Green Book June 2022
A Market That Defies Description
We’re sure that it’s not lost on our readers, but the stock market loves to toy with people. The dollar costs of a decline and the opportunity lost from misplayed manias are bad enough. This particular market, though, seems to take offense when you merely try to label it. Correction or bear? The debate rages on, even though the flagship fund of the lone equity manager who’s a household name is down 75% from its peak—and still raking in money!
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Featured Articles
The Housing Market Is A Trip!
In mid-May, S&P 500 Homebuilders officially became a COVID “round-tripper”: After a one-month COVID collapse of 53% and an ensuing rally of almost 250%, this year’s selloff drove Homebuilders to a May 11th close that was a few ticks below its pre-COVID high. Imagine what might happen if the housing market cracks?
Down, But Hardly “Oversold”
Historically, a good measure of a fully oversold market has been a drop to negative by our VLT Momentum algorithm. YTD, it has been on the downswing, but is still in the vicinity of its highs reached during the Trump Bump. If the May bottom in the S&P 500 turns out to be the final low for the decline, VLT would be one of many suggesting the new rally is among the riskiest in market history.
From Tighter Lending To Margin Pressure
Intuitively, what happens in the credit market is usually echoed by lending activities. This was a key concern when the credit market joined the stock-market rout in May. Another big leg up in real interest costs, through higher rates and/or lower growth, will surely create more headwinds for profit margins.
2022 Versus Y2K
The dot-com bust was so long ago, most are likely unaware just how catastrophic the long-term Tech-stock returns are when measured back to March 2000. Technology has been the third-worst sector performer on a cumulative basis through May 2022; its +5.2% return has barely beaten 10-year Treasuries.
Recession Dashboard Update—More Warning Signs
Overall, there are now more warning signs, but it still doesn’t suggest a recession is imminent.
Reversal Of Fortune For ValMo Investors
From the end of 2020 through May, stocks in the top quintile of both value and momentum have returned 60% versus 7% for the overall universe. That compares to the brutal stretch from 2016-2020 when the only way momentum investing worked was to not only disregard valuations, but to actively buy the most expensive momentum stocks.
Table of Contents
Stock Market
- A Market That Defies Description
- No Time To Dance
- 2022 Versus Y2K
- Should An Inflation Peak Be “Bought?”
- The Housing Market Is A Trip!
- Your “Free Lunch” Comes With A Tab
- The Bear Market In P/E Multiples Rages On
- Nothing Close To A “Thrust”
- What Will A Low “Look Like?”
- Down, But Hardly “Oversold”
Of Special Interest
Macro Monitor
- From Tighter Lending To Margin Pressure
- Recession Dashboard Update—More Warning Signs
- Risk Aversion Index: Stayed On “Higher-Risk” Signal
Quant
Market Internals
- Earnings Momentum
- Small Cap vs. Mid Cap vs. Large Cap
- Growth vs. Value vs. Cyclicals
- Additional Factors
Portfolios
Major Trend
Estimating the Downside
At Random
The Housing Market Is A Trip!
In mid-May, S&P 500 Homebuilders officially became a COVID “round-tripper”: After a one-month COVID collapse of 53% and an ensuing rally of almost 250%, this year’s selloff drove Homebuilders to a May 11th close that was a few ticks below its pre-COVID high. Imagine what might happen if the housing market cracks?
Down, But Hardly “Oversold”
Historically, a good measure of a fully oversold market has been a drop to negative by our VLT Momentum algorithm. YTD, it has been on the downswing, but is still in the vicinity of its highs reached during the Trump Bump. If the May bottom in the S&P 500 turns out to be the final low for the decline, VLT would be one of many suggesting the new rally is among the riskiest in market history.
From Tighter Lending To Margin Pressure
Intuitively, what happens in the credit market is usually echoed by lending activities. This was a key concern when the credit market joined the stock-market rout in May. Another big leg up in real interest costs, through higher rates and/or lower growth, will surely create more headwinds for profit margins.
2022 Versus Y2K
The dot-com bust was so long ago, most are likely unaware just how catastrophic the long-term Tech-stock returns are when measured back to March 2000. Technology has been the third-worst sector performer on a cumulative basis through May 2022; its +5.2% return has barely beaten 10-year Treasuries.
Recession Dashboard Update—More Warning Signs
Overall, there are now more warning signs, but it still doesn’t suggest a recession is imminent.
Reversal Of Fortune For ValMo Investors
From the end of 2020 through May, stocks in the top quintile of both value and momentum have returned 60% versus 7% for the overall universe. That compares to the brutal stretch from 2016-2020 when the only way momentum investing worked was to not only disregard valuations, but to actively buy the most expensive momentum stocks.
Stock Market
- A Market That Defies Description
- No Time To Dance
- 2022 Versus Y2K
- Should An Inflation Peak Be “Bought?”
- The Housing Market Is A Trip!
- Your “Free Lunch” Comes With A Tab
- The Bear Market In P/E Multiples Rages On
- Nothing Close To A “Thrust”
- What Will A Low “Look Like?”
- Down, But Hardly “Oversold”
Of Special Interest
Macro Monitor
- From Tighter Lending To Margin Pressure
- Recession Dashboard Update—More Warning Signs
- Risk Aversion Index: Stayed On “Higher-Risk” Signal
Quant
Market Internals
- Earnings Momentum
- Small Cap vs. Mid Cap vs. Large Cap
- Growth vs. Value vs. Cyclicals
- Additional Factors