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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.

Read this week's Major Trend

Last week we argued that U.S. money growth remains way too high to reasonably expect a peak in consumer price inflation during the next few months. At the peaks of the last five bouts of inflation of 5% or more, real growth in the M2 money supply had turned negative in four cases and had slipped to less than 1% in the other one. Today, real M2 is growing at nearly a 7% rate.

Read this week's Major Trend.

From the start of the inflation upswing this spring, pundits cited well-known disinflationary factors they believe will soon halt the current inflationary upswing—like free trade, the speed of technological advance, and aging populations globally. 

Read this week's Major Trend.

Tesla zoomed 44% higher in October and became the newest firm to reach $1 trillion in market cap. Tesla is now valued at 6.25x the combined weight of Ford and General Motors even though the young upstart sports just one-third of either’s revenue. TSLA and MSFT contributed one-fourth of the S&P 500’s 7% October gain.

Total returns since the end of March: Royal Blue Growth +24%; Small Cap Growth +3%. Small Cap Value continues to be the only style-box that is undervalued compared to its history.

Our Ratio of Ratios’ preferred habitat for the last five months has been a Small Cap discount of 18%-21%. We’re surprised it hasn’t broken even lower as the S&P 500 had a price return of +9.5% over that period compared to +1.2% for the Russell 2000.

With the first month of Q3-21 earnings in the books, our Up/Down ratio reads 2.70. While that falls into the 95th percentile of our 38-year history, it is a far cry from our scale-busting “one-month” figure from July (4.52).

Three groups bumped up to Attractive this month, Insurance Brokers, Thrifts & Mortgage Finance, and Oil & Gas Exploration & Production.

After years of languishing in the rock bottom of Group Selection Scores and sector rankings, Energy exploded higher this month, jumping from 10th lowest (out of eleven broad sectors) to 3rd highest in our composite rankings.

With seasonality once again turning positive and inflation breakeven rates bumping above the recent range, we continue to favor the reflation trade.

We believe concerns about central-bank policy error are mostly a foreign issue, because they have moved much more aggressively than the Fed. The market has shown no indication of a Fed-policy mistake and we are still on board with the reflation trade.

In the June 2018 Green Book, we noted that stocks have shown a fairly reliable correlation with a calendar of an entirely different sort: the solunar calendar. It turns out that the days that our $9.95 “iSolunar” iPhone app predicts to be good ones for fishing (based entirely on phases of the moon) are the same days that stocks have enjoyed the largest average gains!   

October’s nearly +7% S&P 500 surge was impressive, but came a month early—according to the traditional seasonal cycle—which turned bullish on November 1st, and will remain intact for the next six months.

For those believers in a new economic- and stock-market era, there’s good news. The CPI-PPI spread has not been an effective proxy for profit margins during the 1995-to-date “New Era.” But, the failure of an inflation measure during a mostly non-inflationary era shouldn’t come as a surprise.