Latest Research

Can a deflationary outlook coincide with a bullish stance on equity markets? The short answer: YES. Periods of more commonly experienced mild deflation have actually coincided with above average stock returns, especially when deflation occurs outside of a recession.

The Major Trend Index rose 0.01 last week to close out the month of February at 1.11, a reading that, while only mildly bullish, is nonetheless the highest MTI tally since June 2014. Solid gains in both the economic and technical categories more than offset other negative swings during the week.

After breaking into positive territory in the week ended February 13th, the Major Trend Index improved again last week. The Index closed up 0.03 to 1.10, led by a 40-point gain in the Momentum/Breadth/Divergence category. Overall, we’d now consider the MTI and our related stock market disciplines to be moderately bullish and target net equity exposure of 58% in both the Core and Global Funds.

MTI Rose 0.03 to 1.07 - First Positive Reading in Almost Seven Month

The Major Trend Index swung from the low end to the high end of its neutral zone in the latest week, rising 0.08 to 1.04. The past two weeks’ market action (rising stocks, falling bonds) had already driven net equity exposure in the Core and Global Funds to around 53%, and this morning we covered part of our equity hedge to bring net equity exposure to 57% in both funds.

The ease with which the 10-year yield broke the strong 185 bps barrier was simply too hard to ignore. This tells us interest rates will likely go lower before going higher. The current active range is 140-185.

Even after several years of relative outperformance, Airlines currently ranks fourth highest among the 115 groups we track. Our confidence is supported by the compelling fundamental story. Management has been making disciplined decisions in the face of rising demand and falling fuel prices.

We rely on past experiences in Japan, the U.K., and the U.S. to give us clues about the future path of the EU QE.

It’s more complicated than one would think. Besides input costs, one must consider the impact on revenues, and whether various pricing differentials come into play.

While we remained in the Neutral zone throughout January, the margin for error by month’s end had diminished to just 0.01. The neutral zone was designed to withstand a fair amount of market noise, and that’s certainly been a good thing in light of the market chop experienced since November.

Factor performance in January was very similar to how the year ended, with Momentum doing very well and Value struggling.

The market is at a critical juncture with oil-related assets very oversold while equities are holding near all-time highs.

Homefurnishing Retail, Apparel Retail, Systems Software

Has the recent collapse in crude oil prices presented us with a good opportunity for an outright commodity investment? No. Energy stocks aren’t on our radar screen either.

In a cyclical bull market as long and strong as the current one, it’s certainly possible the topping process will be proportionally lengthy and deceptive.

Last year’s economically defensive winners held their grip on stock market leadership in January. This action is consistent with our view that the bull market is an aged, overvalued one that has begun a final “distribution” process that will eventually erupt into a cyclical bear.

We expect a “garden variety” cyclical bear market to break out this year or early next year and present a chart demonstrating the potential path of decline. In the context of the last two decades’ market action, a decline of this variety does not “look” all that significant.

While the collapse of Swiss government bond yields into negative territory was January’s bond market stunner, our “G7” composite 10-year government bond yield reached its own milestone when it closed the month below 1.0% for the first time in post-WWII history.

We’ve been highlighting the overinvestment (or malinvestment) risks in commodity-oriented equity sectors for the past three years, but we certainly did not foresee those risks exploding the way they have in the oil market over the last seven months.