- A Highly Correlated Market Is One Driven By Fear, Not Opportunity. The market has had an impressive rally to start the year. However, underlying technical indicators point to it growing extended, with limited structural investor support.
- Uniform earnings growth deceleration and continued credit headwinds that will meter growth signal means the market structure is unlikely to change favorably. Near-term corporate management demand for investment has buoyed growth. However, credit and investment metrics signal that on the margin, this is slowing, thanks to the Fed’s efforts.
- Any credit issues do not need to lead to a deep recession, thanks to healthy borrowers. Healthy corporate and consumer balance sheets limit the risk that ongoing tightening leads to a credit rout and waves of defaults.
- Monthly inflections:
- Credit (55% of macro outlook): Negative (no change)
- Earnings Growth (30%): Neutral (no change)
- Momentum/Sentiment (10%): Negative (downgrade)
- Valuations (5%): Negative (downgrade)
- Timetable Recommendation: 50/50 Split for 5-10 Year Money and 22 Month Dollar Cost Averaging....
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February 16, 2023
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February 16, 2023
- The Fed’s Efforts To Slow Growth Are Having Their Desired Effects. Uniform earnings growth continues to decelerate. In late 2022, data showed management teams holding off on capex, and in early 2023, management teams slowed overall borrowing as well. The Fed’s efforts have pushed management teams to be more cautious.
- While credit availability is lacking, healthy corporate and consumer balance sheets signal any recession does not need to be a deep recession. Healthy corporate and consumer balance sheets limit the risk that ongoing tightening leads to a credit rout and waves of defaults.
- After the recent pullback and market volatility, investor sentiment is no longer extended. More neutral sentiment is likely to reduce market volatility in the short-term.
- Monthly inflections:
- Credit (55% of macro outlook): Negative (no change)
- Earnings Growth (30%): Negative (downgrade)
- Momentum/Sentiment (10%): Neutral (upgrade)
- Valuations (5%): Negative (no change)
- Timetable Recommendation: 50/50 Split for 5-10 Year Money and 22 Month Dollar Cost Averaging....
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January 19, 2023
- Our Outlook for A Sideways Market in 2023 Remains Intact. For 2022, Uniform earnings growth is forecast to be -3%, and until that trend changes, the market can’t engage higher.
- Uniform earnings growth is unlikely to reaccelerate until credit conditions are more constructive, and most metrics are trending in a negative direction. Healthy corporate and consumer balance sheets limit the risk that continued tightening turns into a credit rout and triggers waves of defaults. However, credit signals continue to point to a significant tightening of lending availability.
- Investor sentiment is neutral while valuations are now reasonable to elevated. This appears to signal we’re at the middle to higher end of a sideways market.
- Monthly inflections:
- Credit (55% of macro outlook): Negative (no change)
- Earnings Growth (30%): Neutral (no change)
- Momentum/Sentiment (10%): Neutral (no change)
- Valuations (5%): Neutral (downgrade)
- Timetable Recommendation: 50/50 Split for 5-10 Year Money and 18 Month Dollar Cost Averaging....
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December 15, 2022
- The Market Follows Earnings Growth, And Earnings Growth Just Turned Negative. A mix of U.S. corporate investment growth deceleration and profit pressures has turned U.S corporate earnings growth negative. For 2022, Uniform earnings growth is forecast to be -3%, and until that trend changes, the market can’t engage higher.
- Credit signals continue to point to a significant tightening of lending availability. Healthy corporate and consumer balance sheets limit the risk that leads to a credit rout. Tighter credit availability is likely to reduce investment going forward.
- After the recent rally, sentiment is neutral while valuations are now reasonable to elevated. This appears to signal we’re at the higher end of a sideways market.
- Monthly inflections:
- Credit (55% of macro outlook): Negative (no change)
- Earnings Growth (30%): Neutral (downgrade)
- Momentum/Sentiment (10%): Neutral (no change)
- Valuations (5%): Neutral (downgrade)
- Timetable Recommendation: 50/50 Split for 5-10 Year Money and 20 Month Dollar Cost Averaging....
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October 20, 2022
- Zero Earnings Growth Caps Market Upside, Setting Up A Sideways Market. Credit signals continue to point to a significant tightening of lending availability. Healthy corporate and consumer balance sheets limit the risk that leads to a credit rout. Tighter credit availability is likely to reduce investment going forward.
- U.S. management teams still are bullish about investment, but return growth is slowing. U.S. corporate investment has finally been showing signs of growth. This can help earnings surprise on the upside but returns and credit headwinds may reduce that growth going forward.
- After the recent rapid sell-off, sentiment and valuation indicators are overly negative. This reduces the risk of a further drop as we remain in a sideways market.
- Monthly inflections:
- Credit (55% of macro outlook): Negative (no change)
- Earnings Growth (30%): Bullish (no change)
- Momentum/Sentiment (10%): Positive (no change)
- Valuations (5%): Positive (no change)
- Timetable Recommendation: 50/50 Split for 5-10 Year Money and 16 Month Dollar Cost Averaging....
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September 22, 2022
- Credit and Profit Overhangs Remain, Without Pointing to an Imminent Recession. Credit signals continue to point to a significant tightening of lending availability. Healthy corporate and consumer balance sheets limit the risk that leads to a credit rout. Tighter credit availability is likely to reduce investment going forward.
- U.S. management teams still are bullish about investment, but return growth is slowing. U.S. corporate investment has finally been showing signs of growth. This can help earnings surprise on the upside, but returns and credit headwinds may reduce that growth going forward.
- After the recent rapid sell-off, sentiment and valuation indicators are more negative. This may help reduce the risk of a further drop as we remain in a sideways market.
- Monthly inflections:
- Credit (55% of macro outlook): Negative (no change)
- Earnings Growth (30%): Bullish (no change)
- Momentum/Sentiment (10%): Positive (upgrade)
- Valuations (5%): Positive (upgrade)
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August 18, 2022
- Converging Credit and Profit Stormfronts Cloud The Market Outlook. Credit signals are highlighting a significant tightening of lending availability in the most recent several months. Healthy corporate and consumer balance sheets limit the risk that leads to a credit rout. Tighter credit availability is likely to reduce investment going forward.
- U.S. management teams still are bullish about investment, but return growth is slowing. U.S. corporate investment has finally been showing signs of growth. This can help earnings surprise on the upside, but returns and credit headwinds may reduce that growth going forward.
- Oversold conditions created the recent rally. With tougher fundamentals and greater investor optimism, we’re now likely positioned at the high end of a sideways market.
- Monthly inflections:
- Credit (55% of macro outlook): Negative (downgrade)
- Earnings Growth (30%): Bullish (no change)
- Momentum/Sentiment (10%): Neutral (downgrade)
- Valuations (5%): Neutral (downgrade)
- Timetable Recommendation: 50/50 Split for 5-10 Year Money and 18 Month Dollar Cost Averaging....
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July 21, 2022
- Rising Cost to Borrow Isn’t Preventing Growth – Only Excessively High-Cost Will. Credit levels are at or slightly above peaks from the most recent bull market cycle. However, they haven’t reached levels that signal risk of markets closing. Healthy corporate and consumer borrowing growth and balance sheets point to no risk of a real recession in the foreseeable future.
- Concerns about inflation and growth have created significant near-term volatility in the stock market, presenting an opportunity for investors.
- U.S. corporates are remarkably profitable, and growth is starting to accelerate. U.S. corporate investment has finally been showing signs of growth. Ruddy profitability can help power that growth and the market higher as it accelerates.
- Monthly inflections:
- Credit (55% of macro outlook): Neutral (no change)
- Earnings Growth (30%): Bullish (no change)
- Momentum/Sentiment (10%): Positive (no change)
- Valuations (5%): Positive (positive change)
- Timetable Recommendation: 50/50 Split for 5-10 Year Money and 10 Month Dollar Cost Averaging....
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May 19, 2022
- The Worst Is Likely Behind Us, That’s A Positive Catalyst For H2 2022. Investors have become spooked about headline risk wherever they look. However, most of these headlines have peaked in terms of the risk they can create. Concerns about inflation and geopolitical risk have created significant near-term volatility in the stock market, presenting an opportunity for investors.
- The market has also been spooked about the dramatic 200bps+ rise in the cost to borrow across U.S. corporate markets, with the Fed still raising rates. However headline rates are unlikely to continue to spike, and corporate credit remains very healthy.
- U.S. corporates are remarkably profitable and growth is starting to accelerate.
- Monthly inflections:
- Credit (55% of macro outlook): Neutral (negative change)
- Earnings Growth (30%): Bullish (no change)
- Momentum/Sentiment (10%): Positive (no change)
- Valuations (5%): Positive (positive change)
- Timetable Recommendation: 50/50 Split for 5-10 Year Money and upgrade to 10 Month Dollar Cost Averaging....
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April 21, 2022
- Management Bullish Signals Can Fuel 2022 Earnings Growth. U.S. corporate profitability has recovered impressively since the pandemic. Now, investment growth appears to be accelerating to match strong profits based on credit growth and management sentiment indicators. U.S. corporates are remarkably profitable and growth is starting to accelerate.
- Credit markets remain supportive of profitability and growth through the cycle, and the Fed raising rates won’t disrupt these signals. This facilitates the market rising and limiting any risk for a downside shock.
- While inflation remains a headline issue, investor sentiment has moderated significantly, de-risking the market
- Monthly inflections:
- Credit (55% of macro outlook): Bullish (no change)
- Earnings Growth (30%): Bullish (no change)
- Momentum/Sentiment (10%): Positive (no change)
- Valuations (5%): Negative (no change)
- Timetable Recommendation: 60/40 Split for 5-10 Year Money and upgrade to 6 Month Dollar Cost Averaging....
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March 17, 2022
- Geopolitical Risk Is (Still) For Reporters, Not Investors. Most of last month’s themes still hold. Concerns about inflation and geopolitical risk have created near-term volatility in the stock market, presenting an opportunity for investors.
- U.S. corporate profitability has recovered impressively since the pandemic. Now, investment growth appears to be accelerating to match strong profits based on credit growth and management sentiment indicators. U.S. corporates are remarkably profitable and growth is starting to accelerate.
- Credit markets remain supportive of profitability and growth through the cycle, and the Fed raising rates won’t disrupt these signals. This facilitates the market rising and limiting any risk for a downside shock.
- Monthly inflections:
- Credit (55% of macro outlook): Bullish (no change)
- Earnings Growth (30%): Bullish (no change)
- Momentum/Sentiment (10%): Positive (no change)
- Valuations (5%): Negative (no change)...
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February 17, 2022
- Geopolitical Risk Is For Reporters, Not Investors. Concerns about inflation and geopolitical risk have created significant near-term volatility in the stock market, presenting an opportunity for investors.
- U.S. corporate profitability has recovered impressively since the pandemic. Now, investment growth appears to be accelerating to match strong profits based on credit growth and management sentiment indicators. U.S. corporates are remarkably profitable and growth is starting to accelerate.
- Credit markets remain supportive of profitability and growth through the cycle, and the Fed raising rates won’t disrupt these signals. This facilitates the market rising and limiting any risk for a downside shock.
- Monthly inflections:
- Credit (55% of macro outlook): Bullish (no change)
- Earnings Growth (30%): Bullish (no change)
- Momentum/Sentiment (10%): Neutral/Positive (upgrade)
- Valuations (5%): Negative (no change)
- Timetable Recommendation: 50/50 Split for 5-10 Year Money and upgrade to 7 Month Dollar Cost Averaging.
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January 20, 2022
- Credit Demand Is Means Green Shoots of Growth Are Returning. U.S. corporate profitability has recovered impressively since the pandemic. Now investment growth appears to be accelerating to match strong profits based on credit growth and management team sentiment indicators. U.S. corporates are remarkably profitable and growth is starting to accelerate.
- While inflation and valuations issues remain, sentiment indicators are removing a further overhang for the market rising in 2022.
- Credit markets remain supportive of profitability and growth through the cycle, and the Fed raising rates won’t disrupt these signals. This facilitates the market rising and limiting any risk for a downside shock.
- Monthly inflections:
- Credit (55% of macro outlook): Bullish (no change)
- Earnings Growth (30%): Bullish (no change)
- Momentum/Sentiment (10%): Neutral/Positive (upgrade)
- Valuations (5%): Negative (no change)
- Timetable Recommendation: 50/50 Split for 5-10 Year Money and upgrade to 7 Month Dollar Cost Averaging....
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December 16, 2021
- Management Teams Are Primed to Deliver Strong Earnings Growth for 2022. U.S. corporate profitability has recovered impressively since the pandemic. An overhang for the last several months was if investment growth would accelerate to match strong profits. With management teams growing more bullish, it appears it has. U.S. corporates are remarkably profitable and investment signals are starting to point towards accelerating near-term growth.
- While inflation and valuations issues remain, sentiment indicators are removing a further overhang for the market rising in 2022.
- Credit markets remain supportive of profitability and growth through the cycle, facilitating the market rising and limiting any risk for a downside shock.
- Monthly inflections:
- Credit (55% of macro outlook): Bullish (no change)
- Earnings Growth (30%): Bullish (improvement from neutral)
- Momentum/Sentiment (10%): Neutral (improvement)
- Valuations (5%): Negative (no change)
- Timetable Recommendation: 50/50 Split for 5-10 Year Money and upgrade to 8 Month Dollar Cost Averaging....
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November 18, 2021
- The Market May Get Growth And Inflation Concerns For Christmas. While the market has rocketed higher in the past month and a half, datapoints about two key drivers of market valuations, inflation, and growth, have gotten worse. Inflation headlines, combined with growth headwinds and excessively bullish investor sentiment may pressure valuations.
- U.S. corporate profitability has recovered impressively since the depths of the pandemic, powering the market to rebound. At current valuations, the market is expecting this to continue and for growth to be above average going forward. However, in the near-term, subdued management confidence limits growth, which limits equity upside.
- However, near-term growth and valuation issues are not a reason for concern for long-term investors, thanks to the bedrock of any bull market, healthy credit. Credit metrics show healthy availability of credit from both credit markets and banks, and no risk of defaults. This means the risk of a pullback turning into a bear market is exceptionally low.
- Timetable Recommendation: 50/50 Split for 5-10 Year Money and upgrade to 12 Month Dollar Cost Averaging....
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October 21, 2021
- We Are Waiting for Growth. The speed of the recovery in return on assets after the pandemic highlights the resiliency and strength of U.S. corporate profitability. At current valuations, the market is expecting this to continue and for growth to be above average going forward. However, in the near-term, subdued management confidence limits growth, which limits equity upside.
- After the pullback of the last 2 months, investor sentiment has moderated. This reduces the risk of near-term volatility. However, valuation and growth concerns mean the market is not necessarily moving higher. While sentiment indicators reduce equity downside, valuation and growth indicators point to a sideways market.
- However, near-term growth and valuation issues are not a reason for concern, thanks to the bedrock of any bull market, healthy credit. Credit metrics show healthy availability of credit from both credit markets and banks, and no risk of defaults. This means the risk of a pullback turning into a bear market is exceptionally low.
- Timetable Recommendation: 50/50 Split for 5-10 Year Money and upgrade to 11 Month Dollar Cost Averaging....
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September 16, 2021
- You Can’t Have The Growth Stage Of A Bull Market Without Growth. The speed of the recovery in return on assets after the pandemic highlights the resiliency and strength of U.S. corporate profitability. At current valuations the market is expecting this to continue and for growth to be above average going forward. However, in the near-term, subdued management confidence limits growth, which limits equity upside and may even create more near-term volatility.
- Even after the recent pullback, investor sentiment also remains excessively bullish. Combined with high inflation and lingering macro concerns (including Delta risks), this creates further risk to the market. This could further contribute to continued near-term volatility.
- However, any dip due to near-term growth or sentiment issues is a dip to continue to buy, thanks to the bedrock of any bull market, healthy credit. Credit metrics show healthy availability of credit from both credit markets and banks, and no risk of defaults. That means the risk of a pullback turning into a bear market is exceptionally low.
- Timetable Recommendation: 50/50 Split for 5-10 Year Money and upgrade to 12 Month Dollar Cost Averaging....
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August 19, 2021
- The Most Important Rule Of A Bull Market Is…Buy The Dips. After a healthy market rally the past two months, investor sentiment that had moderated is now starting to flash warning signs of a “hot” market. Combined with high inflation and continued lingering inflation concerns (and Delta risks), this points to one key risk to the market. There may be more volatility in the near-term. However, the fundamental backdrop means investors should buy any dip.
- The biggest reason that investors should buy the dip is the bedrock of any bull market, healthy credit. Credit metrics show healthy availability of credit from both credit markets and banks, and no risk of defaults. That means the risk of a pullback turning into a bear market is exceptionally low.
- Not only is credit a positive, corporate health points to reason for optimism too. As we have been highlighting, profitability has already recovered impressively from the pandemic, and there are now signs of management being open to investing again. Healthy corporate profitability and the potential acceleration of investment fuels the lifeblood of the market going higher…earnings growth
- Timetable Recommendation: 50/50 Split for 5-10 Year Money and upgrade to 9 Month Dollar Cost Averaging....
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July 22, 2021
- This Market Appears Well Positioned to Climb the Wall of Worry. For the past several months, we have been highlighting a lack of management commitment to growth as an overhang for the market, and the market’s pause over the last several months has confirmed this. However, even as the market is uncertain about headlines around the Delta variant and inflation there are very early signs this might be lifting, and if they are confirmed, it is bullish for stocks. Concerns about an investment pause may be lifting, which could accelerate corporate earnings growth.
- Credit markets remain supportive of growth and profitability, as all facets of the credit market are giving positive signals.
- With investors no longer in an exceptionally overbought position, short-term downside risk for the market is much lower. At the same time, high valuations and rising inflation risks may offer headwinds for appreciation. Neutral sentiment removes overhangs for the market, and if growth is accelerating, the market can be positioned to rise even with elevated valuation risk.
- Timetable Recommendation: 50/50 Split for 5-10 Year Money and upgrade to 8 Month Dollar Cost Averaging....
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June 17, 2021
- Early Management Buying Signals May Give Reason for Growing Growth Optimism. For the past several months, we have been highlighting a lack of management commitment to growth as an overhang for the market, and the market’s pause the last several months has confirmed this. However there are very early signs this might be lifting, and if they are confirmed, it is bullish for stocks. Concerns about an investment pause may be lifting, which could accelerate corporate earnings growth.
- Credit markets remain supportive of growth and profitability, as all facets of the credit market are giving positive signals.
- After recent volatility, investor sentiment levels have moderated. With investors no longer in an exceptionally over-bought position, short-term downside risk for the market is much lower. At the same time, high valuations and rising inflation risks may offer headwinds for appreciation. Neutral sentiment removes overhangs for the market, and if growth is accelerating, the market can be positioned to rise even with elevated valuation risk.
- Timetable Recommendation: 50/50 Split for 5-10 Year Money and upgrade to 8 Month Dollar Cost Averaging....
