Latest Research

While Wall Street is extremely well represented in the new administration, we doubt that Wall Street’s performance under Trump will come close to that enjoyed under Obama.

Contrary opinion theory is a valuable tool to investors, but today there are so many self-described contrarians that we sometimes struggle to identify what’s “consensus” and what’s “contrary.”

Read this week's Major Trend Index.

In recent years the Fed has been more forthright than ever about the importance of the wealth effect as a transmission mechanism of monetary policy. But this (or any) policy effect hardly exists in a vacuum, and the Fed would do well to recognize that stock market swings have played an increasingly important role in the country’s fiscal balance.

Read this week’s Major Trend Index.

It seems like it’s been ages since investors have been able to get excited about earnings growth, although our October 21st “Chart of the Week” showed that the S&P 500’s current earnings slump has been unremarkable in both depth and duration.

Our July special report “Active vs. Passive: A Three-Club Headwind” studied the recent dominance of passive indexes over actively managed funds.

Read this week’s Major Trend Index.

A stock market wild card in 2017 is the potential for a significant reduction in the corporate tax rate. President-elect Trump’s desire to lower corporate taxes, if implemented, would have multifaceted impacts on businesses.

For nearly three decades The Leuthold Group has tracked its hypothetical industry group portfolios composed of the previous year’s “Dreams” (best performers) and “Nightmares” (worst performers).

Table 6 summarizes annual sector selection and accompanying performance for the “Cheapest Sector” strategy back to 1991.

Not wanting to be seen as shameless shills for momentum investing, we’ve developed a contrarian alternative to the Bridesmaid sector approach that’s delivered even better long-term outperformance. It’s based on the holy grail of value investing: Low P/E.

Table 4 shows the annual sector selection and accompanying performance results for the Bridesmaid approach dating back to 1991.

Our analysis on the Bridesmaid effect originated back in 2006, but was initially based on equity sectors rather than asset classes.

While the consideration of risk seems almost a quaint notion as the bull market nears its eighth birthday, it’s nonetheless worth noting the Bridesmaid allocation strategy has generated a favorable return/volatility trade-off in relation to: (1) the seven candidate asset classes; and, (2) the strategy of owning an asset class with a prior-year total return rank other than #2.

U.S. 10-Year Treasury Bonds—last year’s Bridesmaid holding—eked out a 1% gain in 2016, a disappointing result but one that preserved a streak of positive annual returns dating back to 2001 (Table 2).

The turn of the calendar seems to bring out the inner contrarian in some investors—those who will peruse last year’s list of lagging asset classes looking for rebound candidates.

Let’s think back to February of 2016. Oil was in the high $20’s, people were grappling with the concept of negative interest rates, and banks, especially in Europe, seemed vulnerable once again. Energy, Financials, and Industrials stocks turned a scary start into a respectable year.

Stock market valuations certainly show no lack of investor confidence: each of our “Big Six” valuation measures now resides in either its ninth or tenth historical decile.