Latest Research

Major market tops are drawn-out processes that can prove costly, and infuriating, to bulls and bears alike. Younger readers might be surprised to know that was true before Twitter.

We assess the effectiveness of using Wall Street analyst opinions as factors in a quantitative stock selection model. Watch for the full report coming next week.

The Leuthold Core and Global portfolios both outperformed their respective 100% equity benchmarks in May as the market rolled over. 

Read this week's Major Trend.

The S&P 500 tumbled 6.6% in May, erasing the previous two months’ gains.

A heightening of the trade war coupled with a much more drastic inversion in the yield curve helped the S&P 500 slide lower in each of the four full weeks of May. The average return of the largest 25 firms in the index was buoyed by non-Tech firms for the first time in recent memory.

Our institutionally-loved Royal Blue Growth stocks were the safe harbor in May; they declined “only” 4.8%. Since the start of 2017: Royal Blue Growth +50%; Royal Blue Value +13%.

Our Ratio of Ratios continues to drill down into Small Cap discount territory that hasn’t been explored since the popping of the dot-com bubble. This vignette was registering a 12% Small Cap premium just eleven months ago.

Our Up/Down Ratio reads 1.13. This paltry figure is in line with the “two-month” figures registered during the earnings recession of 2015-2016.

We don’t like “news-driven” market moves, and it’s pretty obvious that May’s decline was due in large part to the ramp-up in the trade war. That said, trends in the economy and earnings were already weakening prior to the latest escalation.

It’s hard to grow profits when an economy’s resources are already fully employed, a fact we highlighted when the U.S. Output Gap turned positive several quarters ago. Therefore, the first quarter drop in NIPA corporate profits, reported yesterday, shouldn’t have come as a surprise.

Aside from the decidedly bearish action in the Treasury yield curve, U.S. and global money supply growth rates remain sluggish; both the Fed balance sheet and the Adjusted Monetary Base are still in outright decline.

What a difference a year makes! In early 2018 we were celebrating 20% earnings growth, driven by a strong economy and the massive corporate tax cut. Sales were rising at a double-digit rate and the tax burden was shrinking dramatically, setting up one of the best earnings years in history.

Weakness in several coincident economic measures suggest that global-policy tightening over the last 18 months is having an impact. The current Fed policy stance doesn’t lead us to believe much improvement is likely in the near term.

Even our staid and august firm isn’t above a little Game of Thrones clickbait.

After nineteen years in the wilderness, an old king has returned for his throne. The House of Microsoft is once again the most valuable company in the S&P 500 and, as of last month, is the sole occupier of the “4% Club” (i.e., weighting in the index).

The Momentum work has been the largest week-to-week MTI swing factor for many months, and that was the case again last week. The Attitudinal category improved, reflecting increasing investor anxiety.

Late in the cycle, blue chip indexes like the DJIA and S&P 500 can fool investors by hiding subtler deterioration in the broad list of stocks. That’s been underway in the last couple of months, but it’s nothing in relation to the divergence that’s opened in the commodity market, where there’s an almost 20% YTD performance gap between the headline S&P/GS Commodity Index and its non-Energy components (Chart 1).

The six-month stretch beginning in May generally coincides with a narrow stock market in which non-cyclical and low volatility stocks tend to be the winners. Hence, don’t “sell” in May, but rather, tilt away from beta and away from “breadth.” These seasonal switching strategies have 70% batting averages.

Many economists believe U.S. economic growth will reaccelerate in the second half, sending 10-year Treasury bond yields back above 3% late in the year. A forecasting technique with an excellent record, however, suggests the return to 3% won’t occur until late next decade!

Large Cap U.S. Technology has been the place to be this year, but even an “unmanaged” portfolio with a variety of assets has fared well so far in 2019.