Margin Debt: Down 2.6% in May
FINRA has released new data for margin debt, now available through May. The latest debt level is down 2.6% month-over-month.
Wall Street Sours on S&P as Margin Woes Rattle Corporate America
Wall Street is afraid to buy the dip this time around. Even amid this latest leg of the stock market selloff, equities still aren’t fully reflecting the risks facing corporate earnings...
Market Cap to GDP: May Buffett Valuation Indicator
With the Q1 GDP Second Estimate and the May close data, we now have an updated look at the popular "Buffett Indicator" -- the ratio of corporate equities to GDP. The current reading is 205.1%, down from 216.4% the previous quarter.
Stagflation May Be Our Next Stop (but that is not what I am worried about)
I have been doing this long enough to know that the economy is a complex, self-adjusting mechanism, and thus the grim picture I have painted in this and previous articles may not play out.
The Latest Look at the Total Return Roller Coaster
Here's an interesting set of charts that will especially resonate with those of us who follow economic and market cycles. Imagine that five years ago you invested $10,000 in the S&P 500. How much would it be worth today, with dividends reinvested but adjusted for inflation? The purchasing power of your investment has increased to $15,778 for an annualized real return of 9.2%.
Is the Market Still Overvalued?
Here is a summary of the four market valuation indicators we update on a monthly basis.
- The Crestmont Research P/E Ratio
- The cyclical P/E ratio using the trailing 10-year earnings as the divisor
- The Q Ratio, which is the total price of the market divided by its replacement cost
- The relationship of the S&P Composite price to a regression trendline
The Problems with Market-Cap Weighted Index Funds
New research quantifies the implicit cost that investors incur when index funds, such as those tracking the S&P 500, are rebalanced. Those costs may be avoidable by adopting trading strategies that introduce the possibility of tracking error.
Don’t Wish for the Fed to Pause Rate Hikes in September
Last week’s rising stock prices suggested that many investors are still wishing the Federal Reserve will step in to counter downward pressures on the market. Hopes for this “Fed put,” however, may be confusing the Fed’s willingness to act with its ability to do so.
Regression to Trend: 131% Above Trend in May
Quick take: At the end of May the inflation-adjusted S&P 500 index price was 131% above its long-term trend, down from 151% above the previous month.
About the only certainty in the stock market is that, over the long haul, over performance turns into underperformance and vice versa. Is there a pattern to this movement? Let's apply some simple regression analysis to the question.
A Perspective on Secular Bull and Bear Markets
Was the March 2009 low the end of a secular bear market and the beginning of a secular bull?
Moving Averages: S&P Inched Up in May
Valid until the market close on June 30, 2022.
The S&P 500 closed May with a monthly gain of 0.01% after a loss of 8.8% in April. At this point, after close on the last day of the month, four of five S&P 500 strategies are signaling "cash" — Vanguard REIT Index ETF (VNQ), iShares Barclays 7-10 Year Treasury (IEF) and Vanguard All-World Index ex-US ETF (VEU), and Vanguard Total Stock Market ETF (VTI) — unchanged from last month's quadruple "cash" signal.
Three Stocks to Buy in This Bear
There’s a silver lining to the current bear market…
The Growing Threat Posed by the Federal Deficit
Our fiscal deficit, as measured by the debt-to-GDP ratio, has grown to levels that could impede growth, as predicted by financial theory and confirmed by empirical evidence. Moreover, new research shows that our burgeoning deficit could increase risk premiums for both stocks and bonds.
Fed’s Balance-Sheet Unwind Puts Treasuries on ‘Uncertain’ Path
With the Federal Reserve releasing minutes from its latest meeting on Wednesday, traders are looking for further details on the plans to let billions of dollars worth of bonds to mature each month without replacing them.
The Next Crisis to Hit Markets May Be About Liquidity
Liquidity is the lifeblood of the capital markets. It is the ease at which an asset can be turned into cash without disrupting the price of that asset. This was never really a concern in the US, whose markets are prized for being the deepest, most liquid in the world. It’s one reason why the dollar is the world’s dominant reserve currency.
Russian Port Sieges ‘Declaration of War,’ UN Says
Russia’s blockade of Ukraine’s ports is a “declaration of war” that threatens to trigger mass migration and a global food crisis, a United Nations official said, adding to the dire warnings on the opening day of the World Economic Forum in Davos.
Today's Options Market Update
Stocks start the week higher following recent bearishness.
The “Buffett Indicator” Predicts Historically Low Long-Term Equity Returns
Shiller’s CAPE ratio is the most-cited predictor of long-term equity returns. But new research shows that the “Buffett” indicator does a good job of forecasting, and both ratios predict subdued, long-term returns for stocks.
Why Volatility is the Wrong Measure of Investment Risk
Volatility is the standard measure used by advisors to measure risk. It has been useful but has limitations. There are ways that volatility will not provide an accurate representation of the risk of an investment portfolio.
Stagflation Is Looming, Right? Wrong, Economists Say
Wherever you get your news, there's no escaping the perception that rising prices are breaking the US economy. Recession is almost a foregone conclusion on the Bloomberg terminal, which aggregates 150,000 news sources with every bulletin categorized and counted. Headlines with the word “inflation,” increased 345% to 186,000 times a month since the beginning of 2020, while “strong economy” declined 48% to 1,766 times monthly.
How to Tell if a Fund is All it Claims to Be
There are thousands of mutual funds that offer to select stocks and bonds for your portfolio. But which ones are right for you? Use our Premium membership service to add your logo and a note from you and forward it to your clients.
Tesla’s Removal From S&P Index Sparks Debate About ESG Ratings
Tesla has grown into a $735 billion company on the back of its breakthrough electric-vehicle engineering. Its own carbon footprint is a small fraction of its peers, and its success in the market has pushed the industry overall away from gas-powered vehicles.
The S&P 500 ESG Index: Defining the Sustainable Core
The launch of the S&P 500 ESG Index in April 2019 signaled an evolution in sustainable investing. The S&P 500 ESG Index was built to underlie strategic, long-term mainstream investment products. Intentionally broad, the index seeks to maintain similar overall industry group weights as the benchmark, while providing an improved sustainability profile.
This paper outlines the following index characteristics:
- The easy-to-understand methodology behind the index
- How "financial materiality" drives index construction
- The historically similar risk-adjusted performance profile to the S&P 500
- The improved ESG characteristics of the S&P 500 ESG Index over the S&P 500
The Rising Dollar Is Wreaking Havoc With US Trade
In 1995, Treasury Secretary Robert Rubin asserted that a strong dollar is in the US national interest, a mantra repeated by each of his successors. They’re partially correct since the effects of the robust buck, which has soared this year, help some while harming others.
How to Save Your Budget With Inflation Running Hot
Surging inflation showed little sign of abating last month, indicating that grocery bills will keep going up, markets will remain volatile and investors will continue to feel pain in their 401(k)s.
Market Is Still in the Denial Stage About Inflation
The latest US inflation report should be a reality check for Wall Street, but many investors are still wearing rose-colored glasses. Bond yields ticked slightly higher Wednesday after the Labor Department reported that consumer prices rose more than forecast last month, but they are still nowhere near reflecting the monetary policy path it may take to rein in inflation.
Wood and Musk Turn Into Dumb Money on Index Investing
Elon Musk, Marc Andreessen and Cathie Wood have spent the past few days on Twitter exchanging ideas about how investing and financial markets work — all in the name of liberating small-fry investors from elite giants that manage and peddle index funds.
Is a Rejection of Classical Finance Justified?
In an ambitious new book, the economist Andrew Smithers rejects core “Newtonian” principles of economics, replacing them with radical departures from conventional wisdom. But as I will explain, some of Smithers’ theories fail meet the standard of empirical verification.
Private Direct Lending Offers Attractive Yields
Investors seeking higher yields and relatively low risk, and are willing to sacrifice liquidity, will find attractive opportunities in interval funds that invest in senior secured, middle-market loans, such as those offered by Cliffwater.
The Fed Is NGMI
My good friend Ben Hunt of Epsilon Theory has written what I think is one of his most powerful letters ever. He’s basically saying the Fed just isn’t going to make it. I wish I had written it. He is such a wordsmith. With that, let’s turn it over to Ben.
The Income Annuity is the Constrained Investor’s Life Jacket
Imagine that you have joined some friends for a day of fishing. About two miles offshore, you sense that something is wrong. The small, single engine boat’s handling has changed. There seems to be more. Use our premium service to add your company’s logo and send this to clients.
Market Timing: A Fool's Game
Markets don’t have feelings or morals. They do not care what an investor needs and there is no investment or strategy that has consistently provided returns well in excess of those earned in the broad markets. Use our premium service to add your company’s logo and send this to clients.
Beyond The Traditional 60/40 Portfolio
In a market environment of low bond yields and record high equity valuations, it’s time to look beyond simple asset-class diversification. A covered call strategy could provide clients with potential for growth, income and downside protection.
Liquidity Crisis in the Making – Japan's Role in Financial Instability
In propping up Japan's economy and financial markets, its central bank indirectly provided liquidity to the world's financial markets. But the BOJ could unleash a liquidity vacuum felt around the world.