
The 10-year yield made a new cycle high just before the Jackson Hole meeting. That is significant, as it not only broke the lower-high-lower-low pattern since last October, but also rejected the hypothesis, “we have seen the cycle high in interest rates,” which was the consensus at the start of 2023.
Research Preview: Checking Out Buffer Funds
Option collar strategies provide a defined outcome on the date of maturity, but the value from inception to maturity varies. In the case of an extreme market move either direction, a collar strategy will not capture the fullness of the fluctuation early in its lifecycle, but should reach its cap/floor value as maturity nears.
Table of Contents
Stock Market
- New Policies, Old Outcome
- Fooling Ourselves?
- A Flawed Model Proves Our Point
- The LEI Clock Is Ticking
- Labor Market Begins To Labor...
- Small Caps: Unresponsive
- Confidence Cracking?
- Don’t “Bank” On A New Bull…
- Calibrating The Curve
Of Special Interest
Macro Monitor
The Leuthold Refresh
Equity Strategies
Market Internals
- Not Bouncing Back
- Small Cap vs. Mid Cap vs. Large Cap
- Growth vs. Value vs. Cyclicals
- Additional Factors
Portfolios
Major Trend
Estimating the Downside
At Random
Confidence Cracking?
After hovering near the highs of the post-COVID expansion, in August, the Present Situation Index turned down, and is now below its 10-month moving average for the first time since December. When this measure is at a high level, but declining (like now), it is the worst backdrop for stock performance.
Small Caps: Unresponsive
Based on successful Russell 2000 VLT BUY signals, 1982-forward, the index had gained an average of 23% eight months later—and none had a losing position. Since the VLT BUY on January 31st (eight months ago), the Russell 2000 has dropped 3.9%. Furthermore, Small Caps bottomed 15 months ago, and in a normal cyclical bull market, the Russell 2000 would be up 50-70% by this time.
Don’t “Bank” On A New Bull…
The Broker-Dealer Index (XBD) is one of just a handful of indexes to surpass its old bull market high, but its gains are far below average for the first year of a major advance. Meanwhile, the BKW Bank Index (BKX) is revisiting price levels of 25 years ago—it is just one percent above the average daily close in 1998. Yes, as a group, the big banks have been dead money for 25 years (excluding dividends).
New Cycle High In U.S. 10-Year Yield
The 10-year yield made a new cycle high just before the Jackson Hole meeting. That is significant, as it not only broke the lower-high-lower-low pattern since last October, but also rejected the hypothesis, “we have seen the cycle high in interest rates,” which was the consensus at the start of 2023.
Research Preview: Checking Out Buffer Funds
Option collar strategies provide a defined outcome on the date of maturity, but the value from inception to maturity varies. In the case of an extreme market move either direction, a collar strategy will not capture the fullness of the fluctuation early in its lifecycle, but should reach its cap/floor value as maturity nears.
Stock Market
- New Policies, Old Outcome
- Fooling Ourselves?
- A Flawed Model Proves Our Point
- The LEI Clock Is Ticking
- Labor Market Begins To Labor...
- Small Caps: Unresponsive
- Confidence Cracking?
- Don’t “Bank” On A New Bull…
- Calibrating The Curve
Of Special Interest
Macro Monitor
The Leuthold Refresh
Equity Strategies
Market Internals
- Not Bouncing Back
- 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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