Latest Research

While global central banks’ dovish turn provides a supportive backdrop for the risk rally, short-term overbought conditions are everywhere too.

The biggest near-term wild card is the infinitely confusing and hopelessly unpredictable Brexit.

The S&P 500 completed its best two month window of performance since the fall of 2010 and has leveled off at an interesting technical juncture—in line with the three false rallies of late 2018.

Growth stocks reclaimed their dominant position over Value and now lead in every market cap breakdown YTD. Growth also looks overvalued compared to its own history and compared to Value stocks.

This is the fourth consecutive month that our Ratio of Ratios has resided in the Small Cap discount zone. Trailing P/E ratios have surged for Large Caps and Small Caps in the last two months.

Q4’s second month of earnings reports produced an Up/Down Ratio of 1.71. This is the lowest “two-month” figure of the past five quarters and, gasp… dangerously close to our long-term average.

All of the domestic and global quantitative Chart Scores in the Momentum category are now positive and both the Advance/Decline and High/Low figures leave no doubt as to the breadth behind the market’s 10-week rally.

With all the excitement over the Fed’s shift in rhetoric and the excellent subsequent market action, there’s a danger of losing sight of the broader cyclical backdrop for U.S. stocks. Remember, the economy is still operating beyond government estimates of its full-employment potential, and it’s not as if the Fed has actually eased policy—as it did successfully at a similar late-cycle juncture in the fall of 1998 and (ultimately unsuccessfully) in the summer of 2007.

The MTI’s stubbornness during the current rally confirms our overall sense that cyclical risks facing U.S. equities remain high. That said, we have great respect for the action of the market itself—enough so that we’ve allowed net equity exposure in our tactical funds to drift upward.

Momentum is a smart beta factor that gives investors excellent upside participation in rising markets. Most other smart beta factors are defensive plays, so Momentum is the place to be in strong upward moves. Momentum filled that role admirably in recent years, rising 56% from 2016 to the September top, compared to an average of +26% for the other major factors.

Momentum category gain was driven by strength in breadth measures, selected trend models, and most of the Chart Scores.

Currently, the collective intelligence of Wall Street is predicting 6% S&P 500 EPS growth in 2019. It’s also the 61-year average annual growth rate for the index, so how wrong could it be?

The Research Summary is now available for download on our website for February 2019. The Research Summary provides a synopsis of The Leuthold Group's monthly market outlook.

The Attitudinal category, which tends to vary inversely with the Momentum work, turned negative for the first time since mid-October, suggesting growing investor conviction that the rally will continue.

Last year’s market decline was one of the largest to have occurred without a lengthy-preceding period in which breadth narrowed and Small Caps significantly underperformed.

Commodities were the worst performer among the major asset classes during 2018, with the S&P/Goldman Sachs Commodity Index losing 13.8% on a total return basis.

We’ve written at length about a bear market’s tendency to catalyze major leadership changes—across sectors, styles, and even geographies.

To recap our allocation moves over the last year: We established an initial equity hedge in tactical accounts very close to the January 2018 highs.

There are enough parallels between the 1998 and 2018 market declines that we decided to flesh out the comparison a bit more.

Corporate bonds aren’t the only asset reluctant to embrace the stock market’s latest “all clear” verdict on the 2019 economy.