Tag Archives: equities - 10 posts found

Profit Cycle Turning Down

The corporate profit cycle is now turning down, and our leading economic indicators point to further declines in return on equity (ROE) and profit margins.  This is not a short-term call on equity markets but a major structural factor investors…


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Japanese Equity Flows Diverge

October saw the BoJ’s announcement of increased stimulus, coordinated with the new targets for the GPIF, 25% each for foreign and domestic equities (up from 12% each), and a decrease in JGBs, from 60% to 35% of holdings.  Investors, both…


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Profit Margins to Head Lower, Equities to Suffer

Profit margins in the US have hit modern-day record levels, and this has been used to help justify high equity valuations.  Consensus estimates are for profit margins to remain steady, or even increase from current levels.  We disagree for ironclad…


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Beware of small caps in the US; underperformance ahead

One of the points we have been emphasizing to clients in recent months is that US small caps are looking increasingly less attractive compared to large caps. Small caps have benefited from excess liquidity and a belief that as the US economy recovers, smaller companies, with their greater domestic focus, are the place to be. Yet price and valuations are making it more and more difficult to justify the trade.


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Don’t tar EMs with the same brush

The debate on EM economies (and equities) is heating up. Initially this week, we had the financial world equivalent of the pillory with the widely reported closing of a high profile US hedge fund’s EM fund due to heavy losses in 2013. Solemn nodding followed by EM naysayers suggesting that this is truly a sign of the death-knell of EM as an asset class. The stakes are being raised elsewhere too with the media pitting seasoned investment professionals on both sides of the fence in recent weeks.


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Strong equity returns usually on offer in December

December is indeed a good month to be long the stock market especially in Decembers that follow strong annual returns. We have seen a couple of such analyses in the past few weeks and thought that we would chime in here.


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Small-cap outperformance in the US likely at an end

Amid the choppy grind higher in US equities one key aspect for investors to look for is the prospect of the long-run relative bull market in small caps to end. If we look at the straight price ratio between the S&P 500 and the Russell 2000 it is now close to an all-time low (only piped by the trough in 1984).


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NYSE Margin Debt Going Parabolic Signals Increased Risks for Equities

In the short run, it is difficult to see what can stop equities at this point. Low inflation, central bank support and relatively robust economic data have created a Goldilocks scenario for equities. However, perhaps as a result it is worthwhile looking at what could go wrong. One of the more important intermediate indicators on the equity market is derived from the stock of US margin debt at the NYSE.


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Global Equities Showing Signs of Weakness, but don’t Look to Bonds for Salvation

Judging by the comments from most analysts and commentators, global equities are the place to be and equity markets are still doing well. This is certainly true if you look at Japan, but in general it is not exactly correct. On a 1 month basis, even the otherwise resilient S&P 500 is now flat and many stock markets are down significantly. Indeed, despite widespread investor optimism we are now seeing broad based weakness on a monthly basis.


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MARGIN DEBT IN THE US SHOULD BE WATCHED CLOSELY

Margin debt on the NYSE continues to rise, both when looking at the rate of change as well as the level of negative cash balances (lower chart).  Overall margin debt rose strongly going into 2013 and is now sitting only…


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