Latest Research

Not even the stock market gymnastics of late-February and March of this year could rival the kind of volatility  we saw in August.

August was an incredibly volatile month, and a month which saw the VIX Index explode to the highest level since 2003.

There has been a lot of talk recently by PMs and market commentators citing Technology as the place to be. However, when the performance is disaggregated, it becomes clear that this broad sector does not in fact look so good. There are pockets of strength (like the Tech…Big Ten), but our message to readers is be careful.

Recession risks don’t disappear the day the yield curve rights itself....the “window of vulnerability” extends for quite some time.

Transparency into the world of the financial derivatives market is notoriously opaque, and the statistics that are available can only offer hints about the level of risk looming over the financial system.

Cash takeovers (including private equity buyouts) provided a very conducive environment for the stock market to rise, but there are now signs that this era of endless cheap money available to corporate and private equity buyers could be coming to an end.

Because Main Street investors have ignored the U.S. stock market during the recent bull market, they are not a useful contrarian gauge. However, in looking at foreigners investing in the U.S. stock market, we may have identified a new source of contrary behavior.

Many quantitative factors, which had previously shown little correlation, suddenly all moved together.

The YTD net redemptions of $11 billion further substantiate the idea that individuals’ lukewarm aversion toward the U.S. stock market is now turning into full-fledged revulsion.

It’s still too early, but at some point in the next 6 to 18 months, going long the homebuilders will probably become the single most contrarian—and potentially highly profitable—thing to do.  But before that happens, we expect to see more blood in the streets.

Expect economy to slow the remainder of 2007, as a result of slower consumer spending as well as housing and auto woes. A 2008 recession is now a strong possibility. 

The Major Trend Index’s bearish reading put us on the right side of the market during the second half of July.

Deteriorating stock market breadth was one of the factors contributing to the overall decline in the Major Trend Index to Negative status. An examination of the current Advance/Decline Lines shows the fade is continuing, and is particularly prevalent in the small cap indices.

The Leuthold Group maintains three short interest models. All three issued timely BUY signals on the market near the summer 2006 lows, but none of these three models provided any hint of the market weakness that recently unfolded in July and August. 

The yield curve has moved away from inverted status, leading many to conclude the possibility of recession has been avoided. However, a look at past recessions reveals that a reversal of an inversion typically occurs prior to the economic decline– ranging from 6 months to over a year in advance.

Following the market rout of recent weeks, we imagine there are many clients sharing our nervous view of the stock market. For those clients, especially those managing long-only equity strategies, we thought it may be helpful to highlight some defensive groups that are scoring well in our group work.

The YTD numbers further advance the notion that Main Street wants little new exposure to the U.S. stock market.

This month, we purchased Mining Equipment, a new thematic group that we have been monitoring internally for most of 2007.

At a time when our Group Selection Scores have been deteriorating among the various Pharmaceutical groups tracked, our numbers for the Generic Pharma group have improved to the point where the group is now rated Attractive.

Bond market targets were increased in July, based on rising global rates, strong global economy and expected inflation acceleration.