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Trailing EPS that the Street now expects for the twelve months ending November 2022 would not have been achieved until November 2029 if the pre-COVID trend-line EPS growth rate had remained intact throughout the current decade.

The NBER informs us that the economic expansion is only in its sixth quarter. That’s good to know, but we don’t think investors should be positioned nearly as aggressively as such a statistically-youthful recovery would normally mandate. 

Causation between the economy and financial markets is never a clear thing. The optimistic group formerly known as “Team Transitory” believes a peak in the inflation rate is near, presumably clearing the way for even greater P/E multiple expansion than already seen in this cycle.

There has been a torrent of new policies coming out of China recently. The goal of this report is to disentangle these seemingly random or even nonsensical policy moves and present a clearer roadmap of what China is thinking and doing.

We don’t profess to be professional inflation forecasters, but are struck by a sort of “temporal” mismatch in the arguments used by those who believed the inflation pick up would be temporary. Specifically, the most commonly-cited bullish inflation arguments have been secular in nature, based on long-term trends in technological innovation, demographics, and free trade.

With consumer price inflation raging at 6.2% and few indications of an imminent rollover, Jay Powell has waved the white flag and retired the ill-begotten “transitory” descriptor. The timing of Powell’s concession is intriguing—perhaps he’s a fellow follower of a simple inflation model: the Output Gap.

How high can corporate profit margins go? The third quarter saw a new record of 11.0% in NIPA “all economy” after-tax margins, and figures for the S&P 500, due out in a few weeks, will also set a record.

There should be a name for the syndrome suffered by foreign stock investors over the last decade or so. “Groundhog Day” doesn’t quite cut it, because that event repeats only once a year. It seems like this time of year we always feature a chart showing a healthy YTD double-digit gain in the S&P 500, along with a bond-like gain in EAFE, and a bond-like gain or loss in the MSCI Emerging Markets Index.

The extra months of QE “auto-pilot” failed to support some of the themes we’d have thought were the most likely to benefit from it—including IPOs, SPACs, Bitcoin, and the sky-high growers favored by the ARK Innovation ETF. Instead, the smart play with each of these assets was to ignore the ever-expanding Fed balance sheet and sell in February.

The average return of the largest 25 firms ended the month flat. For the first time in 2021, this helped propel the Cap Weighted measure past the Equal Weighted average in the YTD race. The relative gain (+15.5%) enjoyed by the Equal Weighted index over the Cap Weighted measure from 8/31/20 to 5/28/21 has now been more than halved in the last six months.

The resurgence of Growth continues to be an uneven story, as the performance gap between Large and Small Caps widened. Results measured since the end of March: Royal Blue Growth +24%; Small Cap Growth -2%.

On the back of some pretty atrocious Small Cap underperformance in November, our Ratio of Ratios posted its largest Small Cap discount since September of 2020.

With the second month of Q3-21 earnings in the books, our Up/Down ratio is 1.56. This “two-month” reading hovers just above the 38-year average of 1.53 and is the first “near normal” reading  of 2021.

We think 2021 has earned its place in the books as the wildest and most speculative year in U.S. stock-market history, eclipsing even 1929 and 1999. That doesn’t mean 2022 will bring a panic or a crash, maybe just a degree of sobriety.

While retail spending has boosted staples and durables alike, we believe that discretionary durables have been the prime beneficiary of changing lifestyles and spending patterns, with skyrocketing sales and inventory outages that may not reach equilibrium even in 2022. 

Read this week's Major Trend.

Spooked by the new Covid variant and a more hawkish Fed, the S&P 500 gave up its November gains in the last few trading days of the month. Its loss of -0.8% was minimal compared to other market cap tiers.

AdvantHedge was up 6.9% in November, ahead of the inverse S&P 500 (+0.7%) and the inverse Russell 2000 (+4.2%). Expensive, unprofitable stocks sold off aggressively this month, reversing the appetite for speculative stocks that had endured throughout most of 2020, but has stalled out in 2021.

The Leuthold Core and Global portfolios had slightly negative results in November, holding up well considering the damage done to mid-cap, small-cap, and equal-weight indexes.

Read this week's Major Trend.