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Results 101–150
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R&D Spending Climbs Higher In The US and Globally
by Eric Bush of GaveKal Capital,
Last week, in a Bloomberg “Deep Dive”, they used a chart (below) that shows that while earnings have fallen and capex investment has been basically flat since 2014, companies in the S&P 500 continue to invest more and more money into research and development (R&D).
Why Don’t More Investors Question ROE Figures?
by Eric Bush of GaveKal Capital,
Return on equity (ROE) is one of the foundational measures of profitability in finance. it is taught in many first year finance courses in college, it’s a staple in the CFA curriculum, and is widely used as a “go-to” indicator of how profitable a firm or an industry is in the investment management profession.
Gold Is At Extreme Correlations Against Stocks, Bonds and Oil
by Eric Bush of GaveKal Capital,
Gold has been exhibiting some extreme correlations over the past three months. And by extreme, we mean the most negatively correlated it has been to stocks, bonds and oil prices in decades (or ever in some cases). Let’s take a look at some charts.
Materials are the Best Performing Industry Group YTD
by Eric Bush of GaveKal Capital,
Whether you are investing in the developed world or the emerging markets, the best performing area of the stock market so far in 2016 has the been the materials industry group. On an equal-weighted, USD basis, DM materials have returned over 21% and EM materials have done even better returning nearly 33%.
ECB and BOJ Balance Sheets Are 50% Larger Since Jan 2015, Fed’s 1% Smaller
by Eric Bush of GaveKal Capital,
There has a been a tremendous divergence among the major central banks around the world over the past year and a half. Since January 2015 the ECB and BOJ have massively ramped up the size of their balance sheets while the Fed has actually seen its balance sheet decline slightly.
Equity/Oil Correlation Back To Historically High Levels
by Eric Bush of GaveKal Capital,
Back in June, we commented how the historically high correlation between equity prices and oil prices that occurred in the first quarter had moderated somewhat. Well, that moderation has reversed and the relationship between the two is basically back to being as tight has it has ever been since 1980.
Equity/Oil Correlation Back To Historically High Levels
by Eric Bush of GaveKal Capital,
Back in June, we commented how the historically high correlation between equity prices and oil prices that occurred in the first quarter had moderated somewhat. Well, that moderation has reversed and the relationship between the two is basically back to being as tight has it has ever been since 1980.
5 Unique Charts From US 2Q GDP Report
by Eric Bush of GaveKal Capital,
US GDP in the second quarter underwhelmed (1.2% QoQ AR vs expectations of 2.4% QoQ AR) thanks to the volatile inventory category. We will let others get into the weeds regarding what may happen with future revisions and instead focus on several charts you will (hopefully) not see anywhere else.
Developed World Economies Are Beating Econ Expectations
by Eric Bush of GaveKal Capital,
The US Citi economic surprise index has vaulted to the highest level in nearly two years and the US isn’t alone in this trend. The latest reading of 43.10 is the highest reading since September 2014 and is a vast improvement over the consistent negative levels experienced between January 2015-June 2016. For the overall developed world Citi economic surprise index, the most recent level is the highest level since January 2014. Other economies that have been surprising to the upside when it comes to economic data are Japan, Australia, Canada and perhaps most surprising the UK. In fact, the index for the UK is at the highest level since October 2013.
Why You Might Worry About the Plunging Gold-Silver Ratio
by Jennifer Thomson of GaveKal Capital,
Over the last 30 years or so (up until early 2013), whenever the gold/silver ratio (dark blue line) reached a high and subsequently fell through its 200-week moving average (red line), equities (light blue line, inverted) tended to rally:
US Econ Update: Momentum Turning for IP, Housing Inflation At 8-Year High
by Eric Bush of GaveKal Capital,
US industrial production surprised to the upside in June. IP rose 0.6% MoM compared to expectations of a 0.3% gain. Two measures of momentum of industrial production are as positive as they have been in 18 months as well.
If TIPS Yields Go Negative, Gold Rally Likely Continues
by Eric Bush of GaveKal Capital,
10-year TIPS yield briefly went negative last week and the current yield is just 3 bps. TIPS yields have fallen around 75 basis points since the beginning of the year. This decline in yield has been accompanied by a rally in gold from $1060 to $1342. One of the more persistent relationships in the market place since 2003 has been this negative correlation between TIPS yields and gold prices. If history is any guide TIPS yields will probably be negative if gold rallies above $1400.
Knowledge Leader Spotlight: Nintendo Co.
by Eric Bush of GaveKal Capital,
As Pokemon GO has taken over the US in less than week and has led to a gamer finding a dead body, lured victims to robbers and is generally causing players to run into things, we thought it was an opportune time to illuminate the intangible investments that led to such a craze.
Putting the Post Brexit Rally into Perspective
by Bryce Coward of GaveKal Capital,
The post Brexit change in sentiment has been swift and considerable. More specifically, the change in sentiment over the last two days has been swift and considerable. Indeed, prior to Monday the S&P 500 had rallied 6.4%, but 10-year Treasury Bond yields had declined about 8bps, crude oil was down 2%, copper was flat, gold was up 3% and counter cycle stocks had outperformed cyclicals by 44bps. Not exactly a risk-on type of setup, especially when keeping in mind that the major European stock indexes remain down nearly 20% in USD terms from their 2014 highs and banks everywhere look downright terrible.
Looking for Positive Yields? Head to the US
by Eric Bush of GaveKal Capital,
In the world of of ZIRP/NIRP it is becoming more and more difficult for investors to find positive yielding government debt. The world is quickly approaching a situation where one of out every two government bonds has a negative yield. As of 7/7/16, only 57% of developed world government debt has a positive yield. And the vast majority of that debt has been issued by the US government.
USD Is Overvalued Against the Pound, Yen and Euro
by Eric Bush of GaveKal Capital,
According to our Currency Purchasing Power Parity Diffusion Index, the dollar is overvalued against nine major country currencies while it is undervalued against nine other major country currencies. So our diffusion index shows a relatively mundane reading of zero. However, three of the countries that the dollar is overvalued against are pretty significant: the pound, yen and euro.
Investors Have Been Twice as Likely to Pick a Stock Down 20% Than Up 20% YTD
by Eric Bush of GaveKal Capital,
Remarkably, just about half of all stocks have delivered positive performance YTD (on a USD basis). However, there has been a pretty meaningful difference in the tails of the performance distribution. Many more stocks have declined by large percentages than have gained by large percentages so far this. In fact, nearly twice as many stocks are down by at least 20% than are up by at least 20%.
Asia Has Provided Much Needed Diversification During the Brexit Shakeout
by Eric Bush of GaveKal Capital,
As stocks have tumbled over the past several sessions equity investors have greatly benefited if they have been overweight developed market Asia and more specifically if they have been overweight DM Asia consumer staples.
Global Inflation Data Still Soft But Improving In EM, Asia-Pacific
by Eric Bush of GaveKal Capital,
Over the past three or four years, global inflation data releases have continuously underwhelmed. The Citi Inflation Surprise Index, the less followed cousin of the Citi Economic Surprise Index, has consistently been negative for the last several years.
5 & 10-Year Inflation Expectations are at Parity
by Eric Bush of GaveKal Capital,
US inflation expectations have declined significantly over the past six weeks. 30-year breakeven inflation is now just 1.59% after hitting a high of 1.86% on 4/29/16. 10-year breakeven inflation has moved from 1.71% to 1.47% and 5-year breakeven inflation has gone from 1.61% to 1.47%.
Yuan’s Weakness A Negative Signal for Global Equity Prices
by Eric Bush of GaveKal Capital,
Over night, the yuan briefly hit a 5-year low against the dollar at 6.6050 CNY per dollar. It has rallied a marginal amount but remains basically at 5-year lows at 6.5818 CNY per dollar. Over the past four years, a weakening yuan has been associated with lower global stock prices. In the chart below, we show the CNY per dollar exchange rate with a one month forward lag compared to the year-over-year change in the MSCI World Index. This relationship has had a very negative correlation over the past several years and further weakness in the CNY probably will be associated with lower global equity prices.
Investing in Europe? Might Want to Include Some Knowledge Leaders. Just Sayin’.
by Jennifer Thomson of GaveKal Capital,
Year-to-date (on an equal-weighted basis), the average stock in our DM EMEA universe is down more than 3%–led by the usual suspects (Italy, Portugal, Spain, and Ireland), of course.
Smart Money Positioning is Supportive of Bonds
by Bryce Coward of GaveKal Capital,
This may come as a shock with 10-year rates near multi-year lows this morning , but the “smart money” commercial traders are positioned for a further decline in rates. In the chart below we show the net number of options and futures contracts held by commercial traders (blue line, right axis) – who are termed the “smart money” because they happen to be right more often than not especially at important turning points – overlaid on the 10-year treasury bond yield.
Consumer Staples Breaking Out to New Highs
by Eric Bush of GaveKal Capital,
While overall developed market stocks remain approximately 7% below May 2015 highs, the consumer staples sector continues to power forward to new highs. The GKCI Developed Markets Consumer Staples Index is now 6% higher than it was in May 2015. The Developed Markets Asia Consumer Staples Index is particularly strong as it is now over 10% higher than it was in May 2015.
New Leadership Among Late Cyclicals?
by Jennifer Thomson of GaveKal Capital,
Earlier this week, we endeavored to show how companies with excellent fundamentals (i.e. Knowledge Leaders) are not always rewarded in the stock market, highlighting the less than positive trends in many of our point-and-figure charts for the Health Care sector in DM EMEA.
Historically High Equity/Oil Correlation Has Moderated
by Eric Bush of GaveKal Capital,
The historically high correlation between equity prices and oil prices that existed early this year has moderated somewhat. The 200-day correlation between Brent Crude Oil and the MSCI World Index remains elevated at 46%. However, we would expect to see this drop over the coming months as the 65-day correlation has fallen quite a bit from a high of 57% on 4/19/16 to 38% as of yesterday.
Knowledge Leader Spotlight: 3M
by Eric Bush of GaveKal Capital,
There is a common misconception that older companies can’t or won’t innovate and that innovation only occurs in an industry when a new company enters to disrupt the status quo. However, in our research into the Knowledge Effect, we have found that it takes a strong organizational commitment to innovation in order to remain on the cutting edge of one’s industry and has little to do with the age of a company.
Don’t Confuse a Good Company With a Good Stock
by Jennifer Thomson of GaveKal Capital,
It’s easy to get caught up in a company’s story– the latest and greatest product in the pipeline, a perceived positive change in management. Even when that story proves itself out in the data (as it tends to do, especially in Knowledge Leaders) all of the buzz may not translate into relative outperformance of a company’s stock.
Extreme Short Positions in Gold, Silver, and Yen Have Moderated
by Eric Bush of GaveKal Capital,
In late April and early May, commercial traders had taken major short positions in gold, silver and the yen according to the commitment of traders report. For gold, commercial traders were as short as they had been at any point in time since October 2010.
Fishing in a Stocked Pond: 87% Of Consumer Staples Stocks Have Outperformed Over The Past Year
by Eric Bush of GaveKal Capital,
We have blogged about consumer staples several times this month (see here and here) and for good reason. Consumer staples is the only GKCI DM sector out of 10 that has managed to surpass the May 2015 high. Given this, it isn’t surprising to see that a lot of consumer staples stocks have been outperforming the MSCI World. However, somewhat astonishing is the fact that the percentage of stocks outperforming is has high as it has been at any point since 2009.
Investors are Paying Historically High Multiples for Sales
by Eric Bush of GaveKal Capital,
By any measure, DM Americas stocks aren’t cheap. The median price to cash flow ratio in the GKCI DM Americas Index is a hefty 12.39x. While this is certainly high, current price to cash flow valuations are in line with valuation ranges in 2004-2007 and in 2014-2015. On the other hand, it seems that lack of global demand has driven up investors risk tolerance when it comes to sales.
Investors Are Focusing On Earnings And Sales Estimates
by Eric Bush of GaveKal Capital,
About one month ago, we noted how investors were favoring high P/E stocks. Over the past month, focus has shifted to changes in earnings and sales estimates. Over the past month, the three factors (out of 30) that have had the highest correlation to the returns of GKCI DM Index are 1-month change in EPS estimates, 3-month change in EPS estimates, and 1-month change in sales estimates.
China is Doubling Down on State Directed Growth
by Bryce Coward of GaveKal Capital,
Over the weekend we got the monthly slue of Chinese data around fixed asset investment, credit creation, retail sales, and industrial production. Generally speaking, the data was soft, with misses in all categories. But one data point continues to stand out to us as evidence of the not-so-subtle involvement of government sponsored entities in the Chinese economy.
Apple is Rebounding Today But We Wouldn’t Bite
by Eric Bush of GaveKal Capital,
Apple is bouncing today on the news that Warren Buffett has invested $900 million in the company. For Warren Buffett Apple ticks most of the boxes that he likes to see: solid dividend yield, consistent growth and reasonable valuations. Plus, it is the largest individually traded stock so even at around a $1 billion investment that is still only about 1/4 of the average daily $ volume traded.
Consumer Staples are Overbought in the Short-Run but the Trend Remains Positive
by Eric Bush of GaveKal Capital,
Developed market consumer staple stocks are up a health 5.5% in 2016 compared to an 80 bps decline for developed market equities in general. Looking at consumer staples, across a variety of regions, it seems that this group is probably overbought in the short-term. However, the overall trend remains very positive as consumer staples is the only sector that is breaking out to new highs.
Valuations are a Reason to Favor Active Management at this Stage
by Bryce Coward of GaveKal Capital,
It would be tough to make the case that aggregate valuations are low at this stage in the bull market, and that valuation expansion is a likely tailwind to further equity gains. Alas, aggregate valuations are only one measure, and while aggregate measures do indeed point to heightened “valuation risk”, individual company valuations remain highly disparate.
Are Analyst Growth Expectations Finally Lining Up With Reality?
by Eric Bush of GaveKal Capital,
Next 12 month (NTM) median sales and earnings expectations for US companies have improved since earlier this year, however, a structural shift in expectations may be taking place. From 2002-2007, NTM median sales growth expectations averaged 7% and median EPS growth expectations averaged 13%. Obviously, expectations plunged during the financial crisis but growth expectations did rebound from 2010-2014.
Commercial Traders Are Very Short Gold & Silver
by Eric Bush of GaveKal Capital,
The latest (5/6) commitment of traders report showed some extreme net commercial positions for both gold and silver. Commercial traders are net short nearly 300k contracts of gold. This is the largest net short position since October 2010. Even as gold is off about 2% today, the net short position in gold should be viewed bullishly for gold. Since the commitment of traders report started tracking gold position, the net commercial potion in gold has had a -69% correlation to the price of gold and a -64% correlation to the one-year change in gold price.
XLE is at an Inflection Point
by Eric Bush of GaveKal Capital,
XLE, the SPDR Energy ETF, is the most popular energy ETF as it has nearly $14 billion dollars in net assets. After falling by 50% from mid-2014 to early 2016, XLE has rallied by 30% since January 22nd. XLE is made up of of 39 stocks but is dominated by the the largest energy companies in the US. The top 10 holdings make up 67% of the portfolio and the top 3 holdings make up over 42%. It is the top three holdings that we want to focus on today.
State of Affairs of the Chinese Corporate Sector – Part 1
by Bryce Coward of GaveKal Capital,
The Chinese economic situation has been firmly out of the limelight for the better part of three months now as the country’s fiscal kitchen sinking has shown obvious signs of ramping into gear. If the world’s investors and economy watchers have breathed a collective sigh of relief, the Chinese corporate sector must be partying like it’s 1999 because Chinese businesses were headed strait off a cliff.
5 Charts From April’s Consumer Confidence Report
by Eric Bush of GaveKal Capital,
Headline consumer confidence was a bit softer in April. The Consumer Confidence Index fell to 94.2 from 96.2 in March. This was below expectations of 95.8. The weakness in the report came from the expectations component as it fell by 4.3. The present situation component actually rose by 1.6.
Quarterly Strategy Update: The End of Ricardian Growth?
by Steven Vannelli of GaveKal Capital,
This quarter, we explore the hypothesis that the modern era of Ricardian growth has ended. We further explore what this means for asset allocation and which types of stocks in particular should do well in this Ricardian hangover.
The Structural Shift In The US Commercial Paper Market
by Eric Bush of GaveKal Capital,
The 2008 financial crisis may have forever changed the US commercial paper market. Not only is the total amount of commercial paper outstanding still 50% less than its peak it 2007, the internal composition of the commercial paper market has changed dramatically as well.
Relative Volatility Springs Higher
by Jennifer Thomson of GaveKal Capital,
If we take the differential between volatility in the Stoxx 600 (Europe) versus that of the S&P 500 (United States) as a proxy for relative levels of market fear, it might be useful to note that it broke to an all-time high on Monday–surpassing levels reached in 2011 and last year.
Results 101–150
of 441 found.
