Deciphering Trumponomics 2.0

The year is nearly over and the U.S. will see Donald Trump in the White House in 2025. Ryan Detrick’s analysis of historical equity returns found that stocks historically do better in the first two years of a president who was re-elected versus a new president in office. The key question is whether Trump 2.0...

Revisiting the Trump trade

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...

Positioning for Trump 2.0

In the wake of Biden’s subpar debate performance and the assassination attempt on Trump, the prediction markets’ odds of a Trump victory in November have substantially risen. Equally important is Wall Street’s reaction, which has investors sitting up to take notice of the implications of a second Trump Administration in 2025.     Despite the...

Are we in for a 1970’s style inflation revival?

When Fed Chair Jerome Powell spoke at a moderated Q&A last Tuesday, he confirmed the higher-for-longer message of virtually all other Fed speakers: “The recent data have clearly not given us greater confidence and instead indicate that it is likely to take longer than expected to achieve that confidence [to reduce rates]”.   As a...

What’s spooking the bond market, and why it matters to equities

What’s bothering the bond market? The 10-year Treasury yield (blue line) has shot up to levels last seen just before the GFC. The surge in yields has occurred just as investors are seeing better news on inflation. At the same time, core PCE (red line) has been falling. Shouldn’t that be good news for the...

How the market could break up to a blow-off top

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...

Wars are equity bullish, but there’s a catch…

Four weeks ago, I suggested that investors buy to the sound of cannons. Now that the cannons have sounded, is that still a good idea?   Yes, but there's a catch. A detailed list of past crises from Ed Clissold of Ned Davis Research reveals that stock prices usually rebound strongly after sudden shocks such...

A Q4 meltup ahead?

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...

Time for a mid-cycle swoon?

The S&P 500 fell as much -4% from its all-time high in Evergrande panic pullback last week. Is the recent weakness just typical seasonal weakness or something more serious? The intermediate-term breadth looks disconcerting. The percentage of S&P 500 stocks above their 200-day moving average (dma) had been at the 90% level which indicates a...

A time for caution, or contrarian buy signal?

Recently, a number of major investment banks have published warnings for the US stock market. The strategists at BoA, Citigroup, Credit Suisse, Deutsche, Goldman Sachs, and Morgan Stanley have issued either bearish or cautionary outlooks.  On the other hand, Ryan Detrick at LPL Financial documented the effects of strong price momentum on stock prices. History...

The market risk hiding in plain sight

As the infrastructure and budget bills make their way through Congress, I was surprised to see that the latest BoA Global Fund Manager Survey did not mention a corporate tax increase as a key risk to the S&P 500.      The Biden tax proposals have been well telegraphed and most of the details have...

What you should and shouldn’t worry about

The S&P 500 took fright last Monday and skidded -1.6% after falling -0.8% the previous Friday. Talking heads attributed the decline to worries about the rising incidence of the Delta variant around the world.     Fears over the Delta variant slowing economic growth are overblown. However, there are two other key risks that equity...

How to engineer inflation

Both the June CPI and PPI came in hot and well ahead of expectations. There was the inevitable debate about the transitory nature of the price increases. Looking longer-term, however, the conventional models for explaining inflation have been unsatisfactory.   Notwithstanding the numerous failures by Japanese policymakers, consider the US as another example. Let's begin...

Do valuations matter anymore?

How expensive are US equities? Fed Governor Lael Brainard warned about "stretched valuations" in the preamble to the May 2021 Financial Stability Report:   Vulnerabilities associated with elevated risk appetite are rising. Valuations across a range of asset classes have continued to rise from levels that were already elevated late last year...The combination of stretched...

The inflation red herring

Rising inflation fears are all over the headlines. From a top-down perspective, inflation pressures are clearly rising.     The Transcript, which monitors earnings calls, documented companies reporting rising inflationary pressures from supply chain bottlenecks and commodity price strength, which have the potential to create margin squeezes.   “…the inflationary pressures, particularly surrounding some of...

Biden’s American Rescue Plan: Bullish or bearish?

If you thought that Biden would govern as a centrist, you were wrong. In the wake of the passage of a $1.9 trillion stimulus package, President Joe Biden is planning to attack the enduring challenge of inequality by expanding government spending with a second ambitious $3 trillion economic renewal plan and a revamp of the tax...

Will rising yields sideswipe equities?

Jerome Powell's Congressional testimony last week made the Fed's position clear. Monetary policy will remain easy for the foreseeable future. Inflation dynamics change, but not on a dime. While Fed policy will leave short-term interest rates anchored near zero, the market's inflation expectations have been rising. Last week, the 10-year Treasury yield briefly breached 1.6%...