Some analysis has recently emerged pointing to a bleak decade for equities, and US equities in particular. Mark Hulbert highlighted a model outlined in the Philosophical Economics blog, entitled "the single greatest predictor of future stock market returns". The model is based on US household allocation to equities and uses the levels as a contrarian...
Mid-week market update: I have some good news, and bad news about a second wave. The bad news is new case counts are rising dramatically in the US. The good news is fatalities are not rising. Here is some more bad news. Marketwatch reported that Dr. Anthony Fauci, head of infectious diseases at the...
Last week, I discussed the professional career risk challenges in this market (see What professional career risk looks like). During these unusual periods of severe bifurcation between valuation and macro risk and price momentum, the investment professional is forced to make a decision based on what he believes the dominant investment regime will be in...
This is a market that defines professional career and business risk. Should investors adopt a momentum approach, or maintain caution in the face of valuation and macro risk? The stock market has recovered from the COVID-19 crash. The NASDAQ has made a fresh all-time high, and the SPX was briefly positive for 2020. Price momentum...
Joe Biden has officially clinched the Democratic nomination for president, and his odds of winning the Presidency in November have been steadily rising, and he is now at 54% on PredictIt. For the uninitiated, the contract pays off at $1.00 if a candidate wins, so buying the Biden contract at $0.54 implies a 54% of...
I don't usually offer instant reactions to economic news, but the May Jobs Report was a shocker. Non-Farm Payroll gained 2.5 million jobs, compared to an expected loss of -8 million. The Diffusion Index bounced back strongly, indicating breadth in job gains. This was a positive and highly constructive report for the economy....
Mid-week market update: As regular readers are aware, I have been increasingly cautious about the equity outlook for the past few weeks as the market advanced. This has become the Energizer Bunny rally that keeps going beyond expectations. Where will it stop? One of the indicators that I have been keeping an eye on is...
As we progressed through the pandemic induced recession, there have been much discussion about a second wave. Second waves appear in many forms, and they can threaten the current consensus expectation of a V-shaped rebound. Here are some of the second wave risks the market faces. A second wave of COVID-19 infections A...
There has been a recent continuing controversy about the usefulness of forward P/E as a valuation tool in the current recessionary environment. On one hand, past bear markets have typically bottomed out at a forward P/E ratio of 10, with a low of 7 (1982) and a high of 14 (2002). FactSet's reported market rating...
How badly has the pandemic affected the global economy? The United Nations Development Programme (UNDP) has some answers in a recent report. It expects global human development to decline for the first time this year, and EM economies will bear the brunt of the impact. The International Labour Organization (ILO) estimates that up to half...
During past major market bottoms, the outperformance of small cap stocks has coincided with economic rebounds. The relative returns of small and microcaps appear to be trying to bottom. It is time to check in on how these stocks are doing. One way to monitor the progress of these stocks is to check...
This crisis has so far gone through two phases of market psychology. The first phase was panic, as it became apparent that COVID-19 had become a global pandemic, and economies around the world were shutting down. Stock prices rebounded during the hope phase, supported by a flood of fiscal and monetary stimulus, and the hope...
The San Francisco Fed recently created a Daily News Sentiment Index, which is derived from 16 major newspapers. In the space of a few weeks, market psychology has turned from "the market is going to retest the March lows" to "the Fed is supporting prices, valuation doesn't matter, the economy is recovering, - Buy". Regular...
In the past few weeks, a number of investors and strategists have turned bullish. I would like to address the reasoning for the bull case for equities, and the risks to the reasoning. History shows that recessions are bull market killers, and bear markets do not resolve themselves this quickly without a prolonged period of...
Mid-week market update: Back on March 9, 2020, which seems like a lifetime ago, I declared a recession (see OK, I'm calling it). The call was based on the combination of a coronavirus epidemic in China that disrupted supply chains that began to spread to other countries, and tanking oil prices due to a Saudi-Russia...
Stock prices raced upwards last week on the news that the COVID-19 outbreak is improving in New York and other parts of the US, and on the news that the Fed unveiled another $2.3 trillion bazooka of liquidity. Despite these positives, I am not convinced that this bear market has seen its lows yet. This...
I suppose I should be used to it by now. Last week's initial jobless claims spiked to 6.6 million, and the March headline Non-Farm Payroll printed at a dismal -701K. The unemployment rate would have been even worse had the participation rate not fallen and depressed the size of the labor force. My desk has...
Last week's stock market rally appears to be based on the hopes of a V-shaped economic recovery, powered by the combination of all-in monetary stimulus, and fiscal stimulus, as evidenced by a $2 trillion bill passed in Congress. Street consensus is now a V-shaped rebound, with a trough in Q2. This Goldman Sachs forecast is...
In my last post (see 2020 bounce = 1987, or 1929), I had been searching for a template for the current bear market. I had suggested in the past that the roots of this bear has thematic similarities to 2008 (see A Lehman Crisis of a different sort). Today, health authorities are urging the use...
In the past week, I have had several discussions with investors about my recession call (see OK, I'm calling it). Since the publication of that note, Bloomberg Economics' US recession probability estimate spiked recently up to 55%. The odds of a 2020 recession at betting sites are even higher. To reiterate, I would like to...
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