Green Book January 2023
In No Hurry To Nowhere
With the stock market horrors of 2022 already well-lamented by others, we tried hard to a come up with a longer-term, cheerier take on the recent state of things. We’ll confess... it was challenge.
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Featured Articles
A “Curve”-Ball We Didn’t See Coming...
Market veterans know there’s just one thing more probable than a recession after the yield curve inverts: Yield curve denial among a large group of sell-side economists and market strategists! Indeed, the earliest of those dismissals occurred last March—a month before the first of more than a dozen iterations of a yield curve inversion.
The Yield Curve And The Problem Of Timing
Frequently, there’s money to be made in the stock market in the months following the initial curve inversion. After the inversions of August 2006 and June 2019, the S&P 500 rallied another 23% and 19%, respectively, into its final bull market high. If this cycle plays out in textbook fashion, the business-cycle peak would arrive in September.
Research Preview: An Epic Comeback
Style rotation powered S&P 500 Value to a 24.2% advantage vs. Growth, while DM large-cap Value earned a 20% return spread against Growth. Small-cap spreads favoring Value were also in the double-digits, but narrower because small-cap Growth wasn’t exposed to the collapse of mega-cap Tech.
A One-Hundred-Year Market Echo
Hopes that this decade might see a repeat of the “Roaring Twenties” took a hit last year. But there’s plenty of time to recover, and bulls will be encouraged to learn that cumulative stock market performance for this decade, thus far, is better than at the same point in the Roaring 1920s.
2022 Asset Allocation Review
We’ve heard for eons that “Low bond yields justify high equity valuations.” Value-conscious investors might have described this conundrum another way: “Low future returns in one asset class justify low future returns in another.” (Mysteriously, only the first rendition became a CNBC catch-phrase.)
Another Misfire?
A signal from the newest addition to our Technical category seems to have gone awry. On November 30th, the percentage of S&P 500 stocks trading above their 50-day moving average topped 90%, thereby issuing the second “breadth-thrust” signal in four months.
2023 Time Cycles: Two Outta Three Ain’t Bad
2022 was a nasty year for the stock market, but a wonderful one for market numerologists. This year is a different story. Two of the three calendar patterns are bullish, including the one in which we put the most stock (pun intended): The Presidential Election Cycle.
Table of Contents
Stock Market
- 2022 Asset Allocation Review
- In No Hurry To Nowhere
- A “Curve”-Ball We Didn’t See Coming...
- The Yield Curve And The Problem Of Timing
- A One-Hundred-Year Market Echo
- A 2023 Forecast… From 1875!
- VLT: “A Swing” And “A Miss”
- 2023 Time Cycles: Two Outta Three Ain’t Bad
- Another Misfire?
Of Special Interest
Macro Monitor
- 2022 Surprises & 2023 Time Cycles
- Risk Aversion Index: Stayed On “Lower-Risk” Signal
- Risk Aversion Index: Stayed On “Higher-Risk” Signal
Equity Strategies
Quant
Market Internals
- Looking For A Bright Spot
- Small Cap vs. Mid Cap vs. Large Cap
- Growth vs. Value vs. Cyclicals
- Additional Factors
Major Trend
Estimating the Downside
At Random
A “Curve”-Ball We Didn’t See Coming...
Market veterans know there’s just one thing more probable than a recession after the yield curve inverts: Yield curve denial among a large group of sell-side economists and market strategists! Indeed, the earliest of those dismissals occurred last March—a month before the first of more than a dozen iterations of a yield curve inversion.
The Yield Curve And The Problem Of Timing
Frequently, there’s money to be made in the stock market in the months following the initial curve inversion. After the inversions of August 2006 and June 2019, the S&P 500 rallied another 23% and 19%, respectively, into its final bull market high. If this cycle plays out in textbook fashion, the business-cycle peak would arrive in September.
Research Preview: An Epic Comeback
Style rotation powered S&P 500 Value to a 24.2% advantage vs. Growth, while DM large-cap Value earned a 20% return spread against Growth. Small-cap spreads favoring Value were also in the double-digits, but narrower because small-cap Growth wasn’t exposed to the collapse of mega-cap Tech.
A One-Hundred-Year Market Echo
Hopes that this decade might see a repeat of the “Roaring Twenties” took a hit last year. But there’s plenty of time to recover, and bulls will be encouraged to learn that cumulative stock market performance for this decade, thus far, is better than at the same point in the Roaring 1920s.
2022 Asset Allocation Review
We’ve heard for eons that “Low bond yields justify high equity valuations.” Value-conscious investors might have described this conundrum another way: “Low future returns in one asset class justify low future returns in another.” (Mysteriously, only the first rendition became a CNBC catch-phrase.)
Another Misfire?
A signal from the newest addition to our Technical category seems to have gone awry. On November 30th, the percentage of S&P 500 stocks trading above their 50-day moving average topped 90%, thereby issuing the second “breadth-thrust” signal in four months.
2023 Time Cycles: Two Outta Three Ain’t Bad
2022 was a nasty year for the stock market, but a wonderful one for market numerologists. This year is a different story. Two of the three calendar patterns are bullish, including the one in which we put the most stock (pun intended): The Presidential Election Cycle.
Stock Market
- 2022 Asset Allocation Review
- In No Hurry To Nowhere
- A “Curve”-Ball We Didn’t See Coming...
- The Yield Curve And The Problem Of Timing
- A One-Hundred-Year Market Echo
- A 2023 Forecast… From 1875!
- VLT: “A Swing” And “A Miss”
- 2023 Time Cycles: Two Outta Three Ain’t Bad
- Another Misfire?
Of Special Interest
Macro Monitor
- 2022 Surprises & 2023 Time Cycles
- Risk Aversion Index: Stayed On “Lower-Risk” Signal
- Risk Aversion Index: Stayed On “Higher-Risk” Signal
Equity Strategies
Quant
Market Internals
- Looking For A Bright Spot
- Small Cap vs. Mid Cap vs. Large Cap
- Growth vs. Value vs. Cyclicals
- Additional Factors