Latest Research

The Economic work continues to erode, and it would now be deeply negative if not for the conventional scoring of our leading inflation measures, in which disinflation is viewed as a good thing. But if our suspicions that this economic cycle will end in a deflationary bust are correct, the conventional interpretation will be wrong.

Yesterday’s S&P 500 new all-time high triggered a few simple internal studies we’ve used to help shape second-half expectations for the stock market.

A less-publicized, but still worrisome “inversion” occurring beyond the Treasury market is that of Consumer Confidence, in which the Conference Board’s Present Situation Index has soared almost 70 points above the Expectations Index. This gap always becomes extreme in the late stages of an economic expansion, and today’s reading surpasses those recorded at all business cycle peaks other than February 2001.

We think the current economic cycle is more likely to end in a deflationary bust than with a bout of late-cycle “overheating,” and analysts and investors should recognize that such a cycle ending could be especially difficult to detect.

One of the virtues of quantitative investing is that it relies on measurable data points that fit smoothly into mathematical models.

We view market and economic risks as high, but the Momentum picture has been convincing enough to prevent us from adopting a maximally defensive posture.

The top-three-rated sectors are Information Technology, Real Estate, and Financials.

Homebuilding rose to rank #1 among our universe in our latest monthly Group Selection (GS) Scores. The industry has staged an impressive turnaround, beginning in October 2018, with strong returns outpacing the S&P 500 by more than 2.5x YTD. 

Our Risk Aversion Index rose sharply in May and generated a new “Higher Risk” signal. We continue to monitor EM assets closely, given their leading tendency. Both Chinese stocks and the Yuan have stabilized a bit lately, which is encouraging... but they are not out of the woods yet.

While the 10Y-3M curve inversion does warrant extra attention, movements in other parts of the curve also need to be taken into consideration.

With multiple indicators flashing signs of an economic slowdown amid trade war uncertainty, investors are betting that an interest rate cut is on the horizon.

Last month’s market action negated the month-old VLT BUY signals for the MSCI EAFE and Emerging Market indexes.

We suggested many years ago that the final top to this historic bull market would be a long and complicated process rather than a clean and singular event.

Last month, we observed that crude oil was the only item propping up broad-based commodity indexes, and that something was bound to give with the U.S. dollar pushing to new highs.

Small Caps typically underperform during a bull market’s final phase, and our findings with respect to the Output Gap aid our understanding of that phenomenon.

While the economy’s move above its full-employment level carries reliably negative implications for profit margins, the impact on equity returns has varied greatly from cycle to cycle.

With the S&P 500 EPS count steadily shrinking and managers getting ever more creative with “adjusted EPS,” corporate profits measured with standardized accounting rules merit a closer look.

We’ve frequently written of the uncanny parallels between the rallies of 2018-19 and 1998-99, but hope that newer readers don’t mistake this analysis as a forecast.

Based on the “granddaddy” of all technical indicators—the daily advance/decline line—we wouldn’t normally be worried that the April 30th high in the S&P 500 could be the final high of the bull market.

It’s telling that the stock market rally off of the Christmas Eve lows—impressive as it was (and, for some investors, painful)—did not manage to lift the Major Trend Index beyond its neutral zone.