Green Book August 2021
Sharing The Punch Bowl?
The gap between YOY growth rates in M2 and nominal GDP just flipped negative after four quarters of record-high readings. In other words, the recovering economy is now drinking from a punch bowl that the stock market once had all to itself. Similar drinking binges occurred in 2010 and 2018, both of which then experienced corrections north of 15%.
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Featured Articles
A Look At The Small-Cap Setback
The Russell 2000 has blown the 14% lead it had built against the S&P 500 earlier this year, and now trails the index by almost 5%. Has that type of intra-year reversal happened before, and, if so, did it portend a major change in leadership?
Sharing The Punch Bowl?
The gap between YOY growth rates in M2 and nominal GDP just flipped negative after four quarters of record-high readings. In other words, the recovering economy is now drinking from a punch bowl that the stock market once had all to itself. Similar drinking binges occurred in 2010 and 2018, both of which then experienced corrections north of 15%.
The “Rule Of Twenty” Revisited
Pundits could reasonably argue the market has never been more expensive in light of the prevailing rate of inflation. That’s the conclusion of the “Rule of Twenty,” which proposes that the stock market’s P/E ratio and the trailing 12-month Consumer Price Inflation rate should sum up to 20.
Not All Inflationary Periods Are Equal
What matters is whether an inflationary period is driven more by “demand pull” or “cost push.” Demand pull inflationary periods seem far more favorable than cost push periods, which, more often than not, occur in a “stagflation” macro context.
Digging Out Of The Red
An unprecedented number of companies are still deep in the red, even while the economy is shrugging off the impact of the pandemic. Small-cap growth companies are showing no sign of a quick recovery.
High Quality Growth Performs Well
In 2020, speculative Growth was easily the best-performing portion of the market. However, in 2021, that has reversed: Growth companies with negative earnings are underperforming everything else.
Testing The Transports
A new market high that is not confirmed by the stocks of companies that “move the goods” is a warning signal. We reviewed the Transports’ action in all years the S&P 500 accomplished a 12-month high during the month of July, like it did this year.
Table of Contents
Stock Market
- Digging Out Of The Red
- Sharing The Punch Bowl?
- Flesh Wounds, Or Something Deeper?
- NASDAQ Natterings
- A Look At The Small-Cap Setback
- Testing The Transports
- What If The Valuation Message Turns Out To Be Really Wrong?
- The “Rule Of Twenty” Revisited
- Golden Milestone
- Smarter Than The Bond Market?
- Liquidity Letdown?
Macro Monitor
Equity Strategies
Quant
Market Internals
Portfolios
Major Trend
Estimating the Downside
At Random
- Cartoon of the Month - August 2021
- The Summer Olympics
- ATTENTION! Your favorite channel may soon be off the air!
- Steve Spurrier Talked A Lot Of Trash
- Housing Market-Heat Check
- In The Garden... From Ed Walker
- Flight Delay… From Ken Cooper
- Men Of The Cloth… From Bill Brewer
- A Classic From The Archives
A Look At The Small-Cap Setback
The Russell 2000 has blown the 14% lead it had built against the S&P 500 earlier this year, and now trails the index by almost 5%. Has that type of intra-year reversal happened before, and, if so, did it portend a major change in leadership?
Sharing The Punch Bowl?
The gap between YOY growth rates in M2 and nominal GDP just flipped negative after four quarters of record-high readings. In other words, the recovering economy is now drinking from a punch bowl that the stock market once had all to itself. Similar drinking binges occurred in 2010 and 2018, both of which then experienced corrections north of 15%.
The “Rule Of Twenty” Revisited
Pundits could reasonably argue the market has never been more expensive in light of the prevailing rate of inflation. That’s the conclusion of the “Rule of Twenty,” which proposes that the stock market’s P/E ratio and the trailing 12-month Consumer Price Inflation rate should sum up to 20.
Not All Inflationary Periods Are Equal
What matters is whether an inflationary period is driven more by “demand pull” or “cost push.” Demand pull inflationary periods seem far more favorable than cost push periods, which, more often than not, occur in a “stagflation” macro context.
Digging Out Of The Red
An unprecedented number of companies are still deep in the red, even while the economy is shrugging off the impact of the pandemic. Small-cap growth companies are showing no sign of a quick recovery.
High Quality Growth Performs Well
In 2020, speculative Growth was easily the best-performing portion of the market. However, in 2021, that has reversed: Growth companies with negative earnings are underperforming everything else.
Testing The Transports
A new market high that is not confirmed by the stocks of companies that “move the goods” is a warning signal. We reviewed the Transports’ action in all years the S&P 500 accomplished a 12-month high during the month of July, like it did this year.
Stock Market
- Digging Out Of The Red
- Sharing The Punch Bowl?
- Flesh Wounds, Or Something Deeper?
- NASDAQ Natterings
- A Look At The Small-Cap Setback
- Testing The Transports
- What If The Valuation Message Turns Out To Be Really Wrong?
- The “Rule Of Twenty” Revisited
- Golden Milestone
- Smarter Than The Bond Market?
- Liquidity Letdown?
Macro Monitor
Equity Strategies
Quant
Market Internals
Portfolios
Major Trend
Estimating the Downside
At Random
- Cartoon of the Month - August 2021
- The Summer Olympics
- ATTENTION! Your favorite channel may soon be off the air!
- Steve Spurrier Talked A Lot Of Trash
- Housing Market-Heat Check
- In The Garden... From Ed Walker
- Flight Delay… From Ken Cooper
- Men Of The Cloth… From Bill Brewer
- A Classic From The Archives