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Keeping Up With Global Relative Performance Trends
by Team of GaveKal Capital,
The MSCI All Country World Index (ACWI) is a comprised of two basic pieces: the MSCI World (Developed) Index, which contains about 1,600 companies and the MSCI Emerging Markets Index, which contains about 850 companies. The MSCI ACWI is a good global reference point for measuring relative performance trends.
More than Half of EM Stocks are Down At Least 10% From Their High
by Team of GaveKal Capital,
The MSCI Emerging Markets Index is down about 4% from its recent high, but the average stock has fared much worse. By our count more than than 50% of EM stocks are down at least 10% from their 200-day high. The trend of more stocks being down at least 10% from their recent high can be seen in all regions, but is clearly most prevalent in Latin America, where the number has increased from 22% to 60% in a week.
Only 37% of Companies Are Seeing Rising Sales Estimates
by Team of GaveKal Capital,
Yesterday we noted the fact that EPS estimates have fallen versus 3 months ago for most stocks in the developed world. In a similar vein, today we note that top line estimates are rising for only 37% of stocks in the MSCI developed world index, meaning they are falling for 63% of stocks. The only region in which more than half of stocks are seeing rising sales estimates is North America, where 62% of companies have seen top line estimates rise versus three months ago.
Cyclicals: Early or Late
by Team of GaveKal Capital,
For the first part of the year, early cyclicals (consummer discretionary sector) in North America underperformed late cyclicals (energy, material and industrial sectors), which made perfect sense given the appearance of a strengthening economy and the tapering of FRB asset purchases. Recently, however, early cyclicals have come back to lead late cyclicals. Since June 23, early cyclicals have outperformed late cyclicals by 7%. In the chart below, we compare an equal weighted basket of early cyclical companies in North America against late cyclicals.
The Modern Day Widow Maker Trade is to Short Treasuries
by Team of GaveKal Capital,
As treasury yields plunge again today to new 1-year lows (the 10 and 30-year treasury bond yields are both down 3bps to 2.33% and 3.07%, respectively), we are reminded of a popular trade over the last decade to short Japanese government bonds, which has aptly been named the "widow maker" trade.
Fed Revises Down Potential GDP In More Hawkish Minutes
by Team of GaveKal Capital,
In our latest quarterly presentation in July, we noted how spare capacity in the economy may be much smaller than is generally perceived. We found out today the FOMC came to similar conclusions in their latest FOMC meeting.
5 Charts Showing The Taper Effect
by Team of GaveKal Capital,
We noted yesterday how treasury bond yields keep falling along with the reduction of fed purchases. This inspired us to dig deeper into our chart library to see how other asset classes or economic statistics have performed in relation to our taper model.
Not A Single Developed Sector Is Trading Below 22x P/E
by Team of GaveKal Capital,
Markets rarely turn on valuation levels alone. Most of the time it takes a case of irrational greed or fear to mark a turning point in the stock market. However, it is always wise to keep one eye on valuations in order to calibrate just how much more greed or fear can be squeezed out of current earnings.
A Change In Consumer Behavior?
by Team of GaveKal Capital,
Retail sales in the US were unchanged in July, which prompted us to dive into our chart library to figure out what may be going on underneath the surface of the economy. Job growth has been pretty solid this year, which when combined with increases in hours worked, has led to a an almost 4% year over year increase in personal income. So what gives?
Detailing The European Correction
by Team of GaveKal Capital,
Over the last 50 days European equity markets have taken a beating. The average stock in Europe is down 6%, and both Portugal and Austria are down more than 10%--putting them in correction territory. Down almost 9%, Germany isn't far behind.
Treasury Bond Yields Still Catching Bid in Line with Slowing QE
by Team of GaveKal Capital,
Last week we wrote that the bond market is following perfectly the reduction of QE with new 1-year lows and with today's bond moves that trend is still firmly in place. In what may seem counter intuitive, treasury bond yields have had a high positive correlation with the rate of Federal Reserve asset purchases. When the rate of Fed asset purchases rises, bond yields rise, and vice versa. If one thinks of Fed asset purchases as stimulative to growth and inflation expectations (the two components that make up risk-free bond yields) then this positive relationship makes sense.
Keep An Eye on Commercial Bank Liquidity Trends
by Team of GaveKal Capital,
An interesting development this year has been the increase in purchases of US Treasury bonds by commercial banks. In the chart below, we show the year over year increase in the holding of US Treasury bonds by US commercial banks set against the interest rate on 10-year UST. This goes some way in understanding the move lower in rates this year.
German And French 10-2 Spread Flattest In The Last 5 Years
by Team of GaveKal Capital,
The front-end of the yield curve has flattened in many bond markets this year. The German and French bond markets closed last week with their 10-year bond yield minus 2-year bond yield spread at it's smallest level since January 2009. The German spread fell to 1.13% while the French spread dropped to 1.42%. The 10-2 spread for the United States has also narrowed this year to 2%. That's the lowest level in a little over a year.
Decomposing the S&P 500 PE Ratio by Market Cap: Most Stocks Look Expensive
by Team of GaveKal Capital,
Back in December we wrote a piece entitled, "Decomposing the S&P 500 PE Ratio: How Can the Market PE be "Low" and Stocks be Expensive at the Same Time?" in which we showed how the market capitalization of the S&P 500, and many other indexes for that matter, is dominated by a few mega-cap companies which distorts index level valuation statistics. It's been a few months so we thought we'd provide an update on that analysis.
Risk of European Counter-Cyclical Underperformance in 2H2014
by Team of GaveKal Capital,
Last week, we noted the outperformance of European counter-cyclicals and the group's relationship to the German Bund (here). A quick look at sector performance in Europe so far this year shows the top three market leaders have indeed been the counter-cyclicals (with the exception of the Consumer Staples sector).
S&P500 is the Most Extended Above its 4-Year Moving Average Since 2000
by Team of GaveKal Capital,
Stock prices as measured by the S&P 500 have risen some 190% from the low in March of 2009. The spectacular thrust this bull market has seen has put stocks above their moving average price levels by a wide margin. Our most recent data indicate the current price level of the S&P 500 is about 33% above its four year moving average price, which is exactly one standard deviation from the mean going back to 1931.
Looking Back - Beta Drove Returns Last Week
by Team of GaveKal Capital,
As we tend to do at the beginning of a new week, we are going to look back briefly at the previous week to see what of our 30 factors had the highest explanatory value to the market. The "winner" last week was Beta which had a 0.90 r-square value to the market. TIPS yield had the second highest r-square at 0.87. Over the past year, the 3-month change in EPS estimates continues to have the greatest r-square value followed by P/E and P/B.
What Exactly Is An Intangible Asset?
by Team of GaveKal Capital,
As another relatively quiet week in the market comes to a close, we thought we would step back from analyzing the market and briefly introduce to our readers a topic that we care greatly about and one that most of our readers are probably unfamiliar with. That topic is investments in intangible assets. The first question that probably comes to your mind after reading the previous sentence is...Why?
Average Stock Is 8% Off 252-Day High and 31% Above 252-Day Low
by Team of GaveKal Capital,
While the MSCI World Index is just a smidge off it's all-time high, the average stock is about 8% below it's 252-day high. Recent history suggests that we will need a slight consolidation, either through price or time, in order to make way for further gains.
Housing Starts Stuck At 1 Million
by Team of GaveKal Capital,
US housing starts for May came in below consensus at 1,001K units vs expectations of 1,036K units. Housing starts are still about 9.5% higher than they were a year ago. Regionally, housing starts are strongest in the Midwest while in the Northeast, starts are actually 5% lower than they were a year ago. Building permits were also below expectations in May (991K vs 1,062K expected). Charts below.
German Defense: Spending Spree?
by Team of GaveKal Capital,
A Bloomberg article today highlighted the potential need for Germany to invest more in its defenses, in light of recent geopolitical instability. As a percent of GDP, defense spending has been falling since the early 1990's. However, if we look at absolute spending levels, yearly totals have recently matched or even exceeded those reached more than 20 years ago.
Digging Into Dividends - Who Actually Pays Dividends
by Team of GaveKal Capital,
Q: Which sector in the MSCI World Index has the highest percentage of companies paying a dividend? A: No, it's not your "bond proxy" sectors like Telecom or Utilities. No, it's also not coming from the financial sector. The answer,surprisingly, is the Consumer Staples sector.
Stocks' Correlation to Real Interest Rates was the Most Significant Factor Driving Returns Last Week
by Team of GaveKal Capital,
Real interest rates as measured by TIPS yields proved to be the most significant factor driving stock prices last week while other macro factors such as stocks' correlation to the Japanese yen and euro were also important. It is also noteworthy that the beta factor is making its way back to the top of the list after having been insignificant over the last one and three months. Below we show the top ten factors driving returns for each region.
What Factor Drove The Market In May?
by Team of GaveKal Capital,
Of the 30 factors that we track, Price to Earnings ratio had the highest correlation to the market in May followed closely correlation to the Euro and 1-month change in sales estimate. For the past year, Price to Book ratio has the highest correlation (0.94).
Pending Home Sales Can't Blame The Weather For The Latest Miss
by Team of GaveKal Capital,
Pending home sales rose by only 0.4% in April vs estimates of a 1% month-over-month gain. Pending home sales are down over 9% year-over-year. If you are living in the West or the Northeast than that decline looks great compared to fall they are experiencing in those regions.
A Deeper look at Corporate CapEx and Stock Buybacks
by Team of GaveKal Capital,
Yesterday we analyzed aggregate capital spending on tangibles for non-financial constituent companies in the MSCI World Index (90% of global investible market cap). We found that CapEx as a % of sales has been extremely steady over the last nine years, fluctuating in a 0.9% range. In 2013 CapEx as a % of sales, at 7.9%, registered the second highest reading over the 9 year period.
Is Gold Signaling A Move Higher in TIPS?
by Team of GaveKal Capital,
For the last decade, TIPS yields and gold have had a negative 88% correlation. The logic is simple enough: since gold doesn't generate any income, falling TIPS rates reduce the opportunity cost of holding gold. We can see this play out in the charts below. In early 2008, the peak in gold was accompanied by a trough in TIPS yields, and then later in 2008, the trough in gold was accompanied by a rise in TIPS yields.
The Percent of Individual Stocks Making New Highs Continues to Contract
by Team of GaveKal Capital,
It's no secret that we've been concerned about the lack of new highs in individual stocks since at least the beginning of the year. Indeed, we've made note of the divergence between headline stock indices and the number of stocks making new highs here, here, here and here and probably in a few other posts as well.
Are Corporate Balance Sheets Really That Liquid? Debunking the "Cash Mountain" Myth
by Team of GaveKal Capital,
We frequently read about the "cash mountain" that has piled up on corporate balance sheets since the global financial crisis. In many cases the level of cash is given as evidence that the the non-financial corporate sector is stronger now than ever before.
The Persistent Weakness in Lumber Continues
by Team of GaveKal Capital,
We watch lumber prices because lumber, being a largely domestically produced and consumed resource, can give a good early indication of changes in domestic economic activity. Lumber prices are also closely correlated to stock prices (the S&P 500 in this case) and so we like to see the two price series following each other.
Should We Worry More About The US Economy Or The International Economy?
by Team of GaveKal Capital,
The KBW Bank index is an index of 24 commercial banks in the US. It is considered a good proxy of the banking sector. Commercial banks tend to draw most of their profits from the local market, so the performance of the KBW Bank index is a decent proxy for profit expectations of the domestic sectors of the US.
Now Is Probably Not The Time To Be Buying Telecom Stocks
by Team of GaveKal Capital,
Telecom valuations seem to be either in the penthouse (as they are now and as they were in 2005-2007) or in the outhouse (as they were from 2001-2003 and 2008-2010). The charts below show the percent of Telecom stocks that are trading within 25% of their 3-year, 5-year and 7-year max valuation. We look at P/E, P/CF, P/S and P/B on each chart.
We're Still Not Seeing New Highs in Individual Stocks Despite the World Stock Index at All-time High
by Team of GaveKal Capital,
The MSCI World Index made a new all-time high last week on yet again a fewer number of stocks making a new 200-day high. In fact, only 7% of stocks in the MSCI World Index made a new 200-day high last Friday.
Gaming The System = Lower Rates
by Team of GaveKal Capital,
Many are shocked to learn that the Fed's payment of 25bps of interest on excess reserves (a clear banking subsidy) is available to foreign banks, and they have parked substantial sums with the Fed. In the chart below we show the total assets of foreign banks with branches in the US, their cash assets and the percent of assets represented by cash assets. Currently, foreign banks represent 51% of the excess reserves on deposit with the Fed.
Results 351–400
of 441 found.
