Green Book August 2024
Getting Carried Away
The Bank of Japan’s move to life rates to 0.25% was deemed the end of the “yen carry trade,” and it drove the stock market’s fear gauge to levels reserved for history’s worst catastrophes.
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Featured Articles
A Changing Of The Guard
Market pundits christened the violent rotation in stock leadership as the “Trump Trade.” It’s more likely that the incumbent stock leaders were fated to stall before last month’s wild events. Major inflection points are sometimes accompanied by cyclical turning points in the market itself: The Y2K peak occurred just as the market broadened after two years of hyper-concentration.
A Tale Of Two Bulls
The Lucky Bull born in March 2020 produced a 114% SPX gain during its short time in the pasture. The Luckless Bull conceived in October 2022 produced an index gain of 58% as of its July 16th peak. If last month’s high becomes the final top for the Luckless Bull, its legacy may be paltry: Current valuations imply the bull’s offspring may suffer from a similarly short lifespan and subdued productivity.
Three Themes To Watch: Recession, Inflation, The Election
Is the market overreacting to recent economic data? Concerns about a growth slowdown are replacing the optimistic outlook of early 2024. Our Recession Dashboard shows increased risks, with notable declines in housing, employment, and consumer confidence. Despite this, equity and credit markets remain resilient. As we navigate these uncertain times, discover how upcoming elections and potential economic policies could shape the future.
Extreme Outcomes Beginning To Moderate
Domestic equities lost a little over 3% in the second quarter. Seven styles posted declines in that range, only to be countered by the continued outperformance of mega-cap growth stocks, which gained almost 10% for the quarter. This odd mix of returns left the S&P 500 up 4.3%, although that was clearly not the central tendency of equities in 2Q24
Mag 7 Haircut
Confidence was shaken in the bulletproof Mag 7 as only Tesla and Apple (the YTD laggards of the esteemed group) escaped what was otherwise a fairly uniform 5-6% haircut. Those seven magic names shaved 70 bps off the S&P 500’s narrow monthly advance (but still account for half of the index’s YTD performance).
Research Preview: Do Fed Cuts Mean Easy Profits?
With multiple rate cuts nearly assured through year-end, investors can profit from the iron-clad link between changing rates and bond fund prices. But there are two circumstances that introduce complexity: 1) the yield curve will likely un-invert during this process, and the longest duration funds may therefore not experience the strongest price response; 2) potential changes in credit spreads may either enhance or diminish the duration effect felt by corporate bonds.
CPI Report Brings Massive Rotation
The mild CPI report on July 11th kicked off a violent rotation out of mega-cap stocks, with the Russell 2000/S&P 500 performance differential at +4.5% for the day. Other factors reversed as well, with all major styles posting inverse performance relative to their year-to-date numbers.
Table of Contents
Stock Market
- Getting Carried Away
- A Changing Of The Guard
- The Market Never Forgets
- An Inversion To Fret Over, And Another To Cheer?
- Industrial Commodities Look Recessionary
- A Tale Of Two Bulls
- The Slope Of Hope?
- We Did WHAT?!
- Historically Out Of Sync
Of Special Interest
Macro Monitor
The Leuthold Refresh
Equity Strategies
Quant
Market Internals
Portfolios
Major Trend
Estimating the Downside
At Random
A Changing Of The Guard
Market pundits christened the violent rotation in stock leadership as the “Trump Trade.” It’s more likely that the incumbent stock leaders were fated to stall before last month’s wild events. Major inflection points are sometimes accompanied by cyclical turning points in the market itself: The Y2K peak occurred just as the market broadened after two years of hyper-concentration.
A Tale Of Two Bulls
The Lucky Bull born in March 2020 produced a 114% SPX gain during its short time in the pasture. The Luckless Bull conceived in October 2022 produced an index gain of 58% as of its July 16th peak. If last month’s high becomes the final top for the Luckless Bull, its legacy may be paltry: Current valuations imply the bull’s offspring may suffer from a similarly short lifespan and subdued productivity.
Three Themes To Watch: Recession, Inflation, The Election
Is the market overreacting to recent economic data? Concerns about a growth slowdown are replacing the optimistic outlook of early 2024. Our Recession Dashboard shows increased risks, with notable declines in housing, employment, and consumer confidence. Despite this, equity and credit markets remain resilient. As we navigate these uncertain times, discover how upcoming elections and potential economic policies could shape the future.
Extreme Outcomes Beginning To Moderate
Domestic equities lost a little over 3% in the second quarter. Seven styles posted declines in that range, only to be countered by the continued outperformance of mega-cap growth stocks, which gained almost 10% for the quarter. This odd mix of returns left the S&P 500 up 4.3%, although that was clearly not the central tendency of equities in 2Q24
Mag 7 Haircut
Confidence was shaken in the bulletproof Mag 7 as only Tesla and Apple (the YTD laggards of the esteemed group) escaped what was otherwise a fairly uniform 5-6% haircut. Those seven magic names shaved 70 bps off the S&P 500’s narrow monthly advance (but still account for half of the index’s YTD performance).
Research Preview: Do Fed Cuts Mean Easy Profits?
With multiple rate cuts nearly assured through year-end, investors can profit from the iron-clad link between changing rates and bond fund prices. But there are two circumstances that introduce complexity: 1) the yield curve will likely un-invert during this process, and the longest duration funds may therefore not experience the strongest price response; 2) potential changes in credit spreads may either enhance or diminish the duration effect felt by corporate bonds.
CPI Report Brings Massive Rotation
The mild CPI report on July 11th kicked off a violent rotation out of mega-cap stocks, with the Russell 2000/S&P 500 performance differential at +4.5% for the day. Other factors reversed as well, with all major styles posting inverse performance relative to their year-to-date numbers.
Stock Market
- Getting Carried Away
- A Changing Of The Guard
- The Market Never Forgets
- An Inversion To Fret Over, And Another To Cheer?
- Industrial Commodities Look Recessionary
- A Tale Of Two Bulls
- The Slope Of Hope?
- We Did WHAT?!
- Historically Out Of Sync
Of Special Interest
Macro Monitor
The Leuthold Refresh
Equity Strategies
Quant
Market Internals
Portfolios
Major Trend
Estimating the Downside
At Random
Perception for the Professional
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