Latest Research

We launched a revamped version of our Major Trend Index. The objective of the new methodology is to increase the flexibility, and even the subjectivity of the MTI. This approach recognizes the “subjective reality,” without forcing us into the tedium of re-weighting sub-factors if they become more or less critical as market dynamics evolve.

While we’re still squeezing into our pants and fretting over our newest chin, the S&P 500’s three-largest firms have been shedding their COVID-weight gain at a measured pace for months. Whereas most people drop the pounds through vigorous activity, these firms have managed to slim down just by standing still.

Read this week's Major Trend. 

Earnings releases (ER) are normally accompanied by large stock-price movements, either to the upside or downside.

Here, we computed the percentage of companies that registered a large move in their stock price on their ER day in the trailing three-month window (500 basis points up OR down). In order to normalize for non ER-day volatility, we computed the percentage of all companies that registered a significant price move on any day during the same period. The difference between the two is shown in Chart 1.

The onset of the COVID-19 pandemic in early 2020 brought a sudden halt to social gatherings, crowd events, and even personal contacts. Experiential business models were hardest hit by forced closures and lockdowns; cruise ships were forbidden to sail, restaurants and theme parks were closed, and air travel and hotel occupancy dwindled, all in an attempt to minimize personal interactions. The stocks of leisure services companies took a beating in March 2020, with Chart 1 documenting the virus’ impact on 34 large and midcap stocks representing this theme.

Read this week's Major Trend. 

A replay of a Zoom Call with Chief Investment Officer, Doug Ramsey where he shared his thoughts and observations on today's market and what he sees looking ahead. The slides are available through the PDF Download.

In the latest Green Book, we noted that Producer Price Inflation does not usually become a challenge for the stock market until its annual rate breaks above 4.0%. The day that comment was published, the year-over-year gain in the March PPI for Finished Goods spiked to 6.0%, thanks mostly to the well-celebrated COVID-19 anniversary-effect. 

Read this week's Major Trend. 

Given that we've recently passed the one-year anniversary of the bear-market bottom of March 2020, we thought it might be interesting to apply our annual Dream/Nightmare exercise to periods following bear-market lows; the idea here being that a major market bottom may serve as a “reset” for new industry trends.

While Value outperformance continued throughout the first quarter, March saw higher-quality Value names take the lead. Prior to March, it was mostly the unprofitable companies that had driven the rotation.

Apple, down a seemingly benign 5% over the last seven months, has seen its S&P 500 weight shrink more than 20%, from 7.3% to 5.7%. We see the same story with Amazon. It has lagged the index by 25% since August and, as of March 31st, its 11-month membership in the 4% Club came to an end.

Small Value, easily the worst style-box since 2017, posted a 21% gain in the first quarter. Getting as far away from Large Cap Growth as possible continues to be the best strategy this year.

During the first quarter, the Russell 2000 (+12.7%) easily beat the S&P 500 (+6.2%) and the Small Cap discount within our L3000 universe shrank significantly, from 18% to 8%.

The final Up/Down ratio for Q4 reads 1.30. This ratio has been below its historical average for the past nine quarters, having trekked from the shadow of the 2018 earnings bonanza right into the pandemic. We expect the reading to be well above-average next month as hurdle rates are set to plummet.

The reflation theme continues to be supported by the powerful policy mix and a successful vaccine rollout. Within fixed income, we are favorable toward TIPS and short-term high-yield credit.

The price action in the DXY Index over the last year shows an uncanny resemblance to the 2017-18 period, both in duration and magnitude. Overall, we believe the dollar could strengthen in the near term, but the longer-term bearish trend remains intact.

Financials and Information Technology remained in the top-two spots this month, with Materials moving up from 6th to displace Consumer Discretionary as the 3rd highest rated. Health Care logged the biggest drop in the ratings, moving from 4th down to 7th. Energy, Real Estate, and Utilities maintained their status quo as the three-worst-ranked sectors—now approaching almost a full year at the bottom.

Historically, companies that have grown their equity share base over the previous year are apt to underperform the broad market in the ensuing months; those that had reduced shares outstanding tend to outperform. However, the opposite happened over the course of the last year. Here we explore the underlying details to see what contributed to this result.

As discussed elsewhere in this section, we had a novel idea for asset allocators tired of chasing the S&P 500: Hop off the treadmill and take a “Donut” break!