Green Book April 2016
Has The Hook Been Set?
Two months ago, we suggested a short-term bounce in oil might prove to be the fundamental “hook” that would rationalize a bear market rally.
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Featured Articles
MTI Climbs To High End Of Neutral Zone
This bullish action forced us to reverse a small mid-month addition to our equity hedge, and net equity exposure in the Leuthold Core and Global Funds is now 46%.
Implications Of Low Growth, Low Inflation, Low Rates
The current environment will likely persist longer than most expect which will put further downward pressure on profit margins. As margins come under pressure, companies increase leverage to prop up ROE. However, the market wants higher duration, not higher leverage.
High Quality Stocks Slightly Underperform YTD
Even though Low Quality spends the majority of time outperforming, investors benefit exponentially from holding High Quality during the bad times.
The Fed’s Capitulation To The Dovish Side— A Win-Win For EM & U.S.
We have mentioned a number of times that China had experienced a very unpleasant “second-hand” tightening due to its peg to the dollar. Its trade competitiveness has suffered tremendously. With a weaker dollar the Chinese Yuan can re-gain some of its competitiveness while maintaining its peg to the dollar. A rare win-win in today’s convoluted world of finance.
Improving Indicator Evidence
Last spring’s “Double Death Cross” in the Dow Transports and Dow Utilities had been partially reversed even before the February low, when the Dow Utilities’ 50-day moving average crossed above its 200-day moving average (thereby issuing a “Golden Cross”). The Dow Transports remain in a bear pattern based on the 50/200-day relationship, but the gap is closing fast.
Insurance Theme Intact Among Top GS Scores
Group Selection (GS) Score strength among insurance-related industry groups has been a long-running theme within our quantitative framework.
Factor Performance Reverses
With the exception of Value, March was a bad month for quantitative factor performance. Every other factor category we follow underperformed, with Momentum posting its second consecutive –5% spread.
Table of Contents
Stock Market
- Has The Hook Been Set?
- Stock Market Observations
- Ruminations On The Correction
- Strength + Weakness = Weakness?
- Improving Indicator Evidence
- Margins: Mean-Reversion Works
- A Turn In Leadership?
- High Quality Stocks Slightly Underperform YTD
Of Special Interest
Macro Monitor
- The Fed’s Capitulation To The Dovish Side— A Win-Win For EM & U.S.
- Risk Aversion Index—A New “Lower Risk” Signal
- U.S. Investment Grade Corporate Bonds: Maintain Favorable
- U.S. Municipal Bonds: Maintain Unfavorable
- U.S. High Yield Corporate Bonds: Maintain Neutral
Equity Strategies
- Insurance Theme Intact Among Top GS Scores
- Update: U.S.-Listed Chinese Companies Going Private
- Highlighted Attractive Groups
Quant
Market Internals
Portfolios
- Core & Global Asset Allocation Portfolios
- Domestic & Global Long-Only Portfolios
- 100% Short Portfolio: AdvantHedge
Major Trend
Fund Flow Trends
Estimating the Downside
At Random
MTI Climbs To High End Of Neutral Zone
This bullish action forced us to reverse a small mid-month addition to our equity hedge, and net equity exposure in the Leuthold Core and Global Funds is now 46%.
Implications Of Low Growth, Low Inflation, Low Rates
The current environment will likely persist longer than most expect which will put further downward pressure on profit margins. As margins come under pressure, companies increase leverage to prop up ROE. However, the market wants higher duration, not higher leverage.
High Quality Stocks Slightly Underperform YTD
Even though Low Quality spends the majority of time outperforming, investors benefit exponentially from holding High Quality during the bad times.
The Fed’s Capitulation To The Dovish Side— A Win-Win For EM & U.S.
We have mentioned a number of times that China had experienced a very unpleasant “second-hand” tightening due to its peg to the dollar. Its trade competitiveness has suffered tremendously. With a weaker dollar the Chinese Yuan can re-gain some of its competitiveness while maintaining its peg to the dollar. A rare win-win in today’s convoluted world of finance.
Improving Indicator Evidence
Last spring’s “Double Death Cross” in the Dow Transports and Dow Utilities had been partially reversed even before the February low, when the Dow Utilities’ 50-day moving average crossed above its 200-day moving average (thereby issuing a “Golden Cross”). The Dow Transports remain in a bear pattern based on the 50/200-day relationship, but the gap is closing fast.
Insurance Theme Intact Among Top GS Scores
Group Selection (GS) Score strength among insurance-related industry groups has been a long-running theme within our quantitative framework.
Factor Performance Reverses
With the exception of Value, March was a bad month for quantitative factor performance. Every other factor category we follow underperformed, with Momentum posting its second consecutive –5% spread.
Stock Market
- Has The Hook Been Set?
- Stock Market Observations
- Ruminations On The Correction
- Strength + Weakness = Weakness?
- Improving Indicator Evidence
- Margins: Mean-Reversion Works
- A Turn In Leadership?
- High Quality Stocks Slightly Underperform YTD
Of Special Interest
Macro Monitor
- The Fed’s Capitulation To The Dovish Side— A Win-Win For EM & U.S.
- Risk Aversion Index—A New “Lower Risk” Signal
- U.S. Investment Grade Corporate Bonds: Maintain Favorable
- U.S. Municipal Bonds: Maintain Unfavorable
- U.S. High Yield Corporate Bonds: Maintain Neutral
Equity Strategies
- Insurance Theme Intact Among Top GS Scores
- Update: U.S.-Listed Chinese Companies Going Private
- Highlighted Attractive Groups
Quant
Market Internals
Portfolios
- Core & Global Asset Allocation Portfolios
- Domestic & Global Long-Only Portfolios
- 100% Short Portfolio: AdvantHedge