Latest Research

Five springs ago, we couldn’t have imagined we’d still hold near-maximum equity exposure after a near-tripling in the stock market from its Great Recession low. Then again, we wouldn’t have guessed that Fed printing presses would still be whirring so many years after the crisis ended. Coincidence? Probably not.

Although the social media darlings haven’t recouped their losses, the Technology Index moved to new cycle highs in early June.

The notion of “overbought” and “oversold” markets might be the costliest concepts ever developed by stock market technicians. The very words imply some sort of excessive condition that’s prone to naturally self-correct.

Daily stock market volatility has levitated at levels a bit higher than the VIX—in a zone that has historically been “optimal” for short-term performance.

While stock market action YTD has not been quite as “uniform,” the hallmarks of an imminent bull market top are simply not present. The bullish portents apply to intermediate term results, however, they cannot rule out any short-term setbacks (which can appear with no tip-off from breadth or leadership measures).

Great bull markets begin with numbers but end with narratives. The current bull market began with terrific statistics, but the past two years has given way to story-telling that is unimaginative even by Wall Street standards.

The second month of Q1 earnings reports registered an Up/Down Ratio of 1.16. This is far below the long term “two-month” average of 1.52, and ties the lowest “two-month” result since 2009.

We identify the “Old Tech” players that will likely reap the benefits from the ever-growing volume of data being generated, stored, and transmitted on line.

Bull markets rarely come to an end prior to the Transports exhibiting weakness. Their outperformance continues this year, returning an impressive +9.9% through June 4th, almost doubling the S&P 500’s +5.2%. We examine the underlying Transport groups and assess which areas are providing the strength to help sustain the Transportation Index’s leadership.

Two Consumer Staples groups upgraded to Attractive this month, Beverages and Tobacco. The Energy sector saw Integrated Oil & Gas upgraded to Attractive.

Small Caps are selling at a 17% valuation premium relative to Large Caps (19% last month), using non-normalized trailing operating earnings. The Small Cap sell-off over the last three months has pushed us away from the recent peak premium of 23%.

But Momentum turnover of constituents has altered its characteristics – names are now slightly more defensive, cheaper, and larger.

We look at Short Interest Ratios within the S&P 1500 sectors for clues on future market prospects. The Materials sector is one where it has paid to monitor what short sellers are doing (or not doing).

Growth outperformed Value in all market cap subsets: Large Cap, Mid Cap, and Small Cap. It also snapped a five month losing streak with Cyclicals. Despite the reversal, Growth is still lagging YTD, and is extremely undervalued compared to Value.

Beverages, Tobacco, Department Stores, and Diversified Banks.

As the market found a new leg higher the last two weeks of May, the Cap Weighted and Equal Weighted S&P 500 Indexes had uniform advances—just over 2% for the month. The Equal Weighted Index maintains an 80 bps lead YTD.

In the very short term, excessive bearish positions have been reversed so there is less downside pressure on interest rates. Over the intermediate term, incredibly low yields in the Euro-zone help cap the U.S. yield.

With the Taper underway and the back-up in interest rates over the last year, credit conditions have become less-easy for some consumers and small businesses.

Surprising strength in the Yen, a drop in commodities, and slightly wider credit spreads pushed up the index. An increase in risk aversion becomes more likely at the current extremely low level. Caution is warranted.

Although the overall picture remains favorable for high grade credits, the increased exposure to interest rates with an ever thinner spread cushion does concern us. We will monitor closely for potential downgrades.