• Ten Year Treasuries touched 5% on October 19th, up 1.43% since Jan 1. • Two-year rates exceed ten-year rates in July of 2022 (yield curve inversion). • In the past, yield curve inversion has always signaled recessions. • The recessions typically have occurred 18-24 months after inversion. Over the course of the past months, […] Read the full article…
• The Federal Reserve is aggressively raising rates (1.5 – 1.75%), but continues to lag the market with 2-year Treasuries at (2.8% on July 5). • The economy is likely to go into a recession, if not already in one (based on the Atlanta Fed GDPNow forecast). I expect the recession to be shallow. • […] Read the full article…
We have been hearing about inflation concerns for months. On Wednesday, Federal Reserve Chairman Jerome Powell said temporary inflation could last into next year. Also on Wednesday, the normally very bullish Prof of Finance, Jeremy Siegel from Wharton said a fresh surge of inflation is making him nervous. He went on to say, that inflation […] Read the full article…
S&P 500 earnings estimates for 2021 and 2022 continue to look very strong. Average earnings growth from 2008 – 2019 averaged just over 10%. Earnings forecasts from 2019 through 2022 are forecasted to grow at rate of 12.3%, including the pandemic dip. This is based on S&P Dow Jones estimates for the S&P 500 companies. […] Read the full article…
Inflation is a highly persistent topic for the media and for some clients as well. Today, let me summarize my outlook and portfolio strategy. • We have short-term inflation; Long-term inflation is the open question • Much of the inflation we do have is due to supply-demand shocks • Consensus opinion of macro economists & […] Read the full article…
This past weekend I watched a clip from Bloomberg with an interview of a fellow in Ireland who made his first investment ever. He took his entire $300 savings and bought two shares of GameStop. His rationale was that someone had given him a tip. I hope it works out for him. Now don’t get […] Read the full article…
We are roughly six months into the market correction for Coronavirus. Over the next three posts, I will provide a market outlook. In part 1, we will look the impact on stock earnings and returns. In part 2, we will review the current state of the economy and relative value of equity market segments. In […] Read the full article…
• We estimate the fair value for the US stock market (S&P 500) using a discounted cash flow model • We assume a negative earnings shock of 20 – 30% in 2020, followed by a 3-year recovery • Using this model, the fair value for the S&P 500 falls in a range 2,542 – 2,905 […] Read the full article…
Share buybacks are a controversial topic, in part because they are not well understood. This article will explain stock buybacks and summarize key finding from recent research by Two Sigma: Share Buybacks: A brief Investigation. Q: What is a share buyback? A share buyback occurs when a company buys back their own shares in the […] Read the full article…
The ^VIX (also known as the fear gauge) is up over 15 today at 17.42. Tension with China over the trade negotiations continues to dominate financial news. I think the dispute could last for some time and there is no question that increased tariffs could impact equity returns. Year to date the market is up […] Read the full article…
Today I’d like to talk about one of the key elements of great companies – their value proposition. Yes, there are additional critical factors such as the management team, operating strategy and strong financials, but the core value proposition of the company is the centerpiece. For today’s discussion, we’ll use the example of Align (symbol: […] Read the full article…
• Morgan Stanley’s Michael Wilson, chief US equity strategist, sees further downward revisions in earnings for 2019 • Jurrien Timmer, Fidelity Director of Global Macro, is more bullish based on looking at the context for the earnings revisions • We find the weight of the arguments in favor of glass half full and continue to […] Read the full article…
Today we’ll take a look at the iShares Edge USA Quality Factor ETF (symbol: QUAL). Morningstar rates this fund ‘Silver’ with 4 stars. The star weighting is based on historical risk and return compared with peers. The Silver weighting is Morningstar’s fund rating based on future outlook for the fund. Fund Strategy According to the […] Read the full article…
Ten year treasury rates have spiked in recent days and stand at 3.22%. This is the highest level since 2011. Last month the Federal Reserve raised rates for the third time this year. Chairman Powell said in an interview last week with PBS, “Interest rates are still accommodative, but we’re gradually moving to a place […] Read the full article…
One of the most common questions I get asked is along the lines of, ‘what do you look at to figure out if the market will go down?’. We can’t say with certainty any month will be up or down. The main problem is timing. Let’s take a simple example. Stock market PEs peaked above […] Read the full article…
In Part 1 I introduced the real earnings yield model (REY) for stocks. The real earnings yield is simply the earnings of the stock(s) divided by the price in real terms (after inflation). As we showed in the last article, 1) the future return for the S&P 500 is significantly related to the current real […] Read the full article…
Today I would like to discuss my favorite ‘simple’ model for determining if the stock market is over- or under- priced, the real earnings yield or REY. If I could only have one piece of information to gauge the market value, this would be it! This model is also favored by a number of well […] Read the full article…
Jeff Gundlach, CEO of DoubleLine Capital, covered his outlook for the markets in his annual webcast on Tuesday. The webcast covers a wide range of topics including the economy, inflation, interest rates and fixed income and equity market outlooks. He presents dozens of slides to illustrate and back his convictions. I’ll highlight his key forecasts […] Read the full article…
Stock market returns for US stocks, international developed stocks and emerging market stocks through November are all above 20%. Now is a good time to update our relative value analysis for various equity asset classes and US vs. international markets. In this review, I am going to introduce a new relative value analysis model that […] Read the full article…
For the first time since 2009, it looks as though foreign stocks will beat the S&P500. The MSCI ACWI Index ex US is up 23.42% through November compared with the S&P 500 Index at 20.49. It is a good time to reexamine international investing and it’s place in your portfolio. Let me start with […] Read the full article…