Category: Chart of the Week

Is the Bear Market Over?

By John Del Vecchio and Brad Lamensdorf

The market has had a powerful rally.

Low-quality stocks have bounced strongly. 

This is typical of a bear market rally. Bear market rallies are typically very powerful.

Is the bear market over?

While it could be, certain conditions exist that typically do not indicate the start of a new bull market.

Consider Tobin’s-Q. The Q-Ratio measures the market value of companies divided by their assets’ replacement cost.

The indicator has been around for decades.

Coming into the most recent bear market, the Q-Ratio was at 1.75x. An all-time high.

It now sits at 1.41x, still an historically high level. 

 

If history is any guide, we would not expect a new bull market to start from current levels.

Meanwhile, valuation spreads remain at nosebleed levels.

The following chart, courtesy of Chris Cooper, illustrates that the valuation spreads are still at 30-year highs.

Spreads are constructed using five value measures: book-to-price, earnings-to-price, forecast earnings-to-price, sales-to-enterprise value, and cash flow-to-enterprise value. Spreads are measured based on ratios and are adjusted to be dollar-neutral, but not necessarily beta-neutral through time.

Meanwhile, if the bear market is over, it would represent an historically short period of market pain.

Given the historically high valuations and unfavorable liquidity situation, the odds favor being through the first third of a bear market.

More pain to come.

It’s time to consider additional hedges.

 

To learn more about how these indicators can help manage risk in your portfolio, book a call with Brad. You may book a call here.

DISCLOSURE: LAMENSDORF MARKET TIMING REPORT

Lamensdorf Market Timing Report is a publication intended to give analytical research to the investment community. Lamensdorf Market Timing Report is not rendering investment advice based on investment portfolios and is not registered as an investment advisor in any jurisdiction. Information included in this report is derived from many sources believed to be reliable but no representation is made that it is accurate or complete, or that errors, if discovered, will be corrected. The authors of this report have not audited the financial statements of the companies discussed and do not represent that they are serving as independent public accountants with respect to them. They have not audited the statements and therefore do not express an opinion on them. The authors have also not conducted a thorough review of the financial statements as defined by standards established by the AICPA.

This report is not intended, and shall not constitute, and nothing herein should be construed as, an offer to sell or a solicitation of an offer to buy any securities referred to in this report, or a “buy” or “sell” recommendation. Rather, this research is intended to identify issues portfolio managers should be aware of for them to assess their own opinion of positive or negative potential. The LMTR newsletter is NOT affiliated with any ETF’s.  Active Alts  is affiliated with Lamensdorf Market Timing Report. While LMTR uses charts from SentimenTrader, they do not have a financial arrangement with SentimenTrader  Past performance is not indicative of future results.

Overpriced and Overbought

By John Del Vecchio and Brad Lamensdorf

The first half of 2022 was the worst start of the year for stocks in five decades.

There could be much more damage to come.

While equity returns were poor, we started the year with nosebleed valuations.

As the chart below from Advisor Perspectives shows, the Buffett Equity to GDP indicator topped out at 214%, a historical high. Even after a good beating in stocks, the indicator only fell to 197.3%

Also, a historically high level.

New bull markets are unlikely to start from such a high level.

 

Speculative stocks have had a good run the past couple of weeks. However, we think this is indicative of a bear market rally.

Right on cue, stocks have become very overbought while valuations remain rich.

The following chart from RENMAC illustrates that we have not hit overbought levels. Typically, returns from here are poor until the overbought condition is worked off.

In our view, it is a good time to add back hedges.

Overpriced and Overbought

To learn more about how these indicators can help manage risk in your portfolio, book a call with Brad. You may book a call here.

DISCLOSURE: LAMENSDORF MARKET TIMING REPORT

Lamensdorf Market Timing Report is a publication intended to give analytical research to the investment community. Lamensdorf Market Timing Report is not rendering investment advice based on investment portfolios and is not registered as an investment advisor in any jurisdiction. Information included in this report is derived from many sources believed to be reliable but no representation is made that it is accurate or complete, or that errors, if discovered, will be corrected. The authors of this report have not audited the financial statements of the companies discussed and do not represent that they are serving as independent public accountants with respect to them. They have not audited the statements and therefore do not express an opinion on them. The authors have also not conducted a thorough review of the financial statements as defined by standards established by the AICPA.

This report is not intended, and shall not constitute, and nothing herein should be construed as, an offer to sell or a solicitation of an offer to buy any securities referred to in this report, or a “buy” or “sell” recommendation. Rather, this research is intended to identify issues portfolio managers should be aware of for them to assess their own opinion of positive or negative potential. The LMTR newsletter is NOT affiliated with any ETF’s.  Active Alts  is affiliated with Lamensdorf Market Timing Report. While LMTR uses charts from SentimenTrader, they do not have a financial arrangement with SentimenTrader  Past performance is not indicative of future results.

The Great Unwind?

By John Del Vecchio and Brad Lamensdorf

Households are loaded to the gills with stocks.

During the start of the COVID pandemic, millions of new brokerage accounts were opened.

New investors flooded the market.

As the chart below shows, household asset allocation to equities hit a 70-year high earlier this year.

Prior peaks have been met with recession and as well as a major ass-kicking in equity holdings.

The Great Unwind

This time, a healthy allocation to equities comes at a time of historically inflated valuations.

We like to look at the level of price-to-sales. While sales can be manipulated, it’s a bit cleaner than earnings due to more line items subject to shenanigans with earnings.

The price-to-sales ratio was popularized in the early 1980’s. Back then, it was nosebleed territory if a technology stock exceeded a price-to-sales of 3x.

Recently, the entire S&P 500 exceeded 3x!

The Great Unwind

These levels simply are not sustainable. There is nothing new under the sun.

Eventually, the excess allocation to equities coupled with absurd valuations measured by price-to-sales will be reconciled.

It’s not gonna be a fun experience.

To learn more about how these indicators can help manage risk in your portfolio, book a call with Brad. You may book a call here.

DISCLOSURE: LAMENSDORF MARKET TIMING REPORT

Lamensdorf Market Timing Report is a publication intended to give analytical research to the investment community. Lamensdorf Market Timing Report is not rendering investment advice based on investment portfolios and is not registered as an investment advisor in any jurisdiction. Information included in this report is derived from many sources believed to be reliable but no representation is made that it is accurate or complete, or that errors, if discovered, will be corrected. The authors of this report have not audited the financial statements of the companies discussed and do not represent that they are serving as independent public accountants with respect to them. They have not audited the statements and therefore do not express an opinion on them. The authors have also not conducted a thorough review of the financial statements as defined by standards established by the AICPA.

This report is not intended, and shall not constitute, and nothing herein should be construed as, an offer to sell or a solicitation of an offer to buy any securities referred to in this report, or a “buy” or “sell” recommendation. Rather, this research is intended to identify issues portfolio managers should be aware of for them to assess their own opinion of positive or negative potential. The LMTR newsletter is NOT affiliated with any ETF’s.  Active Alts  is affiliated with Lamensdorf Market Timing Report. While LMTR uses charts from SentimenTrader, they do not have a financial arrangement with SentimenTrader  Past performance is not indicative of future results.

 

Investor Risk Appetite Wanes

By John Del Vecchio and Brad Lamensdorf

As a sign a big bounce could be coming, investors have little appetite for risk. As the chart below from BofA Global Research shows, the percentage of investors taking higher than normal risks has plunged to nearly 2009 levels and are among the lowest this century.

Investor Risk Appetite Wanes

Meanwhile, the average cash position of fund managers has hit the highest level since the 9/11 terror attacks.

Investor Risk Appetite Wanes

While the market volatility may be far from over and lower prices could be seen in the future, the market sentiment is extremely bearish and indicators are pressed to the floor.

A bear market rally is overdue.

To learn more about how these indicators can help manage risk in your portfolio, book a call with Brad. You may book a call here.

DISCLOSURE: LAMENSDORF MARKET TIMING REPORT

Lamensdorf Market Timing Report is a publication intended to give analytical research to the investment community. Lamensdorf Market Timing Report is not rendering investment advice based on investment portfolios and is not registered as an investment advisor in any jurisdiction. Information included in this report is derived from many sources believed to be reliable but no representation is made that it is accurate or complete, or that errors, if discovered, will be corrected. The authors of this report have not audited the financial statements of the companies discussed and do not represent that they are serving as independent public accountants with respect to them. They have not audited the statements and therefore do not express an opinion on them. The authors have also not conducted a thorough review of the financial statements as defined by standards established by the AICPA.

This report is not intended, and shall not constitute, and nothing herein should be construed as, an offer to sell or a solicitation of an offer to buy any securities referred to in this report, or a “buy” or “sell” recommendation. Rather, this research is intended to identify issues portfolio managers should be aware of for them to assess their own opinion of positive or negative potential. The LMTR newsletter is NOT affiliated with any ETF’s.  Active Alts  is affiliated with Lamensdorf Market Timing Report. While LMTR uses charts from SentimenTrader, they do not have a financial arrangement with SentimenTrader  Past performance is not indicative of future results.

 

Bear Market Odds Model Surges

By John Del Vecchio and Brad Lamensdorf

A bear market prediction tool monitored by Goldman Sachs has surged in recent months to its highest level in decades. Here is a chart courtesy of SentimenTrader.com

Bear Market Odds Model Surges

This is a model outlined by Goldman Sachs using five fundamental inputs – the U.S. Unemployment Rate, ISM Manufacturing Index, Yield Curve, Inflation Rate, and P/E Ratio.

Each month’s reading is ranked versus all other historical readings and assigned a score. The higher the score, the higher the probability of a bear market in the months ahead.

When the model was 20% – 29%, the S&P’s average one-year return was +21%.

But when the model was 80% – 89%, that average return plunged to -2%. So the higher the model, the greater the chance for a bear market, or at least negative forward returns.

Time to up the hedges?

 

To learn more about how these indicators can help manage risk in your portfolio, book a call with Brad. You may book a call here.

DISCLOSURE: LAMENSDORF MARKET TIMING REPORT

Lamensdorf Market Timing Report is a publication intended to give analytical research to the investment community. Lamensdorf Market Timing Report is not rendering investment advice based on investment portfolios and is not registered as an investment advisor in any jurisdiction. Information included in this report is derived from many sources believed to be reliable but no representation is made that it is accurate or complete, or that errors, if discovered, will be corrected. The authors of this report have not audited the financial statements of the companies discussed and do not represent that they are serving as independent public accountants with respect to them. They have not audited the statements and therefore do not express an opinion on them. The authors have also not conducted a thorough review of the financial statements as defined by standards established by the AICPA.

This report is not intended, and shall not constitute, and nothing herein should be construed as, an offer to sell or a solicitation of an offer to buy any securities referred to in this report, or a “buy” or “sell” recommendation. Rather, this research is intended to identify issues portfolio managers should be aware of for them to assess their own opinion of positive or negative potential. The LMTR newsletter is NOT affiliated with any ETF’s.  Active Alts  is affiliated with Lamensdorf Market Timing Report. While LMTR uses charts from SentimenTrader, they do not have a financial arrangement with SentimenTrader  Past performance is not indicative of future results.

2018 - All Rights Reserved © LMTR, LLC

Privacy Policy - Contact Email: info@lmtr.com