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Today, the recession / no-recession call dominates daily market debate probably more than any time since the spring of 2008 (when the economy had been in recession for 4-5 months). We fully expect the U.S. economy to roll over in the next several months.

If today’s stock market is indeed a new bull, its vital signs advise that it is more in need of a coffin than a cradle. Monetary policies, both in terms of rate hikes and the inverted curve, have never been more hostile at this stage of a major stock market upswing.

The month of October gets all the “love,” but since 1990, August has been the cruelest month for stocks. We point this out because calendar patterns lately seem to explain this market better than just about anything else. In 2022, big losses in stocks and bonds arrived right on schedule—during a time of Jewish sabbatical (the Shmita Year).

The active/passive performance derby experienced a severe case of whiplash the last three months. Through the end of the first quarter, market conditions were advantageous for active managers, now the second quarter has revealed a massive shift in favor of passive styles.

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Many investors appreciate the benefit of covered-call strategies, but we wonder how many truly understand the opportunity costs of buy-write funds over time—or under differing conditions. On the surface, these approaches are simple, but they have complicated payoff patterns relative to stock and bond funds.

The S&P 500 has gained 1,000 points (+28%) since recording a contemporary month-end low at the end of last September.

Q2-23 reporting is about halfway complete for firms in the S&P 500. Bottom-up operating EPS estimates for Q2 are once again sliding lower as we wade farther into earnings season. This attrition is not uncommon but it is certainly a break from Q1 announcements, where EPS estimates rose 5% over the course of reporting. Q1’s action was a bullish talking point for many who touted the end of higher-than-normal erosion in forward EPS estimates over the past year. Since peaking in April 2022 at $61.56, Q2’s EPS estimate has shrunk nearly 17% (Chart 1).

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Join us for a Zoom Call with Chief Investment Officer, Doug Ramsey where he will share his thoughts and observations on today's market and what he sees looking ahead.

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After years of wandering in the wilderness, Japanese stocks are leading the world’s developed markets higher in what has been a robust opening half of the year. The table shows Japan leading the world’s ten largest developed markets (as measured by the MSCI family of international indexes) with a 24% local currency return through June, easily outpacing the pack. Even as the MSCI USA index gained 17% by successfully “fighting the Fed” this year, Japan surged another 7% beyond that outstanding result.  We were curious to understand the nature of Japan’s spectacular run in 2023, looking to identify the drivers of this strong and relatively quick jump higher.

We update our annual exercise for the mid-year, reviewing how the industry “Dreams” and “Nightmares” of the previous year have fared in the first half of this year.

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The Major Trend Index currently sits at Neutral, with negative readings from the Valuation, Cyclical, and Sentiment categories offset by the Technical category that, while positive, isn’t as strong as we would expect given the rally since last October. Our tactical accounts are positioned accordingly with net equity exposure at 53%, near the middle of our typical 30-70% range. 

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While we have an above-market weight in Technology stocks in our Select Industries portfolio, it’s doubtful that NASDAQ bulls have drawn much inspiration from these pages of late. But here’s a simple finding to potentially rectify that.

Data included in the accompanying tables are normally placed in the Green Book’s Appendix, but we added them here to make an important point: Deteriorating market breadth and Small-Cap underperformance are not necessarily the same thing.

Although we can’t claim that the 2022 decline purged the economic and stock-market excesses for another multi-year bull, there’s nothing in the action of the S&P 500, itself, that exposes its upswing as fraudulent.

Despite this year’s massive underperformance by the Equal Weighted S&P 500, the median stock doesn’t appear substantially more attractive than the cap-weighted index. Three of five valuation measures are now back in the top decile of readings, which we’d consider pricey in any monetary or economic backdrop.