Value or growth? Here’s an analytical framework for decision making

Should you be a value or growth investor?   The accompanying chart shows the historical record. In the last 20 years, growth has handily beaten value. The U.S. value/growth track record closely tracked the international developed value/growth record until 2023, when AI-related plays in the U.S. went on a tear. Such stocks weren’t readily available...

Waiting for the recycle amidst an elevated tail-risk backdrop

Mid-week market update: Marketwatch recently highlighted analysis from NDR which concluded that sentiment was extended and while it may make sense to be cautious about adding risk, it's too early to turn tactically bearish until readings recycle from an overbought condition.     I agree. I've been saying the same thing for several weeks. A...

How Trump’s isolationism threatens long-term equity returns

Now that Donald Trump has become the presumptive Republican nominee for President, Wall Street is scrambling to model how a Trump White House may affect capital markets. A recent Bloomberg article summarized the consensus: Bond market: Expect rising yields from upward pressures on term premium. Currencies: Rising yields will put a bid under the USD....

Has the VIX lost its use as a fear gauge?

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...

Why our Ultimate Market Timing Model is cautious

 I recently had a discussion with a reader about my Ultimate Market Timing Model (UMTM). The UMTM is an extremely low turnover model that flashes signals once every few years and is designed to limit the extremes of the downside tail-risk of owning equities. When extreme downside risk is minimized, investors can afford to take...

Why you should fade the NASDAQ surge

The recent market rally has been led by a resurgence in large-cap NASDAQ stocks. This leadership has become overly extended, as evidenced by the rising divergence between their relative performance and the 10-year Treasury yield. A detailed factor and sector performance analysis reveals an underlying trend in favor of cyclical exposure.       Growth...

A 2022 report card

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...

What is the market anticipating ahead of the FOMC meeting?

Ahead, of the upcoming FOMC, meeting, what is the market discounting? I conduct a factor and sector review for some answers. Starting with a multi-cap review of value and growth, value stocks have been outperforming growth stocks within large caps since early August, but this has not been confirmed by mid and small caps. The...

Lessons from a study of past major market bottoms

The mood has changed on Wall Street. The WSJ declared last week that the NASDAQ is back in a bull market.     The number of "new bull market" stories have skyrocketed in recent days. Suddenly, chartists on my social media feed are full of "if this index rises to X, or this indicator gets...

Pairs Monitor: Correlations converging to 1?

I recently suggested a number of long/short pair trades as a way of achieving performance in an uncertain and choppy market. Inflation hedge vehicles have begun to underperform, and the subsequent performance of the pairs is revealing of the factors driving the current market environment.   The four regional pairs were based on a theme...

A 2022 inflation tantrum investing roadmap

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...

A “penny wise, pound foolish” application of the Trend Model

I received a number of responses to the post on the 2021 report card on my investment models. While most were complimentary, one reader asked me for a more aggressive formulation of the Trend Asset Allocation Model.    As a reminder, the signals of the Trend Model are out-of-sample signals, but there are no portfolio...

A 2021 report card

The year 2021 is nearly complete and it's time to issue a report card for my three investment models. Going in order of short to long time horizons, these are: The Trading Model; Trend Asset Allocation Model; and The Ultimate Market Timing Model. All showed strong results.     The Trading Model The weakest result...

How small caps are foreshadowing the 2022 market

Small-cap stocks have lagged their large-cap counterparts in 2021. Even as the S&P 500 steadily rose to fresh highs this year, the Russell 2000 and S&P 600 finally staged upside breakouts in November out of a multi-month trading range, but they have struggled to hold those breakouts. Small-cap relative performance peaked in March, but they...

Will portfolio rebalancing sink equities?

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 Asset...

Outside-the-box risk control = Better returns

After last week's wild market swings, it's time to have a sober discussion about risk control. I know that risk control isn't a sexy topic, but better portfolio risk control can lead to better overall returns.     The framework of analysis will not be the conventional description of risk as it is stylistically shown...

My 2020 report card

Now that 2020 has come to an end, it's time to deliver the Humble Student of the Markets report card. While some providers only highlight the good calls in their marketing material, readers will find both the good and bad news here. No investor has perfect foresight, and these report cards serve to dissect the...

My inner trader returns to the drawing board

Mid-week market update: To paraphrase Emperor Hirohito when he broadcast the Japan's decision to surrender in World War II to the nation, "My inner trader's returns have not necessarily developed to his advantage in 2020". While the trading system was correct in spotting the major downdraft this year and the initial recovery, it was wrong to...