Green Book December 2014
Ain't Nobody Happy in 2014?
Market gains have been less broad than in 2012 and 2013 (the Russell 2000 is 11% behind the S&P). Valuations stretched to the point that the median S&P stock needs to drop -11% just to get back to average bull market peak valuations. Can the surging dollar save Small Caps? US Profit Margins rolling over but some sectors remain strong.
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Featured Articles
MTI Range-Bound In Neutral Zone Throughout November
We don’t yet know whether our second-half adjustments to equity exposure will prove premature or just plain wrong. Our tactical funds remain positioned with below-average net equity exposure of about 50%.
Stock Market Observations
Market gains have been less broad than in 2012 and 2013; market direction and leadership have been mismatched; and quantitative factors have been choppy.
Broadly Expensive — Downside To Past Market Highs (And Lows)
The median S&P 500 stock is now expensive enough that we’re able to estimate its potential downside to prior bull market highs! Based on an average of four valuation measures, the median stock needs to drop about –11% to match the typical valuations at the eve of a cyclical bear market.
Quantitative Factor Performance: What Is Working?
Six of the seven factor categories we track have turned in positive performance so far in 2014; Value is the exception. Lost in the numbers is that most of the value has come from the short quintiles, so it has been hard for managers to take advantage of this trend.
U.S. 10-Year - All About Inflation
The collapse in oil prices has brought down inflation expectations dramatically. Inflation will likely be the single most important driver of interest rates in the next 6-12 months.
QE Success Limited - A Transmission Channel Check
Perhaps the most important is the credit channel; the substantial curve flattening that happened recently in anticipation of the Fed hike next year has made lending standards tighter for small businesses.
Still Bullish On Domestic Oil Refiners
Amidst the Energy sector tumult, the Oil & Gas Refining & Marketing group is the exception.
Retail Groups Rise In The Ranks
A new theme emerging within our GS Scores—Retail related industry groups are flocking to the upper rankings of the scores.
Table of Contents
Stock Market
- Stuck In Neutral?
- Stock Market Observations
- Broadly Expensive — Downside To Past Market Highs (And Lows)
- Margins: Two Interpretations
- Sector Margin Trends
- Can The Dollar Save Small Caps?
- The Dollar And Foreign Equities
- The Surprising Winners In Emerging Markets
- Commodity Sentiment Crushed, Yet Commodity Stock Valuations Above Boom Levels
- Gruber The Guru?
- What To Do With Broken Models?
- Declining Crude Prices Good For Emerging Markets?
Of Special Interest
Macro Monitor
- U.S. 10-Year - All About Inflation
- QE Success Limited - A Transmission Channel Check
- Risk Aversion Index Stays On “Lower Risk” Signal
- U.S. Investment Grade Corporates: Favorable
Equity Strategies
- Still Bullish On Domestic Oil Refiners
- Retail Groups Rise In The Ranks
- Tech Poised To Outperform!
- U.S. IT Companies’ Global Dominance
- Upgraded Attractive Groups
Market Internals
Portfolios
- Core & Global Asset Allocation Portfolios
- Domestic & Global Long-Only Portfolios
- 100% Short Portfolios
Major Trend
Estimating the Downside
At Random
MTI Range-Bound In Neutral Zone Throughout November
We don’t yet know whether our second-half adjustments to equity exposure will prove premature or just plain wrong. Our tactical funds remain positioned with below-average net equity exposure of about 50%.
Stock Market Observations
Market gains have been less broad than in 2012 and 2013; market direction and leadership have been mismatched; and quantitative factors have been choppy.
Broadly Expensive — Downside To Past Market Highs (And Lows)
The median S&P 500 stock is now expensive enough that we’re able to estimate its potential downside to prior bull market highs! Based on an average of four valuation measures, the median stock needs to drop about –11% to match the typical valuations at the eve of a cyclical bear market.
Quantitative Factor Performance: What Is Working?
Six of the seven factor categories we track have turned in positive performance so far in 2014; Value is the exception. Lost in the numbers is that most of the value has come from the short quintiles, so it has been hard for managers to take advantage of this trend.
U.S. 10-Year - All About Inflation
The collapse in oil prices has brought down inflation expectations dramatically. Inflation will likely be the single most important driver of interest rates in the next 6-12 months.
QE Success Limited - A Transmission Channel Check
Perhaps the most important is the credit channel; the substantial curve flattening that happened recently in anticipation of the Fed hike next year has made lending standards tighter for small businesses.
Still Bullish On Domestic Oil Refiners
Amidst the Energy sector tumult, the Oil & Gas Refining & Marketing group is the exception.
Retail Groups Rise In The Ranks
A new theme emerging within our GS Scores—Retail related industry groups are flocking to the upper rankings of the scores.
Stock Market
- Stuck In Neutral?
- Stock Market Observations
- Broadly Expensive — Downside To Past Market Highs (And Lows)
- Margins: Two Interpretations
- Sector Margin Trends
- Can The Dollar Save Small Caps?
- The Dollar And Foreign Equities
- The Surprising Winners In Emerging Markets
- Commodity Sentiment Crushed, Yet Commodity Stock Valuations Above Boom Levels
- Gruber The Guru?
- What To Do With Broken Models?
- Declining Crude Prices Good For Emerging Markets?
Of Special Interest
Macro Monitor
- U.S. 10-Year - All About Inflation
- QE Success Limited - A Transmission Channel Check
- Risk Aversion Index Stays On “Lower Risk” Signal
- U.S. Investment Grade Corporates: Favorable
Equity Strategies
- Still Bullish On Domestic Oil Refiners
- Retail Groups Rise In The Ranks
- Tech Poised To Outperform!
- U.S. IT Companies’ Global Dominance
- Upgraded Attractive Groups
Market Internals
Portfolios
- Core & Global Asset Allocation Portfolios
- Domestic & Global Long-Only Portfolios
- 100% Short Portfolios