Commentary

Subsets and Sensibility

One of most dangerous habits of a speculative crowd is the tendency to use unconditional averages and unconditional probabilities regardless of how extreme market conditions have become. This is like stepping into a house with two rooms, one with the temperature at 0 degrees and one at 140 degrees, and expecting a temperature of 70 either way.

Commentary

Asking a Better Question

On September 18, the Federal Reserve cut the Federal funds rate, as expected, announcing at the same time that the Fed will continue to reduce its balance sheet. In my view, both of these decisions were appropriate. The Fed reduced short-term rates by 50 basis points, which was consistent with economic conditions that remain near the threshold of recession.

Commentary

Fed Pivots and Baby Aspirin

When you see that behavior at extreme valuations, it tends to be a sign of underlying skittishness and risk aversion. When valuations are setting record extremes because the news can’t get any better, even a slightly less optimistic outlook becomes a risk.

Commentary

Going All In – The Bubble in Profit Expectations

During each speculative run-up in asset prices – whether the dot-com bubble, the housing bubble, or more recently the rapid rise (and fall) of the stocks of electric vehicle companies – there’s typically a moment when Wall Street strategists, analysts, and investors go all-in on that theme.

Commentary

You’re Soaking in It

The stock market is not a balloon that gets bigger when money “flows into” it. It doesn’t get smaller because money “flows out” of it. Holding the number of shares constant, the stock market gets bigger if investors pay a higher price for those shares. Period.

Commentary

You Can Ring My Bell

I may as well just say it. Based on the present combination of extreme valuations, unfavorable and deteriorating market internals, and a rare preponderance of warning syndromes in weekly and now daily data, my impression is that the speculative market advance since 2009 ended last week.

Commentary

Skating By The Trap Door (Motherlode II)

With the market seeming to skate by the trap door of extreme valuations and unfavorable internals without consequence, the push to new highs in the past few weeks has created the impression of a runaway advance.

Commentary

This Is Where You Start Bear Markets From

As of last week, the total return of the S&P 500 was even with 3-month Treasury bill returns since the valuation peak of January 2022, more than two years ago. In our view, investors continue to “grasp at the suds of yesterday’s bubble,” ignoring extreme valuations, lopsided bullish sentiment, emerging pressure on profit margins, economic conditions at the border of recession...

Commentary

Universal Capitulation and No Margin of Safety

Based on the valuation measures we find best-correlated with actual subsequent S&P 500 total returns across a century of market cycles, the stock market presently stands at valuation extremes matched only twice in U.S. financial history.

Commentary

Speculative Euphoria and the Fear of Missing Out

If you’re losing your mind and plagued by fear of missing out, it might be that you’re best served with some passive investment exposure in your portfolio. Not because it will do well, at least not in our estimation, but so you don’t lose your mind.

Commentary

Cluster of Woe

As I observed last month, the strongest stock market returns in the coming decade, perhaps longer, are likely to emerge during advances in the S&P 500 that attempt to catch up with the cumulative return of risk-free Treasury bills.

Commentary

The Return of Buy-Low Sell-High

The strongest stock market returns in the coming decade, perhaps longer, are likely to emerge during advances in the S&P 500 that attempt to catch up with the cumulative return of risk-free Treasury bills.

Commentary

The Secret Life of Fed Pivots

It’s worth noting that despite the recent market advance, our own investment discipline, and even Treasury bills, have outpaced the S&P 500 and Nasdaq 100 during this period, with less volatility.

Commentary

Soft Selling a Hard Landing

For the better part of two years, investors have been primed with hope of a “Fed pivot” that will presumably restore easy monetary policy and supportive conditions for the financial markets.

Commentary

Seven Reminders While on Recession Watch

A recent survey asking economists about the probability of recession next quarter shows a retreat in expectations from a high of 47 percent at the end of 2022 to just 34 percent, according to the Philadelphia Federal Reserve.