Inside The Stock Market ...trends, cross-currents, and outlook
Stock Market Observations
The S&P 500 has labored beneath its March 1st bull market high for the last two months while underlying breadth and leadership trends have remained mostly favorable.
How To (Almost) Double Your Money In Under Ten Years
Buying the S&P 500 on one of the worst possible days in history ultimately yielded a total return of +87.4% (+6.8% annualized) through the end of April 2017...darn, sounds like an advert for Vanguard!
Estimating The Downside
We remain cyclically bullish on equities, but nonetheless like to engage in occasional downside “target practice” to shape our expectations for the next bear market.
Technology: Popping The “Bubble” Talk
The S&P 500 eclipsed the “Twin Peaks” (2000 and 2007 highs) in 2013, and two years later the NASDAQ topped its 2000 high.
Still In Thrall With Low Vol
Ongoing investor obsession with stability strikes us as considerably more dangerous than the situation in the Tech sector. While many see market parallels with 1999, we instead see a mirror image.
Another Leg Down In Crude?
Remember the special amplifiers used by the fictional rock group Spinal Tap that could be dialed up to eleven? S&P’s decision last year to designate Real Estate as a full-fledged sector means that our GS rankings can now be dialed down to eleven, and unfortunately the Energy sector has been a frequent occupant of that undesirable spot.
Small Cap Seasonality
We’ve seen several pundits’ analyses of the “Sell In May” phenomenon of late, but none of them has addressed the most salient feature of this anomaly, which is that it’s historically been a predominantly Small Cap phenomenon.
The Intelligent Use Of Smart Beta
Quantitative investing has become an integral component of professional investment management, and smart beta funds have become popular vehicles for advisors as they assemble actively-managed client portfolios.
Leverage Factor: A Tailwind For High Quality Stocks?
Following 2016 underperformance, High Quality stocks eked out an advantage over Low Quality stocks to begin 2017 (+5.3% versus +2.1%, respectively). Yet, the “Junk Rally” trend seems difficult to reverse.
Spring Forward, Fall Back?
The S&P 500 has gained about 5% on the year, respectable but hardly consistent with the “melt up” scenario we thought might occur.
Stock Market Observations
Second-half results showed the U.S. emerging from the 2015-2016 profit recession, and our early read is that the first quarter should show more of the same.
What’s Ailing Small Caps?
While the Russell 2000 loss during the 2015-16 correction was almost double that of the S&P 500, the decline did not fully erase the P/E premium Small Caps have enjoyed since the middle of last decade. The premium might need to be entirely erased before a multi-year Small Cap leadership cycle can begin.
The Valuation “Time Clock” Revisited
Based on a median of six measures, today’s S&P 500 valuation profile equates to the one prevailing on August 31, 1997. From there, the S&P 500 rallied >60% over the next 2 1/2 years before peaking. However, the same can’t be said of valuation readings for the “typical” or median stock.
Global Valuation Checkup
Foreign equities beat the U.S. in the first quarter, but the performance gap that’s opened up since the 2007 market highs remains astounding. While foreign equity valuations (especially within EM) have rebounded from February 2016 lows, the bounce has done little to close the enormous P/E discounts relative to the U.S. market.
Crude Still At Risk?
Last month we highlighted the extraordinary performance gap that had opened up between crude oil and the relative performance of Energy stocks.
Cyclicals: Tired Of Surprises?
The tone of global economic reports in the last four months has turned decisively up, sending Citi’s Global Economic Surprise Index to the highest level since mid-2010
Two Charts For Bond Bulls
With U.S. real GDP growing about 2% year-over-year and the rest of the Developed world growing even slower, it’s hard to imagine that economic momentum may be peaking.
Which EPS Are We Talking About?
The distinction between reported GAAP earnings and adjusted operating earnings has long been a source of debate among fundamental investors, and the choice of “E” will materially impact each investor’s view of the market’s P/E ratio.
A “Good Year” To Start The Year
The S&P 500 was up 6.4% YTD through March 3rd, a bit above its average annualized gain of 5.9% since 1926. In other words, 2017 would be a good year if the books were closed today.
A Subdued 8th Birthday Celebration
The hoopla falls short of that which surrounded birthdays #3-#7; based on the flood of assets into passive stock funds, it appears complacency has set in. Current bull close to becoming longest in history.
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