Green Book September 2024
Paying Tribute
It’s true that we’ve written a few bull-market obituaries throughout the years that turned out to be premature. To make amends, we’ve decided to pen a tribute to the current bull market, whether or not it is about to end (… or even if it might have already terminated, in mid-July).
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Anatomy Of An Easing Cycle
The economy normally fades heading into a series of rate cuts, with higher unemployment and lessening CPI inflation. Risky assets (stocks and credit) do well, and bond yields move lower. Real assets also benefit (gold in particular). On the whole, an easing cycle is favorable for most assets.
Foiling The Fed’s Efforts?
2022-24 monetary tightening has been one of the most aggressive cycles in history, but other stimuli may have muted its impact. First, fiscal policy has been conspicuously looser than any prior period of tight money. Second is the stock-market wealth effect: U.S. equity market cap has leapt nearly $12T (~40% of GDP)—a larger wealth increase (versus GDP) than that of the entire 1982-1987 bull market.
How The Bull Stacks Up
Bull markets that lacked a traditional recessionary “father figure” had shorter lives (33 mos. vs. 61 mos.) and produced gains just one-third the size (+63.6% vs. +186.9%). If today’s SPX bull matched the return of its four most-cyclically relevant predecessors, it would extend until May 2025, and top out at 5,852—8% above its September 6th close. (Not great.)
Research Preview: The Essence Of Quality
With renewed worries about the stock market, investors are pursuing safe-haven ideas—and Quality is a long-time favorite. Yet, despite its defensive appeal, the Quality factor has been a prominent bull-market leader, of late. Are the striking returns of Quality due to outsize exposure to the Mag 7—or have other high-quality stocks been equally fruitful in the latest upswing?
Has The Inversion Ended?
The yield curve is back in the spotlight, as the yield spread between the 10-yr. Treasury and 2-yr. Note finally flipped positive on September 4th, after a record 26 months of inversion. While some economists claim this steepening implies a recession is now imminent, the historical record of such “un-inversions” is a mixed bag—in some cases the recession was still eight months- to over one-year away.
Table of Contents
Stock Market
- Paying Tribute
- How The Bull Stacks Up
- Not Quite Thrust-Worthy
- Valuations: Back To The Brink
- Still Betting Against The “Q’s”
- Has The Inversion Ended?
- Foiling The Fed’s Efforts?
- Have The Dollar Bears Been Right?
- Employment: Normalizing Or Stalling?
- Homebuilders: Are We Too Greedy?
Of Special Interest
Macro Monitor
The Leuthold Refresh
Equity Strategies
Market Internals
- Earnings Momentum - Surprise Bump
- Small Cap vs Mid Cap vs Large Cap
- Growth vs Value vs Cyclicals
- Other Market Undercurrents
Portfolios
Major Trend
Estimating the Downside
At Random
Anatomy Of An Easing Cycle
The economy normally fades heading into a series of rate cuts, with higher unemployment and lessening CPI inflation. Risky assets (stocks and credit) do well, and bond yields move lower. Real assets also benefit (gold in particular). On the whole, an easing cycle is favorable for most assets.
Foiling The Fed’s Efforts?
2022-24 monetary tightening has been one of the most aggressive cycles in history, but other stimuli may have muted its impact. First, fiscal policy has been conspicuously looser than any prior period of tight money. Second is the stock-market wealth effect: U.S. equity market cap has leapt nearly $12T (~40% of GDP)—a larger wealth increase (versus GDP) than that of the entire 1982-1987 bull market.
How The Bull Stacks Up
Bull markets that lacked a traditional recessionary “father figure” had shorter lives (33 mos. vs. 61 mos.) and produced gains just one-third the size (+63.6% vs. +186.9%). If today’s SPX bull matched the return of its four most-cyclically relevant predecessors, it would extend until May 2025, and top out at 5,852—8% above its September 6th close. (Not great.)
Research Preview: The Essence Of Quality
With renewed worries about the stock market, investors are pursuing safe-haven ideas—and Quality is a long-time favorite. Yet, despite its defensive appeal, the Quality factor has been a prominent bull-market leader, of late. Are the striking returns of Quality due to outsize exposure to the Mag 7—or have other high-quality stocks been equally fruitful in the latest upswing?
Has The Inversion Ended?
The yield curve is back in the spotlight, as the yield spread between the 10-yr. Treasury and 2-yr. Note finally flipped positive on September 4th, after a record 26 months of inversion. While some economists claim this steepening implies a recession is now imminent, the historical record of such “un-inversions” is a mixed bag—in some cases the recession was still eight months- to over one-year away.
Stock Market
- Paying Tribute
- How The Bull Stacks Up
- Not Quite Thrust-Worthy
- Valuations: Back To The Brink
- Still Betting Against The “Q’s”
- Has The Inversion Ended?
- Foiling The Fed’s Efforts?
- Have The Dollar Bears Been Right?
- Employment: Normalizing Or Stalling?
- Homebuilders: Are We Too Greedy?
Of Special Interest
Macro Monitor
The Leuthold Refresh
Equity Strategies
Market Internals
- Earnings Momentum - Surprise Bump
- Small Cap vs Mid Cap vs Large Cap
- Growth vs Value vs Cyclicals
- Other Market Undercurrents
Portfolios
Major Trend
Estimating the Downside
At Random
Perception for the Professional
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