It has been a volatile start to the year, with the S&P 500 now trading down slightly year-to-date (YTD) after peaking at +4.6% on February 19. We believe the most recent decline has been driven by two main factors: Analyst estimates have finally caught up to reality in some of the market’s biggest companies: The days of artificial intelligence-related stocks like NVIDIA blowing the roof off estimates when they report earnings and guidance appear to be over Given the relatively…

Now that the election is over, we wanted to share the main macro issues we will be watching into the new year, along with reasons to remain cautiously optimistic on equities. Key Issues to Watch Washington politics: While President-elect Trump has nominated candidates for many cabinet positions in the past two weeks, none of the main economic roles have yet been filled, most notably Secretary of the Treasury. It also remains to be seen which of his nominees will actually be…

On September 18, 2024, the Federal Reserve’s monetary policymaking body, the Federal Open Market Committee (FOMC), cut its benchmark interest rate by half a percentage point (50 basis points). This was the first rate cut since March 2020. Not only has this announcement received significant coverage, but leading up to this decision the financial press speculated endlessly on the matter. Initially, the speculation regarded whether the rate cut would happen at all and later it focused on the magnitude of…

Global markets are down sharply again this morning, with the S&P 500 currently trading off roughly 8% from its recent highs. Reasons for the sell-off: A sharp unwind of the Tech-driven Momentum trade. From JPMorgan1: “Momentum is a dynamic stock factor that changes its exposure depending on macroeconomic and fundamental conditions. As such, it often becomes crowded, followed by an inevitable and often sharp correction…This extreme Momentum crowding is due to sharp outperformance of right tail momentum, very narrow leadership…

Following the September/October market downturn, 2023 ended with very strong November/December returns for both stocks and bonds, capping off an unusual year for the capital markets. From their October lows, the S&P 500 rose over 15% and US Aggregate Bond Index over 9%, while the 10-year US Treasury yield fell sharply from 5.0% to 3.9%. While the ups and downs we experienced are a normal part of the investing journey, the wide disparity in performance between different types of companies…

The 10-Year US Treasury yield has risen from 3.4% in mid-May to its current 4.7%, the highest level since 2007. The recent weakness in the stock market is a direct result of this latest jump in rates, with the S&P 500 closing yesterday down roughly 8% from its recent July 31 high. The dual drop in both stock and bond prices echoes what occurred throughout 2022, and is a stark departure from the consistently negative stock-bond correlation that prevailed from…

Favorable recent US economic data points to an economy returning to the “Goldilocks” zone of “not too hot, not too cold” economic growth.1 Slow (but positive) growth could allow the inflation rate to stabilize in the 1-3% range that has been the historic sweet spot for US equity returns.2 This optimism has ignited the most recent market rally and sent stock valuations to relatively expensive levels on most key metrics.3 In addition, equity market sentiment has turned positive, with the AAII Sentiment Survey…

Since March 2020, the global economy has undergone multiple dramatic changes driven primarily by adaptations of businesses, consumers, employees, and governments to the COVID-19 pandemic. Some examples: Severe lockdowns followed by staggered reopening policies Massive government stimulus followed by fiscal and monetary tightening Huge demand increases for consumer goods and supply chain gridlock followed by the current “freight recession” 1 Collapse in travel followed by significant recovery 2 Worries about deflation followed by the highest inflation rate since 1980 3 The shifting economic…

On Monday, Treasury Secretary Janet Yellen stated that the US government may be unable to pay its bills in June if Congress does not act to raise the federal debt limit. While they may be able to stretch things to July, the point is that the limit will be hit soon and something needs to be done to prevent an unprecedented breach of confidence in the US government. What are the consequences of not raising the debt ceiling? In recent…

Analysis of Recent Market Events The past week in financial markets has been action packed, to say the least. We hope this post can help you understand what just happened and what it may mean for your portfolio. Let’s start with the consensus view as of market close March 8, 2023, or roughly one week ago. Preliminary reports indicated that February US economic conditions were still very strong, with the implication that inflation was still much too high. Fed Chair…