Latest Research

While the market moves back into sell-off mode, everyone seems to be waiting for the inevitable hammer to drop on earnings. If and when that happens, does it give us any insight about performance prospects? Or does it just make forward P/E ratios less attractive?

How far might the S&P 500 fall in a recessionary bear market? The 2002 and 2020 stock market lows were both produced by “recessionary” bears; based on history back to the 1920s, those two lows stand out as the priciest bear market bottoms on record—and it’s not even close.

Aside from a couple specialized approaches, 2022 is shaping up as the second-worst year for “multi-asset” investing since at least 1973. It seems money printing supported more than just the equity subset.

The back end of August saw the S&P 500 give up about half of the 17% gain achieved from June’s closing low. The nine week bear-market bounce was fairly uniform across the major indexes: S&P 400 +19%, S&P 600 +19%, and the Nasdaq Composite +23%. Over the course of the bounce, impressive gains from AAPL +33%, AMZN +40%, and TSLA +44% accounted for roughly a fourth of the S&P 500’s advance.

If the economy slips into recession, the Fed will get all the blame. But it’s worth taking a step back to consider that the die has already been cast: The “capacity” for the U.S. economy to grow is nearly exhausted. Specifically, we’re referring to the capacity available in the labor market.

After surging in July, our Royal Blue Growth segment (-6%) led all other style boxes in August. Since the end of November 2021: Royal Blue Growth = -28%, Royal Blue Value = +3%.

If a new bull began in June, the August 31st “super-oversold” signal would be the first ever during the first three months after a bear market low. In 1962, such a reading occurred in the bull’s fourth month—which is probably why some analysts are now using that year as a possible analog for the rest of 2022.

Like puka necklaces and Ska music, Small Cap stocks are having a hard time coming back into favor. Our Ratio of Ratios has been below its median premium for almost four years. A near-term recession may push this relationship even lower, initially, but could provide a catalyst to return to a more “normal” figure.

“Don’t fight the Fed” was profitable advice dispensed almost daily by bulls in the 2nd half of 2020 and all of 2021. It’s been valuable advice in 2022, as well. However, when the Fed turned hostile earlier this year, the bulls deviated from their own sound advice and looked for new narratives.

With the second month of Q2-22 earnings in the books, our Up/Down ratio is 1.04; levels this low have always been accompanied by an economic recession. It’s hard to make a case why this go-round would be any different.

In January we put it bluntly: “Longer-term time cycles don’t line up for a prosperous 2022.” Not only is it a mid-term election year, but also a Shmita Year. Eight months later, the S&P 500 loss through August has exceeded 10% for only the twelfth time since 1926.

An economy can slow to a standstill on a “real” basis while growing rapidly in nominal terms; it happens in emerging economies all the time. But this dichotomous condition now afflicts most of the developed world.

If there’s a polar opposite to “Goldilocks,” this must be it. Not too hot and not too cold? What about both? Job growth and inflation are hot enough to force the Fed to follow through on its hawkish promises. But the leading indicators continue to warn us of oncoming cold. The odds that the porridge settles at the right temperature, without an intervening recession, look longer by the day.

The risk of a policy error is the top concern as the Fed doubles the pace of Quantitative Tightening, even with the U.S. technically in a recession. Caution is recommended.

Since our July report, market action felt like the pivot had already occurred. However, according to our latest update, numerous measures have moved away from levels that would support a pivot. In other words, the eagerly-awaited Fed pivot has been pushed further out.

We take a look at the impact of past corporate-only tax hikes versus tax hikes of any type (personal income, corporate, capital gains). The gist is, there isn’t much difference at all.

AdvantHedge was up 3.5% in August, trailing the inverse S&P 500 (+4.1%), but ahead of the inverse Russell 2000 (+2.1%). It was a tale of two halves for this equity hedge last month.

Both the Leuthold Core and Leuthold Global portfolios did a good job mitigating losses during the August selloff thanks to low equity exposure and relative outperformance from the stock holdings.

In Q2, all six major style factors outperformed the market. Those results are especially remarkable considering that factor excess returns the past few years have been underwhelming to the point that some investors began to wonder if they still work.

Read this week's Major Trend.