Latest Research

Market momentum now seems to outweigh simple math in the minds of most investors, and we are not entirely immune. Today our tactical funds are positioned with net equity exposure of 50%, the midpoint of the normal 30-70% range. That’s a higher allocation than if we considered only business cycle dynamics and equity valuations.

Read this week's Major Trend. 

We’d like to remind readers that forwarding our research to unauthorized recipients is a serious offense. That’s especially the case when the recipient happens to be a U.S. economic policymaker.

December’s Of Special Interest provided a recap of our Asset Allocation team’s view of small cap equities, suggesting that small caps had underperformed and reached a valuation discount that made them an interesting contrarian value proposition. Several clients responded with follow-up questions, wondering if the discount valuation of small caps was offset by their typically weaker business models.

Read this week's Major trend. 

During a decade characterized by surging equity markets and the proliferation of smart beta products, the best performing quantitative factor was Sales Stability.

Around the time of Donald Trump’s inauguration in January 2017, we observed that prevailing valuations argued against him witnessing big stock market gains during his first term.

The “robustness” of the “Cheapest Sector Strategy” concept is illustrated by strong results across all rebalancing frequencies.

With the possible diminution of “alpha” in price momentum strategies, we recommend that sector allocators consider approaches that are more countertrend or contrarian in nature.

2019 was the fourth consecutive year of underperformance by the annual Bridesmaid sector pick. Those poor results have trimmed the annualized “alpha” of the strategy to just +2.2% since 1991.

Our work on the Bridesmaid momentum effect dates back to 2006, and was originally based on equity sectors rather than asset classes. Again, the hypothetical approach is to ignore macroeconomic trends, sector fundamentals, valuations, and the like, and to base sector selection solely on the prior year’s sector total return rankings.

We know that risk measurements have become passé, what with the S&P 500 having annualized at +13.6% in the last decade without a single drop of 20%. But the Bridesmaid strategy looks great relative to the available asset classes on a risk-adjusted basis.

Here are the historical annual performance results for the hypothetical Bridesmaid strategy.

For those not blessed with clairvoyant asset selection ability, we’ve developed a simple single-asset portfolio strategy that’s handily beaten the AANA Portfolio and the S&P 500 over the long-term.

During the first five years of our career, we worked for a group of stockbrokers who, by each year’s end, seemed to have been gifted with perfect foresight on the major asset markets. Admittedly, we never saw their clients’ actual returns.

It’s no surprise that U.S. Large Caps were the #1 asset class performer in 2019. We were surprised that last year was the only one of the decade in which the S&P 500 won the annual performance derby. Here we review the annual performance of “Bridesmaid” asset class and sector, “Perfect Foresight,” and Lowest P/E sector.

In the aftermath of the Great Financial Crisis, we reminded investors that it would be historically unusual for the thematic leaders of a bull market to repeat as the winners of the subsequent bull.

We are troubled that the bullish optimism has spilled over into the 2020 estimates for S&P 500 earnings. Zero growth in 2020 is probably not a bad guess for NIPA figures, but S&P numbers don’t always follow suit.

Following the deflationary bust of 2007-2009, the last decade was expected to be one of deleveraging. Only U.S. consumers appeared to get that memo, however.

Economists argue the best thing the stock market has going for it is the continuation of the U.S. economic expansion. Maybe.