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Articles by Topdown Charts
IPO Trends - The New Boom
One of the most stark (and most commented on) charts from the latest S&P500 ChartStorm showed total US equity issuance on track to shatter the record books. I commented that it made logical sense: it’s basically the perfect environment to raise equity capital …. valuations are near record highs, the system is awash with liquidity, and there are clear signs of excess optimism.
There's a long way to go if you want to get bullish on tech valuations
Tech stock technicals have deteriorated significantly. We may not be in an official bear market just yet, but it’s clearly no longer a bull market. Tech stocks have breached multiple key support levels, 50-day averages have rolled over and even 200-day averages are turning (we care about whether the price is above/below its moving average to gauge price trends, but also the slope of the moving average - a downward sloping 200-day moving average is characteristic of a bear market/downtrend).
Big value in small caps
The correction in US tech stocks (from extreme expensive valuations) appears to have served as a market wake-up call to the opportunity in small caps. The Nasdaq 100 ETF QQQ slipped almost -10% in July, while US small cap ETFs IJR and IWM surged just over 10%.
Old Cyclicals?
There is an ongoing debate among portfolio managers and asset allocators when it comes to US vs Global equity allocations... Some say the US market has it all, no need to bother with global stocks. And armed with hefty helpings of recency bias, they have been right on this view for the past decade — where tech-heavy US equities have strongly outperformed (not to mention a strong US dollar hurting returns of offshore assets).
Why "old cyclical" stocks are worth watching
There is an ongoing debate among portfolio managers and asset allocators when it comes to US vs Global equity allocations... Some say the US market has it all, no need to bother with global stocks. And armed with hefty helpings of recency bias, they have been right on this view for the past decade — where tech-heavy US equities have strongly outperformed (not to mention a strong US dollar hurting returns of offshore assets).
The value investor's guide to multi-asset investing
Valuations are an integral input for multi-asset investing. They tell us information about expected risk and opportunity both for individual asset classes and in relation to other assets — helping us prioritise allocations and manage portfolios. As an asset allocator, your job is to navigate risk, return, and opportunity cost over typically longer-term timeframes but certainly through cycles and short-term gyrations.
Guide to Value-Driven Multi-Asset Investing
Learning Goals Understand application of valuation concepts in multi-asset investing Use relative value principles for active asset allocation decision making Apply value signals to gauge risk vs opportunity in a multi-asset context Concepts Valuations are an integral input for multi-asset investing. They tell us information about expected risk and opportunity both for individual asset classes, and in relation to other assets — helping us prioritize allocations and manage portfolios.
15 practical ways to value the stock market - and the one that is not
This article presents a look at a listing of different valuation indicators for the stock market. The purpose is to provide a reference of the various methods, to reiterate the principles for market cycle analysis, and to provide further worked examples for indicator design and input selection.
Chart of the Week - Giddy Index Investors
This chart may come as a surprise — maybe a shock — to those chilling in index funds. Before we dive into the detail and implications of the chart, the key thing to remember is that index investing is not passive, it is an active strategy administered by index companies where in the case of a market cap-weighted index, the *strategy* is to “just buy the biggest stocks“.
Chart of the Week - Resurgence Risk?
Last week I talked about the idea of reacceleration risk, this week I want to focus on the important baggage that this macro scenario will most likely come packing… Resurgence Risk. Basically the idea is that much of the disinflation we’ve seen has been a product of deceleration in marginal demand (again, captured by the declining global manufacturing PMI) — therefore, if growth reaccelerates then pricing pressures will resurge.
Important Value Signals for Global Equities
Learning Goals Understand the difference between absolute vs relative value Apply understanding of value signals to global equities and explore new concepts Grasp nuance, challenges, merits of value signal applications for global equities (particularly as it pertains to countries/regions) Concepts In this article we build on the concepts from the previous post introducing valuations (how to use valuation signals in navigating risk and return through the cycle) — looking specifically at global...
Chart of the Week - Commodities at a Tipping Point
First of all, it’s worth acknowledging something that may seem peculiar. I look at commodities at the asset class level. And so I should! — I run an asset allocation research service, and asset classes are basically my “stocks“. In that respect, the chart below should make a little more sense… what we are looking at is the price for “commodities“ in the black line (in this case it is the GSCI Light Energy Index — which is a broad diversified commodity index).
Chart of the Week - Higher for Longer?
This week central bankers from around the world will descend on Jackson Hole for their annual Economic Symposium, where they will be discussing "Structural Shifts in the Global Economy" (stemming from the impact, response to, and flow-on effects of the pandemic). Among the topics up for discussion will likely be talk around inflation targets, neutral cash rates, and longer-term bond yields. So it’s timely to check in on the long-term rate of inflation model for US 10-year bond yields.
Chart of the Week - Investors Hate Defensives
Contrarian Signals: What does it tell us when investors as a group indicate through their portfolio allocations that they hate the typically most defensive parts of the stock market? Defensive stocks (such as healthcare, consumer staples, utilities), typically outperform during market downturns — either by holding ground in absolute terms, or at least falling much less than the sexier high-beta growth and cyclical sectors.
Chart Of The Week - Housing Market At Risk
US Housing Market — Sudden Stop: As a result of the rate shock (a 3x jump in indicative servicing costs for a new mortgage), inflation shock (surge in living costs across the board), and portfolio shock (stocks, bonds, crypto, etc.! all dropping significantly in value) — the purchasing power of home buyers has taken a massive hit, and it is showing up clearly in the house price data.
Chart Of The Week - Bonds Cheap, Stocks Not
US Asset Valuations — Stocks vs. Bonds: Both stocks and bonds have seen a decent reset in valuations, but where they stand apart is that after a shocking 2022 (one of the worst years on record), bonds are now materially cheap, whereas equities are still somewhat on the expensive side. I chose this chart for this edition because it’s interesting to reflect on where this chart sat this time last year. Back then, both stocks and bonds were about 2 standard deviations expensive.
Chart Of The Week - Are Stocks Cheap Yet?
Global Equity Valuations: I still find this chart fascinating, it shows US PE10 valuations hovering around what was previously the top end of the range (of the 2017-2020 period), and still more or less double that of their global peers. In that respect, I see this as a key reason for skepticism on the bull case for (US) equities given the still significant and growing monetary headwinds and looming recession prospects.
Chart Of The Week - Bond Yields Going Down
Bond Yields vs the PMI: One impact of a weakening growth outlook would be relief for bonds (our base case is a sharp global economic recession into early-2023). The latest developed markets flash manufacturing PMI [Purchasing Manager’s Index — a good real-time gauge of the economic pulse] dropped further into contractionary territory during November, which is a clear indication that the economic slowdown is already underway.
Chart Of The Week - Low Energy Investment Original
Energy CapEx — Renewables vs Oil & Gas: This is an interesting chart with respect to commodity markets, energy security, and the energy transition …perhaps some of the most important issues of our time. It shows the capex-to-assets ratio for the global renewable energy sector, and the traditional energy sector (Oil & Gas ) — in other words, a standardized way of tracking the pace of capital expenditures (i.e. investment in productive capacity).
Chart Of The Week - Asian Equity Valuations
Price to Book Discount: The price to book ratio for Asia Ex-Japan equities has dropped to among the cheapest readings of the past 2 decades. Indeed, Asian equities are among the few places where valuations have made the full journey from expensive to cheap. Aside from the price-to-book-ratio, our blended PE ratio (combined: forward, trailing, PE10 ratios) went from notably expensive to now extremely cheap.
Chart Of The Week - CRE Credit Crunch
Commercial Real Estate Outlook: I just had a look at the latest Fed Loan Officer survey, and things are not looking good for what is a heavily credit-driven sector… Banks are tightening up credit criteria, raising loan pricing, and reporting weaker demand for new loans. This appears to be the story across the board (business loans, mortgages, consumer debt), but one sector many overlook stands out to me in particular — Commercial Real Estate.
Chart Of The Week - A Small (Monetary Policy) Pivot
Small Central Bank Interest Rate Decision Tracker: Back again onto one of my favorite charts — this one tracks monetary policy interest rate moves across the smaller and developing country central banks. I like to track this group as they tend to be more sensitive to the ebb and flow of global growth/inflation tides, and hence you usually see early trend changes in global monetary settings here first.
Chart Of The Week - Bear Market Seasonality
Conditional Seasonality Analysis: You’ve probably heard some of the old chestnut market seasonality wisdoms and sayings, for instance: the Santa Claus or year-end rally, "Sell in May", October effect, etc. All of these things are generally based on statistical analysis of historical movements in stock prices. And the data certainly seems to show some repeatable and even perhaps reliable seasonal patterns — studies have even been done which confirm the intuition and market aphorisms.
Chart Of The Week - Big Value In Small Caps? Original
Summary US small-cap stocks have experienced a decent reset in valuations, with the S&P 600 PE10 ratio dropping almost -40% from the peak. The S&P 600 PE10 ratio (price vs trailing 10yr average earnings) is sitting about 10% below the average of the past 25 years. However, as things stand, the S&P 600 is still trading materially higher than the 2003, 2009, and 2020 lows.
Chart Of The Week - Deep Value In The Eurozone
Deep Trouble, (but) Deep Value: Despite, or perhaps because of, all the bad news and challenges facing Europe — an interesting development has shown up in European equities... The combined P/E ratio (average of the forward P/E, trailing P/E, and P/E10 ratios) has dropped to extreme cheap levels. It is more or less on par with levels seen at the bottom of the dot-com bubble burst bear, and the 2020 c***d calamity crash.
Chart Of The Week - Inflation Expectations And The Fed
Chart of the Week - Inflation Expectations and the Fed (DIS)Inflation Expectations: Declining inflation expectations will be well received by the Fed and markets with respect to the prospects of a pivot or at least a pause in monetary policy tightening. However, despite the decline, inflation expectations are still historically high.
Chart Of The Week - US Housing Better And Worse
Housing Market Risk: The US housing market is both better and worse than pre-financial crisis. On the one hand, debt to income ratios have come down a lot — meaning less leverage and therefore less likelihood of negative equity, defaults, credit stress, and systemic risk to the banking system. Borrowers also have a greater likelihood of having fixed their interest rate, with much less exposure to variable rates this time around. However — house purchasing power goes down as rates go up.
Chart Of The Week - Global Stockmarket Valuations Original
Summary Median forward P/E ratios globally have dropped to cheap levels this year. There is clearly uncertainty around the 'E' or earnings component of these valuations. Forward P/E ratios began to look expensive around mid-2020, which turned out to be a false signal. Forward P/E Ratios — Real Cheap (but for real?) We have seen a major move in forward P/E ratios across countries this year.
Chart Of The Week - Disinflation Desire
Pricing Pressures Peaked (Piqued?): The global PMI pricing pressure indicator peaked earlier this year, and if past correlations hold we should expect further easing of pricing pressures as commodity disinflation takes hold. A key reason why the apparent correlation in this chart “works“ is because firstly commodity prices have a direct impact on costs, but also a key driver of marginal demand for commodities is the actual business cycle itself.
Chart Of The Week - Global Equity Risk Premium
ERP Valuation Indicator: This is an important chart for global equities. Despite some reduction in valuations (e.g. P/E Ratios have fallen), the issue is that bond yields have gone up as well, so the equity risk premium has not really improved. For instance, compare and contrast the current levels of the ERP [Equity Risk Premium] vs. that seen during the peak of the pandemic panic or the 2008 financial crisis. Current levels are simply not compelling, certainly not compared to those episodes.
Chart Of The Week - Silver ETF Flows
Silver Shock: As you might have seen, silver had a dream run in 2020. And well, to be fair, most markets mooned back then riding the tides of extreme monetary easing and a hoard of newly minted day traders. Silver did 2.5x from the low to the high in the space of 5 months, and this was accompanied by a frenzy of flows into silver ETFs and decade highs in bullish sentiment.
Chart Of The Week - China Turns To Stimulus
China Stimulus: This week the People’s Bank of China (PBOC) cut their benchmark monetary policy interest rate by 5 basis points to 3.65% (and reduced the 5-year benchmark mortgage rate by 15 basis points). Small rate cuts, yes. But big signal in terms of policy direction.
Chart Of The Week - Global Equity (Population) Growth Original
Population Growth Trends: Demographics has been a hot topic lately, with apparently opposing forces arguing on the one hand for higher population growth to avoid population collapse, and yet others basically arguing for depopulation to avoid climate catastrophe in their quest for sustainability. We try to steer clear of ideological debates and focus on the facts here — especially as they pertain to investment conclusions: which is our main job.
Chart Of The Week - Crisis Of Confidence
Global Economic Confidence Trends: Consumer confidence has collapsed all around the world this year, nearly matching the pace and magnitude of the drops seen during the global financial crisis and pandemic panic. We have never seen consumer confidence collapse to this degree without taking business confidence down with it (and a subsequent downturn/crisis taking hold).
Chart Of The Week - Premature Pivot Party
Barriers to Exit: While many wait and hope for a Fed pause or pivot - hanging on every piece of text and utterance from the Fed, the real focus should be on inflation expectations. Longer-term inflation expectations have started to come off the boil, but shorter-term inflation expectations continue to track near record highs. Based on our leading indicators, growth outlook (global recession risk), and commodity market outlook (bearish in my view), inflation should come down – especially into 2023.
Chart Of The Week - Global Property Price Boom (And?)
Pandemic Property Price Pop: Globally property prices have been juiced to historically expensive levels thanks to pandemic (over)stimulus. As an indication of just how quickly prices have risen, the world median property price growth rate has increased more than 10% year over year. That is the fastest pace of increase in more than 3 decades, and nearly double the average increase over the last 10 years.
Chart Of The Week - China Cheap Again Original
China A-Share Valuations: While much of the rest of the world is increasingly entrenched into bear market mode, Chinese equities are looking more and more interesting as China continues zigging while the rest of the world is zagging. Valuation-wise, China A-shares are looking cheap after a period of weakness. And this is actually a change from recent times where valuations had gotten expensive after China managed to initially evade the virus but still benefit from global stimulus.
Chart Of The Week - US Equities Not Expensive, But Not Cheap Yet
Jun. 15, 2022 5:03 AM ETVT, IOO, TOK, SDG, ACWI, ACWV, URTH, SPGM, QWLD, NZAC, CRBN, ACWF, KLDW, ASET, FIHD, FLQG, ESGG, DWLD, VWID, MOTG, MOTO, KOKU, JSTC, FOMO, FORH, DIVS, GENY, GXTG, GIGE, BUYZ, EDUT, MRAD, INFL, TMAT, DGT, DEW, WDIV, GCOW, FLQD, WLDR, HERD, PFIX, WKLY, PSP, SDIV, ROBO, BFIT, BLES, IVES Summary The US has significantly outperformed the rest of the world in earnings growth over the last decade.
Chart Of The Week - Clues From Small Central Banks
Rate Hikes on the Frontier of the Global Economy: This is one of my favorite charts, and one that helped get us onto the right side of the global policy pivot that has rippled across markets this year. The chart tracks interest rate moves by the smaller/developing country central banks: I like to keep tabs on this group as they tend to be more sensitive to the ebb and flow of global growth and inflation tides.
Bond Bears Beware
More troubling global economic data hit the tape earlier this week. China’s manufacturing sector continued to run in contraction territory, with its purchasing managers’ index inching up to 49.6, still below the key 50 threshold. Then in Europe, inflation notched an all-time high at 8.1% year-on-year. Eurozone CPI verified much hotter than analysts were expecting. Meanwhile, in the US, the Economic Surprise Index has deteriorated – both Citigroup’s and Bloomberg’s indexes are at year-to-date lows.
Chart Of The Week - Green Boom & Bust
Jun. 01, 2022 12:58 AM ET Summary Renewable energy stocks continue to tumble vs traditional energy. The green movement's current bust features a whopping 70% relative drawdown to oil and gas names. We expect some upside from renewables in due time. Opportunities are likely to emerge in the coming months and years for clean energy. Renewables vs Fossils: The relative performance of clean energy vs fossil fuel stocks has featured some wild boom/bust cycles over the past two decades.
Growth Scare Spooks Small Caps
The S&P 500 has been a tough index to beat over the last decade-plus. Just over the past year, the US large-cap index is actually up when you include dividends while foreign shares are down about 12% and US small caps are off a whopping 16%. The Russell 2000 index (IWM) even managed to tag its August 2018 high during the downturn earlier this month. Massive underperformance among the smalls leads many investors to wonder if the group of misfits now represents a good value.
Weekly S&P 500 ChartStorm - 29 May 2022
1. Scintillating Stock market Statistics: The market was up 6% last week. Historically, on average, subsequent returns were positive most of the time, and often materially so. (albeit note the outliers/exceptions: 2008 financial crisis, 1974 inflation shock, early-2000’s dot-com bubble bursting, and 1980 when Fed Chair Volcker hiked the economy into recession to get inflation under control…) 2.
U.S. Dollar Pulls Back After A Monster 12 Months
Growth fears are becoming front and center after inflationary worries were top of mind earlier in 2022. A bearish regime change continues to unfold. We see this mindset shift across asset classes over the last month or two. US Treasury yields retreated sharply off the highs while the US dollar has pulled back off an incredible 17% advance from a year ago. Recession fears cascade across trading desks following some dismal earnings reports last week and concerning economic data this week.
Chart Of The Week - Over/Under (Reaction)
European Equities — Sentiment vs. Stocks: After a very promising looking - almost textbook breakout last year, European equities have come all the way back down to support (former resistance), and the way sentiment is looking, there could be still more downside to come.
Eyeing Alpha In EM Ex-Asia Vs. EM Asia
After issuing some major idea changes last week, we revisit some current intermediate-term ideas in the most recent edition of our Weekly Macro Themes report. Specifically, we remain bullish on UK equities and continue to favor European vs US stocks. Another theme we find still attractive is emerging markets outside of Asia vs EM Asia. Specifically, we like what’s happening in Latin America.
Weekly S&P 500 ChartStorm - 22 May 2022
1. Correction-Drivers Update: -EPOL [Poland ETF] (geopolitics proxy): up off the lows -LQD [IG Credit ETF] (credit/rates): bottoming? -ARKK [New Tech Fund] (tech burst): stopped making new lows (for now), follows -73% drawdown Overall, the fact that these things have stopped going down (in contrast to the market as a whole) is probably a positive short-term sign. But it is still early days, and technically those 3 lines are still going down (lower lows and lower highs).
Buybacks Breakout: Buyback Boost Back?
Corporate earnings season has come and gone. The daily noise of what’s happening at the company level along with macro takes from CEOs is in the rearview mirror for now. With the passage comes an end to the buyback blackout period. Generally, firms are restricted from repurchasing their shares for two weeks before the end of a quarter and for 48 hours after releasing earnings. Some research suggests, however, that buyback blackout periods do not negatively impact stock performance.
Chart Of The Week - Global Equity Regime Change
Chart of the Week - Global Equity Regime Change Bubble-Bursting Bear-Market: The major drivers of strength in global equities since the market bottom in 2009 (and ensuing decade-long bull market) namely: momentum/growth/cyclicals have taken a clear and decisive turn for the worst since peaking in early 2021. Just as this group was a key driver of strength during the bull market phase, they are now a key driver of weakness during this apparent bear market phase.
Commodity Caution: Bullish To Bearish On Commodities
It has been an incredible run for commodities in the last two years. From late April 2020, the overall commodities tracking ETF (DBC) is up 167% while the popular oil fund (USO) has surged a whopping 377%. After initiating a bullish outlook on the space in March 2020, it’s time to close this long idea. Tough Slogging Ahead Why the change? Technicals are turning bearish, sentiment indicators are frothy, the macro backdrop is weaker, and frankly, the value narrative is questionable right now.
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