Latest Research

Last month we spent a full page explaining why the underperformance of the S&P 500 High Beta Index was not a bearish portent for stocks (Chart 1).

The S&P 500 and DJIA were up 10-11% on the year through early August—solid, but not quite the “melt-up” scenario we’d envisioned earlier this year…We think S&P 500 2,550-2,600 will be achieved, but not until year-end…

Through early August, the S&P 500 had matched last year’s total return gain of 12%, while futures on that index have gained more than 20% from their after-hours lows made on election night.

Relative performance of active and passive mutual funds is one of the leading story lines in our industry, with passive’s recent advantage leading some to argue that it will be the dominant style forevermore. We disagree, and believe that the active/passive relationship has been, and always will be, cyclical.

Both the Leuthold Core Portfolio and the Leuthold Global Portfolio slightly trailed their all-equity benchmarks during July.

Based on 1957-to-date valuation metrics, the S&P 500 potential downside to median levels is -25%. Secular bear markets, however, fall well below median levels; based on a decline to the 25th percentile of 1957-to-date distributions, the S&P 500 would have to fall 36% to 1,591 (not a prediction).

Read this week's Major Trend Index.

Airlines, Life & Health Insurance, and Household Durables are among the month’s intriguing opportunities based on the current Group Selection (GS) Scores.

Industry trends and the investment merits of companies involved in the asset management business; we contrast ETF providers with firms involved in traditional active management.

With the exception of Low Volatility and Profitability, all other factor categories produced positive factor performance in July. The month was eventful, however, as Momentum produced a +4% spread through July 12th, only to give up more than half of that advantage as interest rates rolled back over.

In mid-2013 we developed a multi-factor model to select individual REITs, figuring that we could exploit an area of the market that is uncrowded from a factor and quantitative standpoint. The results have been outstanding, with the buy-rated securities outperforming the sell-rated securities by 45% since the model went live.

Corporate issuance is likely to decelerate due to slower M&A activity in the second half.

With neither inflation nor recession an imminent threat, the “Goldilocks” scenario remains intact. We continue to view high grade credit favorably within the fixed income space.

Most risk markets have tracked their 2017 time cycle patterns well, but what really stands out is the risk of an autumn correction across all these markets. Caution is warranted going forward.

The U.S. 10-year yield has been stuck in a tight range. Without new major catalysts, we expect the 10-year rate to be collared in two ranges, first 215-240 and, if this is broken, the wider range of 200-260, which is more significant and much harder to break.

The broken record of ‘easy market returns and no market volatility’ plays on. In the nine months since the election, we’ve had eight monthly S&P 500 gains, and a price return of +15.5%. Some large “old economy” stocks helped the Cap Weighted measure outperform in July. Thus far in 2017, the Cap Weighted measure has outpaced the Equal Weighted Average in six of the seven months.

After a brief siesta in June, Growth got back to dominating Value in July. Our Tech-heavy Royal Blue High P/E Tier is now up 18.4% YTD, and its median P/E just passed 31x.

Small Caps are now selling at a 2% valuation discount to Large Caps. It should be noted that this is only the tenth Small Cap discount observation since 2005.

For the first month of Q2 2017 earnings, the Up/Down Ratio sports an above average reading of 1.95. But, we’ve seen this movie before—the two previous quarters started with similar results, only to end poorly.

Read this week's Major Trend Index.