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Breakdowns in the Health Care Sector
by Team of GaveKal Capital,
Health care stocks have been the leadership sector in the MSCI World, and many (such as biotech) have reached some pretty elevated valuations. Most stocks in the sector have been in multi-year bull markets trends, outperforming the MSCI All Country World Index significantly.
Monetary Movements & Economic Mirage
by Team of GaveKal Capital,
While we entered 2015 with the Federal Reserve talking confidently about lift-off and how many rate increases there would be by the end of the year, the markets didn't seem to buy it. As weak economic data began to surface, the Fed seemed to quietly backtrack first on the date of lift-off and then on the trajectory of the expected hiking cycle.
Can Crude and Copper Keep Rallying with China Slowing?
by Team of GaveKal Capital,
Yesterday saw the monthly slue of Chinese economic stats and the key feature among them was the continued broad-based weakness. The weakness in some of these statistics has been so pronounced (some things like IP and retail sales are at levels near or below those seen at the depths of the financial crisis) that it has us wondering if the price of oil and copper can continue to rally in the face of an increasingly slower China?
Developed Asia Pacific: Economy Trends Update April 2015
by Team of Thomas White International,
Though Japanese exports exceeded imports in March 2015, weak domestic spending appears to have impacted the country’s nascent economic recovery. Wage growth needs to trickle down to workers employed in smaller Japanese firms, which would also push up inflation. Thankfully, the Bank of Japan has said it will hold its stimulus program in place until economic growth picks up pace.
US Equity Leadership (Still) Hasn't Changed
by Team of GaveKal Capital,
We mentioned two weeks ago how equity performance has flip-flopped in the second quarter and how asset prices are most likely just in a counter-trend rally. Since then, others have picked up on this theme with a lot of folks calling for higher bond yields in particular (we aren't so sure). If equity markets are in the process of a trend change, one would expect leadership to change as well. As we will show in the charts below, this doesn't look to be happening from a relative performance perspective in the US. All data is in USD, on an equal-weighted basis and as of 5/8/2015 close.
Q1 Letter
by Team of Grey Owl Capital Management,
Grey Owl’s strategies all performed well in the first quarter. The good performance came despite US GDP growth of just 0.2%, continually lowered earnings expectations, and volatile equity and bond markets. Below we discuss the current environment including the now absolute fixation by investors on every Fed comment, our continued focus on an all-weather approach, and our best and worst performing securities during the quarter.
Has Sales Growth Peaked for the Cycle?
by Team of GaveKal Capital,
Sales growth estimates for companies around the world began sliding towards the middle of 2014 as the price of oil began its months-long setback. In the first chart below we show the average and median company's next 12 month sales growth estimate for the MSCI World Index which shows that the level of expected sales growth took a significant step down into the first quarter of 2015.
Global Economic Overview and Equity Commentaries: March 2015
by Team of Thomas White International,
The global economy is facing subdued growth in the short term, as adverse weather and a stronger currency have slowed the pace of U.S. expansion. Unusually severe winter weather on the U.S. East coast restricted business and consumer activity during the first three months of the year.
Amazon and Apple: Two Approaches To Capital Investment
by Team of GaveKal Capital,
With Apple's (ticker: AAPL) announcement that are selling more debt in order to buy back more shares and pay out dividends, a client posed an interesting question to us: Do you think Amazon (ticker: AMZN) will announce something similar soon? Our short answer is most likely no since Amazon tends to reinvest earnings, especially in intangible investments, much more aggressively than Apple does. Let's take a quick look at how Amazon and Apple's investment profiles and payout strategies differ (all data refers to Gavekal's intangible-adjusted financial statements).
An Investigation Into Corporate Investments
by Team of GaveKal Capital,
Profitability and investment are inextricably linked through time. A company's investment decisions today will ultimately drive its profitability level tomorrow. The fruits of a company's investment decisions eventually show up in profitability metrics such as free cash flow margin, operating cash flow margin, and return on equity. Finally. a company's ability to improve these metrics, year-in and year-out, ultimately dictates how a company's stock will perform over the long run.
Americas: Economy Trends Update - April 2015
by Team of Thomas White International,
Lower oil and commodity prices as well as changes in currency rates continue to be the main drivers of economic trends in the Americas. The weak export outlook for energy and commodities have hurt the prospects of large economies such as Brazil, which is expected to see a decline in economic output this year.
Dollar Dictated Returns In April - Except This Time The Lowest Correlated Outperformed
by Team of GaveKal Capital,
With April in the rearview mirror, it's a good time to look back on which factors had the strongest relationship to market over the past month. USD correlation had the tightest relationship to the market.
NYSE Margin Debt Charged To New All-Time Highs In March
by Team of GaveKal Capital,
After spending the past year somewhat ranged bound, margin debt increased by just under $11.5 billion in March to a new all-time high of $476 billion, taking out the previous high set in February 2014. The increase in margin debt over the past two months is the largest two-month increase since February 2013.
The Step Down In Long-Term US Growth Rates Breaks Lower
by Team of GaveKal Capital,
From 1974 to 2007, the long-term US growth rate in real GDP generally fell between 3-3.5% on annualized basis (excluding the v-shaped bounce from 1982-1984). We define long-term here by looking at the 10-year annualized percentage change. With the 1Q now in the books, this series just dropped to an all-time low of 1.46%.
The Smart Money Is Getting Long Treasury Bonds Again
by Team of GaveKal Capital,
Long-dated US Treasury bonds have been treading water of late, leaving many rate watchers wondering in what direction the next big move is going to be. One variable in the next move is of course trader positioning. The two charts below show how the "smart money" is betting.
Revisions Have Improved But Can It Last?
by Team of GaveKal Capital,
The percent of stocks in the MSCI World Index that have had positive EPS revisions compared to six months ago currently stands at 45%. Over the past 7+ years, the average level of this statistic is 56%. So it currently stands below average levels but encouragingly it has improved from a low of 30% set on January 14th.
The Right Tool For The Job of Active Management
by Team of GaveKal Capital,
Market-cap weighted indexes such as the MSCI global equity indexes are commonly used reference points for investment benchmarking. In these indexes, the market cap of the top 10% of the stocks is generally 50% of the market cap of the index.
Where Banks Are Performing Well In The World
by Team of GaveKal Capital,
There is an old belief that when bank stocks are doing well, the economy must be doing well also. With this in mind, we decided to take a look how the banking sectors have performed in seven different countries: USA, Germany, United Kingdom, France, Japan, China, Brazil.
Is Volatility Making a Comeback in Europe?
by Team of GaveKal Capital,
Having fallen from the recent highs earlier this year, various metrics of volatility in Europe have risen abruptly in the last few days-- especially when viewed in the context of a rather subdued VIX (a measure of expected market volatility conveyed by S&P 500 options prices; represented by the light blue line below).
Something To Keep In Mind During Earnings Season...
by Team of GaveKal Capital,
As we enter the heart of the S&P 500 1Q earnings season, and the CNBCs of the world focus on the number of companies that (surprise) beat earnings expectations once again, remember this fact: earnings expectations have been beaten down over the past six months. Let's take a quick tour of the developed world to illustrate this point.
Is Brazil The Next BRIC To Ride EM Equity Wave?
by Team of GaveKal Capital,
On an equal-weighted, USD basis, Russia is up 46% year-to-date, by far the best performing country in the MSCI All-Country World Index. Coming in second, is China which is up 29%. India is the 14th best performing country (8.2%). The lone man out is Brazil which is the fifth WORST performing country year-to-date, one of only 10 countries posting a negative return year-to-date (-7%).
Are Commodities And EM Stocks Becoming Less Sensitive To The Dollar?
by Team of GaveKal Capital,
Are commodities becoming less sensitive to changes in the USD? The surge in the dollar has negatively affected commodities somewhat but not nearly as much as one might have expected given that the real trade-weighted dollar is 19% higher than it was in July. Commodities are about 19% lower during this time. However, when the dollar surged by 14% in 2008, commodities fell by 39%.
Can The Marriage of Two Knowledge Followers Produce a Knowledge Leader?
by Team of GaveKal Capital,
Most of our readers are familiar with our process that seeks to identify what we refer to as Knowledge Leaders or, quite simply, companies that consistently invest in knowledge-intensive activities such as research & development, advertising, and employee training. Common attributes of knowledge leaders include, but are not limited to, less volatile earnings and sales growth, lower adjusted ROE, and a larger stock of intangible capital on their balance sheets.
How Much Lower Can The 30-Year Treasury Yield Go?
by Team of GaveKal Capital,
Three weeks ago we mentioned how Fed assets were finally declining on a quarterly basis. Since then we have had a few more data points released and the trend is still downward. Compared to three months ago, the Fed's balance sheet has shrunk by over $32 billion. We are, however, beginning to reach the contractionary limit during the QE period. The most the Fed's balance sheet has contracted over a three month period was $81.8 billion in May 2012.
Where Positive Economic Surprises Are (And Aren't) Happening
by Team of GaveKal Capital,
There is a geographic disparity amongst the Citi Economic Surprise Index. Economies, both developed and emerging, are surprising to the upside in Asia and Europe while economies in the western hemisphere are not doing as well (at least in terms of meeting and exceeding expectations). Below we show some of the more interesting charts.
Bottom Fishing
by Team of GaveKal Capital,
I often go back and re-read things that have shaped my perspective on managing portfolios. In my 20s (in the 1990s) I was fortunate to have a friend and mentor named Clay Allen who taught me volumes on the art of portfolio management. He introduced me to the point and figure method of charting stock prices and we often talked at length about how to win the "losers game".
Well, you know this is a bull market [in government bonds]!
by Team of GaveKal Capital,
Those familiar with "Reminiscences of a Stock Operator" will recall several scenes in which young traders are gathered at a brokerage house exchanging ideas and contemplating every tick on the tape as if marked some monumental episode for owners of the stock. Then one of the young traders would ask a quiet veteran trader, who was sitting in the corner paying little or no attention the topic de jure, what he thought of the recent price action of some issue, to which the veteran would reply, “Well, you know this is a bull market”.
International Equity Commentary: February 2015
by Team of Thomas White International,
International equity prices gained during February on expectations that the central banks in Europe and Japan would continue their quantitative easing programs, while the U.S. Federal Reserve could possibly delay its interest rate hikes. At the same time, economic trends from most major economies remained relatively stable. After two quarters of robust gains, the U.S. economy expanded at a slower pace during the fourth quarter of 2014, as expected.
Growth Expectations Are No Longer Cratering For Energy Stocks
by Team of GaveKal Capital,
Sales and earning growth expectations for energy stocks are still pretty awful for the next fiscal year (FY1). Sales are expected to drop by 17% and earnings by a whopping -29%. However, earnings are expected to make a V-shaped rebound. Analysts expect sales to grow by an average of 12.3% per year over the next three years (FY2-FY4). The rebound in earnings is expected to be even stronger. Earnings are expected to grow by an average of 32.5% per year over the following three years (FY2-FY4). These expectations are setting a high bar for the energy sector for 2016-2018.
Emerging Markets Equity Commentary: February 2015
by Team of Thomas White International,
Emerging Market Equities
Emerging market equity prices advanced during the month of February on signs of improvement in global economic trends as well as expectations about quantitative easing in Europe and Japan. Encouraged by reduced inflation risks after the oil price decline, some of the emerging market central banks have also lowered interest rates in recent months.
Enjoying the Shade
As commentator Cherian George has said: “The legacy passed down to today’s Singaporeans isn’t one of random opportunism…There is nothing accidental about it.” Singapore’s first prime minister, Lee Kuan Yew, took charge of the city-state, transformed and drove it forward in the span of just a few decades. This week Matthews Asia pays tribute to this “giant of history.”
Global Economic Overview: February 2015
by Team of Thomas White International,
The global economic outlook improved in February, helped by encouraging data from some of the largest countries as well as supportive monetary policy measures. Monthly job additions in the U.S. exceeded expectations in February, continuing the robust trend from last year. Though wages are yet to see meaningful growth, the strengthening labor market should help the U.S. economy sustain the current pace of expansion.
Latin America Is Blowing Up Your EM ETF Performance
by Team of GaveKal Capital,
On an equal-weighted, USD basis, the MSCI Emerging Markets Index is up just 0.99% YTD compared to MSCI World Index which is up 5.65%. So is this just a simple continuation of the trend of emerging market underperformance that has been in place over the last 4 years ? Yes, but with a caveat.
Northern Trust Perspective
by Team of Northern Trust,
The long-telegraphed launch of quantitative easing by the European Central Bank (ECB) has added some accelerant to financial market trends in place so far this year. European stocks, which had been strong performers in local currencies, have continued their strong performance while European bond yields have declined even further.
Dropping the "Patient" Word Does Not Mean the Fed Is "Impatient"
by Team of Northern Trust,
Markets sometimes hang on every word from the Federal Reserve. In recent weeks, they had been hanging on a single word: “patient.” This term had been used to describe the prospective approach to policy tightening in recent statements; analysts speculated that removing the term would be a strong signal that rates would be heading up soon.
Keep it Simple: India is Outperforming Because Oil is Crashing and Inflation is Tame
by Team of GaveKal Capital,
India has for years battled high levels of inflation which has in many ways kept the country from realizing its full economic potential. Over the last year though, basically since the price of oil stopped going up, Indian inflation has remained tame. As global growth has continued to muddle through, the further collapse of the price of oil has been a major tailwind for India since global growth has not collapsed in lockstep.
Charting The Winners And Losers Of The Latest Surge In The USD
by Team of GaveKal Capital,
On March 4th we wrote in The Dollar Is Breaking Out Again And What It Means For Stocks that "for a variety of cyclical and structural reasons...stocks in North America tend to be the relative beneficiary of USD strength while stocks in other regions generally, but not always, tend to underperform. The negative correlation is especially strong for European stocks." Well, since then the USD has surged another 6% so we thought we'd review how things have played out.
Pop Quiz: What Is The Best Performing Regional Sector YTD?
by Team of GaveKal Capital,
The recent focus of the financial world (including for us) has been on the massive currency moves going on in the forex markets. By this point, everyone and their grandma knows that the US dollar has been on an explosive move higher. Since we are in a stronger US dollar environment now that must mean the US stock market has been outperforming in US dollar terms, correct? Not so fast.
The Expansion Settles, but Its Foundation Is Strong
by Team of Northern Trust,
Growth in the U.S. economy tapered a bit in the fourth quarter, but the outlook ahead remains very positive. Real gross domestic product (GDP) grew 2.2% in the fourth quarter after a 5.0% increase in the third quarter, but some special factors were at play that should ease as the first quarter of 2015 winds down.
The Market Is Pricing In Two Rate Hikes In 2015 (And Four In 2016)
by Team of GaveKal Capital,
According to Fed Fund futures, the market currently expects about 2 rate hikes by December 2015 (assuming the Fed raises rates by 25 basis points each time). Fed Funds futures is pricing the Fed Funds Rate at 54 basis points by December 2015. The market was most optimistic regarding delaying fed hikes in mid-January when the market was pricing in only about one and half hikes for 2015.
The Strong USD Is Negatively Impacting US Trade
by Team of Knowledge Leaders Capital,
Exports have been a solid contributor to US GDP growth for the last few years, while consumption and residential investment have been more restrained. Recently, with consumption firming and likely to improve further from the tail-wind of lower oil prices, and exports faltering, it appears the drivers of the US economy are trading places. It appears that we should expect trade to subtract from growth in the coming quarters.
ECB Asset Purchases = (Big) Equity Decline?
by Team of GaveKal Capital,
We have commented quite a bit on the dismal revisions to sales and earnings estimates (see here, here, and here for just a few examples). As we have noted, European stocks have excelled in the downgrade department, led by the Energy sector.
The Dollar Is Breaking Out Again And What That Means For Stocks
by Team of GaveKal Capital,
The ICE US dollar index looks to have broken out of what has been a rather short-lived consolidation after the massive move since the middle of 2014. If this is in fact the start of another round of dollar strength, then stock investors should carefully consider where in the world to deploy cash into stocks. For a variety of cyclical and structural reasons, certain regions of the world tend to outperform in periods of USD strength and others lag. We'll try to shed some light on that with the below charts.
Municipal Market Perspectives
A much colder than normal winter throughout the United States has impacted daily activities. Folks are remaining indoors and waiting for the March thaw. Not only are there fewer pedestrians, but runners are a rare sight. The logical inference is that many dedicated exercisers have retreated to the warmth of their basements or local health clubs for exercise, and are instead logging miles on stationary treadmills.
On the Long Bond and Why the Widow Maker is Alive and Well
by Team of Knowledge Leaders Capital,
Perhaps one of the most important questions investors need to answer today is whether we've seen the low in the long bonds yields or whether the trend lower is firmly intact. The recent spike in the 10-year bond yields from 1.65% at the end of January to 2.14% just two weeks later has no doubt complicated the situation. In this piece we'll try to layout one case for lower yields still.
Rise in Spanish CDS Outpaces Greece
by Team of GaveKal Capital,
Unsurprisingly, the cost of insurance against Greek default (as evidenced by 10-year credit default swaps) has risen since the beginning of the year. It is interesting to note, however, that the monthly rate at which Spanish CDS are rising is actually higher, increasing more than 20% according to the most recent data point.
Putting Declining Sales Estimates In Context
by Team of GaveKal Capital,
We track analyst estimates in a variety of ways. We look at growth rate expectations over the next four years. We also measure the percent change in the level of USD estimates across various time frames. We also track the difference in growth rates now versus three months ago. Finally, we look at the percent of companies that are experiencing a positive earnings revision over various time frames.
At a Standstill? - The Debate Over "Secular Stagnation"
by Team of Northern Trust,
During one particularly stormy day recently, I asked my daughter to unearth herself from the couch and help me clear the snow from the driveway. Unfortunately, the prospective reward of industry was no competition for the television remote, and I was left to fend for myself.
Results 1,351–1,400
of 2,793 found.
