Latest Research

After a month of Small Cap underperformance versus Large Caps, our Ratio of Ratios has crashed through contemporary lows. On a relative basis, only the three months that followed the onset of the pandemic registered deeper discounts for Small Caps.

After a decent start with the Q3 “one-month” reading, the ratio is back down in familiar territory; every quarter this year has now registered a “two-month” reading between 1.04 and 1.08. Values in that range have always been associated with a recession.

The market has responded quickly to global central-bank pivots, and favorable seasonality can carry the rally a bit further in the near term. However, the risk for a severe recession still looms in the medium term.

Stock market bulls hope for an end to the tightening cycle in the not so distant future. However, the last two rounds didn’t end until the fed funds rate was raised above the prevailing rate of CPI.

The mid-October market bounce extended through November. The S&P 500’s monthly gain (+5.4%) stretched both of our downside-to-median estimates by congruent amounts. Since September 30th, downside for our “New Era” (1995-to-date) weighted average widened from -5% to -17%.

Read this week's Major Trend.

This earnings season has not been free of concern, and profit margins are clearly weakening from last year’s highs. Our earnings waterfall template highlights several themes coming out of third quarter results.

A new study looking at the relationship between inflation and profit margins is introduced. The goal is to understand how the latest margin peak was reached in mid-2021 and what impact inflation might have on margin forecasts underlying next year’s earnings estimates. Full report will be sent mid-month.

Read this week's Major Trend.

When Jerome Powell took the reins of the Federal Reserve in early 2018, many commentators cheered the fact that he does not possess a Ph.D. in Economics. It will be many, many years before historians are able to conclude whether that’s a good or bad thing.

Yesterday’s action, though, left us wondering whether Powell might stealthily be in the process of earning a different designation—that of Chartered Market Technician (CMT). 

Read the latest MTI update...

Read the latest MTI update...

The 2022 bear market has been driven by collapsing valuation multiples, particularly for expensive growth stocks and unprofitable companies. Coming into the year, U.S. stocks stood as one of the most egregiously valued equity markets around the world, motivating investors to look elsewhere for more reasonably priced alternatives. Fortunately, international stock markets offered much better valuations that could serve as havens from the coming U.S. valuation collapse. Unfortunately, the strategy of seeking refuge in moderately priced foreign markets was foiled by an unusually strong U.S. dollar, leading us to take a closer look at how moves in the USD affect investment outcomes for domestic investors.

Our studies of economic and stock market history are meant to provide perspective, not an investment roadmap. But occasionally a current trend will resemble the past so closely it’s eerie.

Take the current inflation cycle. If (as we believe) June’s CPI inflation rate of 9.1% represents the peak for this business cycle, then many of its characteristics have lined up almost perfectly with the “average” of past inflationary episodes.

Read this week's Major Trend. 

Read this week's Major Trend update. 

The bond market bubble has popped, and forward-looking Treasury returns are no longer a disaster. We aren’t suggesting one pile into them with yields near 4% and inflation around 8%, but we think they have suffered a much more substantial de-rating than large-cap stocks.

Time cycles have been spot on in 2022, with the stock market declining through the mid-year months (May-October) of a mid-term election year. But November 1st saw the opening of the market’s most bullish window according to the same patterns.

Thanks to the 2009-2021 experience, an entire generation of investors can’t distinguish between a stock market that’s down in price and one that’s actually “cheap.” The current bear market seems on course to make that distinction relevant again.

Some have speculated that 2022 might have been the kick-off for a decade-long era in which the broad stock market indexes will make essentially no progress, like 1966-1982. However, that earlier experience provided opportunities within other market segments, which will also stand a much better chance in coming years.