Green Book October 2024
Relentless, But Risky
The market’s September gain was its fifth in a row and tenth in the last eleven months. If the S&P 500 is up in October, it will mark the first time since 1942 that each of the seasonally “weak” months (May through October) will have seen a gain.
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Featured Articles
Elections: The Stock Market Knows
An excellent forecaster of election outcomes over the last 100 years is the stock market, itself. Measured over the three-month period through election day, if the S&P 500 has a gain, the incumbent party historically prevails; a negative return predicts a loss for the incumbent. This simple method has correctly identified the White House winner in 20 of the past 24 elections.
Stocks Vs. The Economy
An economic downtown with little or no forewarning from stock prices is possible, but against the odds. Nonetheless, prior to 1950, there were three cases in which stock market gains failed to inoculate the economy against a recession. Today’s the stock market capitalization has become so large relative to the economy that stock price movements affect the outlook for growth and inflation more than ever before.
China’s “Whatever It Takes” Moment—“Believe Me, It Will Be Enough”
Market reaction to the latest flood of monetary and fiscal stimuli has been spectacular. While conviction about Beijing’s attempts to revive its flagging economy has been severely lacking, this time we should believe it. It’s certainly the right medicine China needs and the spark of confidence these actions will ignite should not be underestimated.
Information Technology Falls Out Of Favor
Due to a falloff in our sector rankings, exposure to IT in our equity portfolio has dropped sharply over the past year. Elevated valuations, combined with poor relative strength, overbought signals, and slowing growth are the primary impetus for the declining scores.
Research Preview: Dissecting The Small-Cap Slump
Small caps turned sour in August 2018, and since then, performance has been nothing less than disastrous. Is the enormous shortfall pervasive across small caps in general, or is it due to a top-heavy market with unusually huge returns from a few huge stocks? The answer may be helpful for those contemplating a contrarian position in this unloved corner of the market.
Time To Look Abroad?
Extreme stimulus announced by China had the desired effect of spiking the country’s stock market. The move did not trigger our EM Allocation Model; however, if the reversal is for real, there is plenty of time. The EM P/E multiple gap is so extreme that one wouldn’t miss out if they prefer to wait for more compelling confirmation than the fireworks of the last couple of weeks.
Table of Contents
Stock Market
- Relentless, But Risky
- Bubbling Up!
- The LEI: Historically Out Of Sync
- Job Market Reality Check
- Gaining Wealth, But Losing Ground?
- Elections: The Stock Market Knows
- Time To Look Abroad?
- It’s All Relative
- Stocks Vs. The Economy
Of Special Interest
Macro Monitor
- China’s “Whatever It Takes” Moment—“Believe Me, It Will Be Enough”
- U.S. Election Study Update
- Risk Aversion Index: Maintaining Its “Higher-Risk” Signal
The Leuthold Refresh
Equity Strategies
Market Internals
- Earnings Momentum - Positive Direction
- Large Cap vs Mid Cap vs Small Cap
- Leadership Dynamics: Growth/Value/Cyclical
- Other Market Undercurrents
Portfolios
Major Trend
Estimating the Downside
At Random
Elections: The Stock Market Knows
An excellent forecaster of election outcomes over the last 100 years is the stock market, itself. Measured over the three-month period through election day, if the S&P 500 has a gain, the incumbent party historically prevails; a negative return predicts a loss for the incumbent. This simple method has correctly identified the White House winner in 20 of the past 24 elections.
Stocks Vs. The Economy
An economic downtown with little or no forewarning from stock prices is possible, but against the odds. Nonetheless, prior to 1950, there were three cases in which stock market gains failed to inoculate the economy against a recession. Today’s the stock market capitalization has become so large relative to the economy that stock price movements affect the outlook for growth and inflation more than ever before.
China’s “Whatever It Takes” Moment—“Believe Me, It Will Be Enough”
Market reaction to the latest flood of monetary and fiscal stimuli has been spectacular. While conviction about Beijing’s attempts to revive its flagging economy has been severely lacking, this time we should believe it. It’s certainly the right medicine China needs and the spark of confidence these actions will ignite should not be underestimated.
Information Technology Falls Out Of Favor
Due to a falloff in our sector rankings, exposure to IT in our equity portfolio has dropped sharply over the past year. Elevated valuations, combined with poor relative strength, overbought signals, and slowing growth are the primary impetus for the declining scores.
Research Preview: Dissecting The Small-Cap Slump
Small caps turned sour in August 2018, and since then, performance has been nothing less than disastrous. Is the enormous shortfall pervasive across small caps in general, or is it due to a top-heavy market with unusually huge returns from a few huge stocks? The answer may be helpful for those contemplating a contrarian position in this unloved corner of the market.
Time To Look Abroad?
Extreme stimulus announced by China had the desired effect of spiking the country’s stock market. The move did not trigger our EM Allocation Model; however, if the reversal is for real, there is plenty of time. The EM P/E multiple gap is so extreme that one wouldn’t miss out if they prefer to wait for more compelling confirmation than the fireworks of the last couple of weeks.
Stock Market
- Relentless, But Risky
- Bubbling Up!
- The LEI: Historically Out Of Sync
- Job Market Reality Check
- Gaining Wealth, But Losing Ground?
- Elections: The Stock Market Knows
- Time To Look Abroad?
- It’s All Relative
- Stocks Vs. The Economy
Of Special Interest
Macro Monitor
- China’s “Whatever It Takes” Moment—“Believe Me, It Will Be Enough”
- U.S. Election Study Update
- Risk Aversion Index: Maintaining Its “Higher-Risk” Signal
The Leuthold Refresh
Equity Strategies
Market Internals
- Earnings Momentum - Positive Direction
- Large Cap vs Mid Cap vs Small Cap
- Leadership Dynamics: Growth/Value/Cyclical
- Other Market Undercurrents