Latest Research

For almost nine months, an historic Fed liquidity flood has washed away any economic, valuation, technical, or “sentimental” stock market challenges. Nonetheless, each economic disappointment brings hope this flood will intensify. Those hopes aren’t irrational, because when it comes to any measure of liquidity, rate of change is more important than level.

Many pundits argue that sky-high valuations on stay-at-home stocks “prove” equity investors somehow remain fearful. It’s a nuanced, short-term argument, and there’s merit to it: We’d argue such fears have produced terrific relative values among “SMID” Cap stocks. 

The “Biden Bump” brushed away any lingering technical deficiencies in the stock market, but that happy state of affairs is reflected in extremely frothy-looking short-term sentiment indictors. We are riding the momentum to some extent, but with a lower base-level of exposure.

“Don’t fight the Fed” has been great advice for stock market investors over the last nine months. For 2021, that won’t cut it. It should be: “Don’t believe the Fed.”

Read this week's Major Trend.

With election risk largely in the rear-view mirror, volatility has come down across most asset classes, contributing to the drop in the RAI.

We studied several “popular trades” and there are good reasons to be on board with most of them, but none can be viewed as a no-brainer.

The November 9th Pfizer vaccine news compressed an entire Momentum reversal into one historic day. Factor performance easily broke records looking back over our entire history of data. While great news for the general public, it was awful news for Momentum indicators.

We saw only slight movement among the sector rankings. Health Care, Information Technology, and Consumer Discretionary remained the top-three rated sectors (out of eleven total). The biggest movers this month were (1) Financials moving from the 8th spot to 6th, and (2) Industrials swapping from 6th to 8th. The bottom-three rated sectors, Real Estate, Energy, and Utilities are the same as last month, with Energy returning to the bottom.

We review relative price-action patterns among industry groups belonging to the “reopening economy” theme. These are areas that have been hit hard by the pandemic and should benefit the most from a return to economic normalcy. Conversely, a variety of industries profit on days when it appears that the economic shutdown may be prolonged. Recent performance is incorporated to re-examine the trends.

While quant managers watched their factors failing one by one, and market bears stared at the tape in disbelief, the number of retail investors continued to multiply and we witnessed a dramatic performance advantage for low quality stocks. Are we entering a prolonged “junk-rally” cycle? 

This study examines Value, Small Cap, and Emerging Markets to see if they do, in fact, behave in a correlated manner when viewed as alternatives to Large Growth. The goal is to determine whether this trio of rotational favorites can be considered as broadly-equivalent replacements for LG.

AdvantHedge was down 17.2% in November. It trailed the inverse S&P 500 (-11.0%), but outperformed the inverse Russell 2000 (-18.4%).

The Leuthold Core and Global Portfolios were both sharply higher in November; both had strong underlying equity gains and positive fixed income returns. 

The S&P 500 ripped to new all-time highs in November, posting a 10.8% gain. This move pushed our downside to median estimate for the index from -36% to -41%.

The Equal Weighted S&P 500 completed its third consecutive month of outperformance over the Cap Weighted measure in spectacular fashion. The 3.3% advantage was the largest monthly win for the more democratic flavor since April of 2009.

In a stunning reversal, Small Cap Value has outperformed our Royal Blue Growth by 22% over the last two months. Despite the huge about-face, Small Value is still very undervalued relative to Large Growth.

November’s Small Cap surge hasn’t affected our Ratio of Ratios in a dramatic fashion. Trailing valuations, both for Large and Small Caps, have increased equally in this vignette.

Folding in the second month of Q3-20 reporting produces an Up/Down ratio of 1.08. Keen observers will note little deterioration from the “one-month” figure of 1.14. Historically, there is a 20% haircut to the ratio after adding in the second month of results.

Read this week's Major Trend.