Latest Research

The Russell 2000 closed above its January 26th high on Wednesday, and well beforehand bulls had seized upon the secondary stocks’ leadership as evidence that all is right again with both the U.S. economy and stock market...

Last week’s rally succeeded in driving up one of our shortest-term measures of investor optimism, while corporate tax cuts have helped generate the highest readings in the 33-year history of our earnings “breadth” work.

The 2017 run that pushed the nine-year bull market to all-time highs made it very difficult to find anything that looked cheap, and few choices that looked average. Even the Tech bubble of 1999 allowed investors to find moderately priced stocks among the mundane old-economy companies...

An important momentum sub-model, which considers relationships among rates-of-change for the major indexes, slipped to neutral after having been bullish since the spring of 2016. And while this model is whipsaw-prone, it’s generally on the right side of significant market breakouts or breakdowns.

This year we’ve written several notes surrounding the Consumer Discretionary sector’s prominence among our top Group Selection (GS) Scores. This pattern persisted for a fifth consecutive month in April.

Back testing shows stock-level factor alpha can be captured at the country level. With the rapid growth of single-country ETFs, this may prove an efficient, practical alternative to individual stock selection.

The coming months form a bearish cross-section of two of the most prominent calendar anomalies: “Sell In May,” and the Presidential Election Cycle (in which the mid-term year is statistically the weakest). Between the two, we’d have to rate the former as more powerful and statistically persistent.

Consumer Staples has historically been the sector most resistant to intermediate stock market corrections, exhibiting an average “downside capture” of less than 40% during all such declines dating back to 1989.

The first quarter S&P 500 earnings “beat” rate stands to be the highest in history, as any CEO with a pulse has learned to lower the hurdle.

We celebrated the official closure of the GDP Output Gap in December, but that milestone was revised away in April by the statisticians at the CBO through a downward adjustment to the estimated rate of “full employment.”

Question: How can you be cautious on the stock market with recent earnings results so spectacular?

Last October our VLT algorithm recorded a bond BUY signal—one that we said, at the time, conflicted with our outlook.

The consensus view is that the stock market will be fine as long as there’s no recession in sight.The same LEI that has displayed a fine GDP forecasting record has shown essentially no relationship with S&P 500 forward twelve-month performance. In fact the regression line shows a slight negative slope!

2018’s S&P 500 setback qualifies as an “intermediate” correction. Historically, the duration of intermediate corrections is brief, and recovery time to move back above prior highs has also been brief. This year’s retracement route is already among the most meandering of all recovery paths since 1950.

First quarter profits have been terrific, and this quarter’s will be too. Enjoy them, but remember that the market “paid” you for them many months ago. Don’t submit another invoice…

The makeup of Momentum has stayed surprisingly steady through the volatility in 2018, with Info Tech and Health Care maintaining overexposure. Energy is sneaking in, though, and could be poised to take a much larger share.

Consumer Discretionary is the highest-rated sector for the fifth consecutive month; Info Tech and Financials have been trading places between #2 and #3 for five months. Coming in last (again) is Utilities.

YTD, out of the 110 industries, HC Facilities is the fourth best performing group

Volatility has stayed high as political and geo-political concerns linger while the central bank liquidity reduction is underway. 

We expect volatility to stay high and still recommend defensive positions within fixed income.