In light of the dismal performance in the first nine months of a 60/40 portfolio in 2022, it's time to ask, "What's changed and what adjustments should investors make to their portfolios?" The answer is inflation, and it's a game changer. The correlation between stocks and bond increasingly rise as inflation rises. In...
Preface: Explaining our market timing models We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade. The Trend...
Mid-week market update: Here we go again. Just when you thought world events were under control, House Speaker Nancy Pelosi's visit to Taiwan raised the geopolitical risk premium. And just as I predicted on the weekend (see In what world is fighting the Fed a good idea?), we've had a cacophony of Fed...
Mid-week market update: It's always difficult to make a stock market comment on FOMC announcement day. Equity prices can exhibit strong reversals after the announcement and press conference. As well, it's also not unusual for the move to reverse itself the next day. It's not clear whether the 2023 FOMC pattern of weakness into...
Preface: Explaining our market timing models We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade. The Trend...
The Economist is becoming known as a source of the contrarian magazine cover indicator. As the world holds its collective breath for the FOMC decision next week, the recent cover of the magazine begs a number of important questions for investors. How far beyond the inflation-fighting curve is the Fed? What are the likely policy...
An unusual divergence has appeared between the VIX Index and MOVE, which measures the implied volatility of the bond market. While MOVE has spiked, VIX has fallen. The difference in the two indicators can be explained by two forces that affect markets today, namely geopolitical risk and macro risk as defined by the...
In the wake of the hot January CPI print, I have had a number of discussions with readers about the most advantageous way of positioning an equity portfolio in a rising rate environment. The most obvious strategy is to use an allocation similar to the Rising Rates ETF (EQRR) is to tilt towards value and...
Stock market pullbacks happen. The normal equity risk of pullbacks is the price investors pay for better long-term performance. But a recent analysis by Oxford Economics found that the average S&P 500 pullback during non-recessionary periods is -15.4% and -36% during recessions. Here is why this matters for equity investors. The recent peak-to-trough...
In the past week, several readers have asked whether it's too late to be buying financials, value, and other cyclical stocks. In reply, I highlighted the recent Mark Hulbert column, "Value stocks now are beating growth by 10 points, but the easy money might be behind us", namely that the value/growth reversal may not necessarily have...
Preface: Explaining our market timing models We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade. The Trend...
Mid-week market update: Last week, the market was rattled by the prospect of an Evergrande default. This week, it's rising yields. Both the 5 and 10 year Treasury yields surged decisively this week and the 2s10s yield curve has steepened. Are rising yields destined to spook stock prices? Good news, bad...
It is astonishing to see the market narrative shift in the space of only a few months from "inflation is coming" to a growth scare. In late March, the 10-year Treasury yield topped at over 1.7% and the 2s10s yield curve was steepening. Today, the 10-year has decisively broken support and the yield curve is...
It's been over a year since the stock market bottom at the height of the Pandemic Panic. The market consensus has evolved from an early cycle recovery to a mid-cycle expansion, as evidenced by the BoA Global Fund Manager Survey. What that means for investors? Here are the key questions we focus on:...
Mid-week market update: It's always difficult to make any kind of coherent market comment on FOMC meeting days. The market reaction can be wild and price moves can reverse themselves in the coming days. Nevertheless, experienced investors understand that it's not the announcement that matters, but the tone announcement compared to market expectations. Bloomberg...
Remember when I called for a bond market rally (see What a bond market rally could mean for your investments). The 10-year Treasury yield broke support last week and shrugged off a hot CPI print. Is the bond market tempting FAIT, or the Fed's Flexible Average Inflation Targeting framework? Here are some of...
The trader Alex Barrow recently observed that the sentiment backdrop is setting up for a bond market rally. While Barron's is not as reliable as The Economist as a contrarian magazine cover indicator, the stars appear to be lining up for a counter-trend rally in bond prices. Here is what a potential bond...
Jerome Powell may turn out to be the Un-Volcker Fed Chair. Paul Volcker wrung all the inflation expectations out of the system and convinced everyone that the Fed is an inflation hawk. By contrast, Jerome Powell is attempting a mirror image policy of convincing everyone the Fed is an inflation dove. A considerable gulf...
In light of last week's partial NASDAQ reversal, I had a number of discussions with readers about whether the reflation trade has become overly consensus and crowded. To be sure, bond prices have become wildly oversold while the cyclically sensitive copper/gold ratio has surged upward and appears extended. Is the reflation trade, which...
The latest BoA Global Fund Manager Survey shows that respondents believe the biggest tail-risks to be inflation and its effects on the bond market. Are these worries overblown? How will these concerns affect asset prices? How transitory are inflation pressures? Recently, there has been a spate of reports about rising supply...
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