Latest Research

With the first month of Q2-21 earnings in the books, our Up/Down ratio reads an incredible 4.52. Since we were building-off one of the weakest readings in this vignette’s history (0.63 from Q2-20), we knew a big number was coming but, still, this is quite a shock.

Fifty years ago this month, Richard Nixon formally suspended the convertibility of U.S. dollars into gold. Editorials commemorating this have tended to have a celebratory tone, and why not? Abandoning the gold standard greatly expanded the arsenals and imaginations of policymakers, both of which have been on historic display over the last 18 months.

Pundits could reasonably argue the market has never been more expensive in light of the prevailing rate of inflation. That’s the conclusion of the “Rule of Twenty,” which proposes that the stock market’s P/E ratio and the trailing 12-month Consumer Price Inflation rate should sum up to 20.

Today’s Peak P/E ratio implies the S&P 500’s ten-year-forward annualized total return will be in the range of -3%. If this P/E ratio turns out to be as deceptively pessimistic as it was at its worst point in history, the S&P 500 could produce an annualized nominal total return of about +5% over the next decade. 

A new market high that is not confirmed by the stocks of companies that “move the goods” is a warning signal. We reviewed the Transports’ action in all years the S&P 500 accomplished a 12-month high during the month of July, like it did this year.

Our Risk Aversion Index moved higher and generated a new “Higher Risk” signal. Within fixed income, we are favorable toward TIPS and cautious on credit.

The Russell 2000 has blown the 14% lead it had built against the S&P 500 earlier this year, and now trails the index by almost 5%. Has that type of intra-year reversal happened before, and, if so, did it portend a major change in leadership?

What matters is whether an inflationary period is driven more by “demand pull” or “cost push.” Demand pull inflationary periods seem far more favorable than cost push periods, which, more often than not, occur in a “stagflation” macro context.

In the week ended July 23rd, the NASDAQ accomplished a rare feat by closing at a 52-week high at the same time that more of its members were pegging 52-week New Lows than New Highs. That last occurred at the exact NASDAQ high preceding the GFC collapse; there was also a timely warning ahead of the crash of 1987.

At the August 5th, S&P 500 bull-market high, seven of our eight bellwethers had failed to make a “confirming” high during the prior month of trading—up from six non-confirmations a month ago. “The dog that didn’t bark” (yet) is the S&P 500 Equal Weighted Index. 

The gap between YOY growth rates in M2 and nominal GDP just flipped negative after four quarters of record-high readings. In other words, the recovering economy is now drinking from a punch bowl that the stock market once had all to itself. Similar drinking binges occurred in 2010 and 2018, both of which then experienced corrections north of 15%.

In 2020, speculative Growth was easily the best-performing portion of the market. However, in 2021, that has reversed: Growth companies with negative earnings are underperforming everything else. 

Read this week's Major Trend.

An unprecedented number of companies are still deep in the red, even while the economy is shrugging off the impact of the pandemic. Small-cap growth companies are showing no sign of a quick recovery.

Make that six consecutive months of advances for the S&P 500. Since the end of January, the index has gained 18% (price return) while our downside-to-median estimates have widened very little, to -43% from -41% (1957-to-date) and to -32% from -29% (new era 1995-to-date).

AdvantHedge was down 0.8% in July, ahead of the inverse S&P 500 (-2.4%), but trailing the inverse Russell 2000 (+3.6%).

The Leuthold Core and Global portfolios both held up well during July in a strong, but primarily U.S. large-cap led market.

Read this week's Major Trend. 

If you want to see a rocket ship, there’s no need to crane your neck upwards to see the latest exploits of our billionaire space cowboys. Rather, look to our earnings glidepath chart and marvel at the contrails of the 2021 full year operating earnings for the S&P 500. 

If you want to see a rocket ship, there’s no need to crane your neck upwards to see the latest exploits of our billionaire space cowboys. Rather, look to our earnings glidepath chart and marvel at the contrails of the 2021 full year operating earnings for the S&P 500.