Why Hitting 2% Real GDP Growth Is Key For US Corporate Profits

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While the myth that stock market returns are highly correlated to a country’s GDP growth rate has largely been debunked, there remains a strong, and intuitive, relationship between corporate profits and GDP. GDP measures the output of an economy and corporate profits are simply the income to capital owners derived from that output (with some accounting adjustments made along the […]

Companies with the Lowest Dividend Yields Are Driving Performance

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In the month of January, the most important factor correlation to performance of developed market stocks has been dividend yield (DY). Interestingly, though, the best performance has been generated in those stocks that belong to the lowest decile (those that pay a smaller dividend relative to their share price) while those with the highest DY have […]

Fewer Stocks Outperforming As The Market Moves Higher

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Just 44% of developed market stocks have outperformed the MSCI World Index over the past 200 days compared to 57% outperforming on average over the past 15 years.  As the chart below illustrates, there is a fairly strong negative correlation between the percentage of stocks outperforming and the direction of the index. As stocks move higher, […]

Boom-Bust Barometer Making All-Time Highs

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The Boom-Bust Barometer (made famous by Dr. Ed Yardeni) is a simple, but effective, way of avoiding large drawdowns in the stock market. This indicator is calculated by taking the CRB Raw Industrial Price Index divided by initial unemployment claims. The theory goes that if commodity prices are rising and unemployment claims are falling (thus the […]

6 Industry Groups that Appear to be Short-Term Overbought

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Out of 24 developed market industry groups, six currently look overbought in the short-term. Two come from the financial sector, two come from the technology sector, one from consumer staples sector (surprisingly) and one from the materials sector.   Below we plot the percentage of stocks trading above the 65-day moving average (blue line) and […]

‘Growth’ Stocks Are Outperforming in 2017…Are Lower Bond Yields Next?

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After underperforming in 2016, growth stocks have once again started to outperform value stocks in 2017. As the chart below illustrates, the S&P 500 Value Index consistently outperformed the S&P 500 Growth Index from 2002-2006. Since 2007, however, growth stocks have outperformed value stocks with value outperforming growth in just two calendar years (2012 and 2016) […]

French Economic Uncertainty at All-Time Highs

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The rise in European government bond yields has been widespread since lows in early fall last year, led by Italy and (now) France. As investors turn to the relative safety of bunds, the spread between French and German yields (light blue line below) has risen to multi-year highs. In addition, the economic policy uncertainty index […]

Positive Revisions to Estimates Surge

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The percentage of positive revisions to developed market sales and earnings estimates jumped over the last month, with an average of 76% of companies reporting better sales estimates and 70% reporting better earnings estimates. Developed Markets (DM) DM Americas has remained the most steady of the three regions as ~50% of companies have reported positive revisions […]