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On the basis of both Normalized P/E and Price/Book, there’s plenty of runway for EM stocks if they get back to even the midpoint of their 20-year valuation range. Rising commodity prices and a weak dollar would obviously help, and we expect both in the year ahead.

Diversified, multi-asset portfolios have been weak performers for many years. The ultra-flexible, macro hedge-fund manager represents one extreme of the asset allocation continuum. At the other extreme would be the passive holder of multiple asset classes. It’s been a tough three years for this breed, too.

As we start Q3-2020 reporting, our first Up/Down ratio reads 1.14. Although this observation is in the eighth percentile of our 37 years of data, it is shockingly better than the two quarters that preceded it (0.72 and 0.63).

Our Very Long Term (VLT) Momentum algorithm has been a very good “confirmatory” market tool over the years, especially at the onset of a new cyclical bull market. But VLT has proven to be of little to no value in navigating this year’s gyrations. VLT’s latest flip-flops reinforce our view that the market leaderboard is set to be rearranged.

We are cautious near term and recommend playing defense through duration reduction within corporate credit (including both investment grade and high yield).

If there’s an emerging bubble in Growth stock investing, it certainly doesn’t apply to Small Caps. The “usual” premium for Growth over Value within the Small Cap space is nonexistent—both segments look historically cheap.

Stock market manias thrive on buzzwords, and if there’s a single one that captured the essence of the late 1990s’ boom it was “productivity.” In today’s version, our top candidate is “liquidity”—and we doubt anyone would argue.

There are numerous ways to measure sector valuation, but we found the simplest one: sector weights. Overall, using simple sector weights, we arrive at the same conclusions about sector valuation as one would using conventional valuation metrics.

The lack of a “Blue Wave” doesn’t undermine our belief that a big stock market rotation is underway. The valuation gap between Large Cap Growth and other U.S. (and foreign) market segments is so large that it’s become unsustainable.

Donald Trump will be remembered as the most polarizing political figure in U.S. history, but he was an unwitting consensus-builder on an issue that was long thought to be “settled science.”

There continues to be little movement among the sector rankings. While Health Care, Information Technology, and Consumer Discretionary remained the top-three rated sectors (out of eleven total), Consumer Staples and Communication Services swapped spots this month and moved into 4th and 5th, respectively. The bottom-three rated sectors, Real Estate, Energy, and Utilities are the same as last month, with Energy returning to the bottom.

We crunch some numbers to see how 2020’s stock market trends have fared compared to the typical election year, and we slice and dice past post-election year trends at the sector and industry group levels to look at potential opportunities in the coming year.

Last month, we briefly discussed a burgeoning investment vehicle—Special Purpose Acquisition Companies (SPACs), also known as “blank-check companies.” Since the sole purpose of a blank-check company is to find an operating business to merge with, and subsequently bring it public, the best method to gain some understanding about the outcome of these relationships is to look at past deals.

AdvantHedge was down 0.3% in October. It trailed the inverse S&P 500 (+2.7%), but outperformed the inverse Russell 2000 (-2.1%).

The Leuthold Core and Global Portfolios both had negative returns in October, with Core fared better due to more favorable performance from its underlying equities. 

Read this week's Major Trend.

Dividends are a cornerstone of equity investing and, over the decades, they have produced a significant portion of the stock market’s total return. Previous Leuthold research has identified a strong dividend influence on total returns for small and mid-caps; a client recently asked if we found the same effect in the universe of S&P 500 companies. Specifically, have S&P 500 dividend-payers outperformed non-payers, and, second, have dividend growers outperformed non-growers?

Late-month weakness led to another monthly decline in the S&P 500. Now down roughly 7% since the end of August, our downside-to-median estimate has moved from -42% to today’s -36%.

Read this week's Major Trend.