Green Book March 2022
Zigs And “Zags”
Like Gonzaga in the NCAA basketball tournament, stock market bulls are set for their first real test in a very long time.
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Featured Articles
Reversion, But To Where?
The concept of “mean reversion” used to help build massive fortunes. Of late, a better mantra has been “maximum attraction,” as valuations and bullish psychology have matched or surpassed excesses of the Y2K Tech bubble. Meanwhile, corporate profit margins, once dubbed “the most mean-reverting series in finance” by Jeremy Grantham, have now topped those seen near the Y2K top by more than 50%.
A 2% Yield Is Higher Than You Think
Prior to the Russian invasion of Ukraine, 10-year Treasury yields bumped above 2% for the first time since July 2019. While that level may strike seasoned investors as insanely low, a 2% yield is now within a few basis points of the ten-year moving average of 2.04%.
Yield Curve Crossing The 50-Bps Rubicon—No Imminent Trouble
The U.S. 10/2-year curve just fell below the key threshold of 50 bps. Over the last 25 years, the yield curve proceeded to invert after this “Rubicon” was crossed. That doesn’t mean imminent trouble. The lead time of a yield-curve signal is lengthy, but it—and real yields—definitely warrant close monitoring.
Sentiment: Why The Long Faces?
Those who want validation to buy aggressively with the market down 10% can reference two historically reliable, intermediate-term sentiment measures with fresh BUY signals—and there’s a third one that’s also very close to triggering a BUY. The problem is that boundaries defining extreme psychology change over time—with a key inflection occurring as the market transitions from bull to bear.
Energy Attains #1 Ranking For First Time Since 2009
The Energy sector has improved across a variety of factor subsets, with particularly large jumps in growth and macro/economic categories. For investors weighing investment ideas in the Energy space, we highlight the three Attractive groups for consideration.
Research Preview: The Evolving ETF Landscape
Exchange Traded Funds came to life in early 1993 with the launch of SPY, a passive fund tracking the S&P 500. Subsequent ETFs followed in the S&P MidCap 400 (MDY), the Dow Jones Industrial Average (DIA), and the NASDAQ 100 (QQQ). Still, six years after SPY’s debut there were only four domestic equity ETFs outstanding at the end of 1999.
S&P/MSCI GICS Changes
It’s that time again when S&P and MSCI reevaluate the Global Industry Classification Standard (GICS) to determine if any changes are warranted. We have a more vested interest in these changes than most, as GICS is the backbone for our industry structure that feeds into the Group Selection (GS) Scores.
Table of Contents
Stock Market
- Zigs And “Zags”
- Isn’t That Super?
- Reversion, But To Where?
- Market Gets A Speeding Ticket
- Inflation: More Lighter Fluid!
- Sentiment: Why The Long Faces?
- Too Early To Buy?
- A 2% Yield Is Higher Than You Think
- Don’t Fight The Tape?
Of Special Interest
Macro Monitor
- Yield Curve Crossing The 50-Bps Rubicon—No Imminent Trouble
- Risk Aversion Index: A New “Lower-Risk” Signal
Equity Strategies
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
Reversion, But To Where?
The concept of “mean reversion” used to help build massive fortunes. Of late, a better mantra has been “maximum attraction,” as valuations and bullish psychology have matched or surpassed excesses of the Y2K Tech bubble. Meanwhile, corporate profit margins, once dubbed “the most mean-reverting series in finance” by Jeremy Grantham, have now topped those seen near the Y2K top by more than 50%.
A 2% Yield Is Higher Than You Think
Prior to the Russian invasion of Ukraine, 10-year Treasury yields bumped above 2% for the first time since July 2019. While that level may strike seasoned investors as insanely low, a 2% yield is now within a few basis points of the ten-year moving average of 2.04%.
Yield Curve Crossing The 50-Bps Rubicon—No Imminent Trouble
The U.S. 10/2-year curve just fell below the key threshold of 50 bps. Over the last 25 years, the yield curve proceeded to invert after this “Rubicon” was crossed. That doesn’t mean imminent trouble. The lead time of a yield-curve signal is lengthy, but it—and real yields—definitely warrant close monitoring.
Sentiment: Why The Long Faces?
Those who want validation to buy aggressively with the market down 10% can reference two historically reliable, intermediate-term sentiment measures with fresh BUY signals—and there’s a third one that’s also very close to triggering a BUY. The problem is that boundaries defining extreme psychology change over time—with a key inflection occurring as the market transitions from bull to bear.
Energy Attains #1 Ranking For First Time Since 2009
The Energy sector has improved across a variety of factor subsets, with particularly large jumps in growth and macro/economic categories. For investors weighing investment ideas in the Energy space, we highlight the three Attractive groups for consideration.
Research Preview: The Evolving ETF Landscape
Exchange Traded Funds came to life in early 1993 with the launch of SPY, a passive fund tracking the S&P 500. Subsequent ETFs followed in the S&P MidCap 400 (MDY), the Dow Jones Industrial Average (DIA), and the NASDAQ 100 (QQQ). Still, six years after SPY’s debut there were only four domestic equity ETFs outstanding at the end of 1999.
S&P/MSCI GICS Changes
It’s that time again when S&P and MSCI reevaluate the Global Industry Classification Standard (GICS) to determine if any changes are warranted. We have a more vested interest in these changes than most, as GICS is the backbone for our industry structure that feeds into the Group Selection (GS) Scores.
Stock Market
- Zigs And “Zags”
- Isn’t That Super?
- Reversion, But To Where?
- Market Gets A Speeding Ticket
- Inflation: More Lighter Fluid!
- Sentiment: Why The Long Faces?
- Too Early To Buy?
- A 2% Yield Is Higher Than You Think
- Don’t Fight The Tape?
Of Special Interest
Macro Monitor
- Yield Curve Crossing The 50-Bps Rubicon—No Imminent Trouble
- Risk Aversion Index: A New “Lower-Risk” Signal
Equity Strategies
Market Internals
- Earnings Momentum
- Small Cap vs. Mid Cap vs. Large Cap
- Growth vs. Value vs. Cyclicals
- Additional Factors