Blog Archives

Earnings Point To A Continuing Bull Market, But Expect Low 10-Year Forward Returns: Update June 2021

  • The average of S&P 500 for May 2021 was 4168 (previous month 4141). This is 1718 points higher than the long-term trend value of 2450.
  • The current percentage difference of S&P 500 level relative to the current long-term trend level is 70%, a value not exceeded in the recent past since August 2001.
  • The Shiller Cyclically Adjusted Price to Earnings Ratio (CAPE) is at a level of 36.8. That is 47.5% higher than its 35-year moving average (MA35), currently at 25.0.
  • The CAPE-MA35 ratio is 1.48, forecasting a 10-year annualized real return of about 4.0%. Should the CAPE-MA35 ratio increase further, then 10-year forward returns will be even lower.
  • End of May the 12-mo As Reported Earnings per share for the S&P 500 was $138.96, up from February’s $88.10. Should this trend continue then stocks may show further gains.

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The Overvalued S&P 500 Signals Low 10-Year Forward Returns: Update May 2021 

  • The average of S&P 500 for April 2021 was 4141. This is 1701 points higher than the long-term trend value of 2440.
  • The current percentage difference of S&P 500 level relative to the current long-term trend level is 70%, a value never exceeded in the recent past since August 2001.
  • The Shiller Cyclically Adjusted Price to Earnings Ratio (CAPE) is at a level of 37.0. That is 49% higher than its 35-year moving average (MA35), currently at 24.9.
  • The CAPE-MA35 ratio is 1.49, forecasting a 10-year annualized real return of about 4.0%. Should the CAPE-MA35 ratio increase further, then 10-year forward returns will be even lower.

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The S&P 500 Is Overvalued, Expect Low 10-Year Forward Returns: Update Q1, 2021

  • The average of S&P 500 for March 2021 is 3914. This is 1484 point higher than the long-term trend value of 2430.
  • The current percentage difference of S&P 500 level relative to the current long-term trend level is 61%, a value never exceeded in the recent past since January 2002.
  • The Shiller Cyclically Adjusted Price to Earnings Ratio (CAPE) is at a level of 35.0. That is 41% higher than its 35-year moving average (MA35), currently at 24.9.
  • The CAPE-MA35 ratio is 1.41, forecasting a 10-year annualized real return of about 4.6%. Should the CAPE-MA35 ratio increase further, then 10-year forward returns will be even lower.

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Outperforming the S&P 500 by Trading the Top 10 Stocks from 40 Large Hedge Funds

  • Using the quarterly 13F filings we define a stock universe by extracting the 50 consensus stock from 40 large hedge funds, each fund with more than $3.5 billion Assets Under Management.
  • Instead of holding a portfolio of all 50 stocks, a rule based trading strategy periodically selects 10 stocks.
  • From 02/24/08 – 03/05/21 this trading strategy would have produced an annualized return (CAGR) of 22.3%, significantly more than the 10.5% CAGR of the S&P 500 ETF (SPY).

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The Covid Recession Probably Ended In October 2020

  • The Covid triggered recession probably ended in October 2020 according to two reliable recession indicator models.
  • Analyzing the series data of both the Conference Board’s Leading Economic Index and the American Chemistry Council’s Chemical Activity Barometer results this conclusion.
  • The National Bureau of Economic Research Business Cycle Dating Committee has yet to announce the end of the recession.

The start of the 2020 recession was reported on March 22, 2020 when we announced that the anticipated March 2020 Unemployment Rate would signal the start of a recession.
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Outperforming the S&P 500 with 50 Consensus Stock Holdings of 40 Large Hedge Funds

  • This investment strategy holds a maximum of 50 consensus stock picks from 40 hedge funds with more than $3,500 million Assets Under Management.
  • Changes in the holdings occur only every three months when the end of the quarter 13F filings becomes public information; the latest date was February 15, 2021.
  • From 02/24/08 – 02/19/21 this strategy would have produced an annualized return (CAGR) of 18.7%, significantly more than the 10.7% CAGR of the S&P 500 ETF (SPY).
  • Here we report the most recent holdings, and also list the stocks removed and added as of the week ending 2/19/2021.

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The iM-ModSum/YieldCurve Timer Model

  • The ModSum/YieldCurve Timer seeks to find optimum investment periods for equities. It uses two market timing algorithms: The ModSum Timer (weighted sum of five market timers), and the YieldCurve Timer.
  • The ModSum Timer switches between SPY and IEF, and the YieldCurve Timer adds a hedge with GLD.
  • For the period 1/02/2000 to 1/27/20121 this strategy would have produced an annualized return of 22.4% with a maximum drawdown of -14.3%.

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The S&P 500 Is Overvalued, Expect Low 10-Year Forward Returns

  • The average of S&P 500 for December 2020 is 3695. This is 1293 points higher than the long-term trend value of 2402.
  • The current percentage difference of S&P 500 level relative to the current long-term trend level is 54%, a value never exceeded in the recent past since 2002.
  • The Shiller Cyclically Adjusted Price to Earnings Ratio (CAPE) is at a level of 33.7. That is 37% higher than its 35-year moving average (MA35), currently at 24.7.
  • The CAPE-MA35 ratio is 1.37, forecasting a 10-year annualized real return of about 5.0%. Should the CAPE-MA35 ratio increase further, then 10-year forward returns will be even lower.
  • The long-term trend is forecasting a 10-year annualized real return of 2.1%. The most likely forecast 10-year forward return would be about 3.5%, the average of 5.0% and 2.1%.

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Stock – Gold Switch Signals From The Yield Curve And The Federal Funds Rate

  • The Yield Curve / Federal Funds Rate Timer signals the switches from stocks to gold and vice versa near or during recession periods.
  • Only three parameters are needed; the Effective Federal Funds Rate and the 2-year and 10-year U.S. Treasury yields to determine the periods when the yield curve is inverted.
  • The timing rules are based on the state of yield curve and on the trend of the Effective Federal Funds Rate.

This timer signals switches from stocks (S&P500 Total Return) to gold and vice versa near or during recession periods.
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iM-Trading Models: Links, Performance and Holdings as of 11/25/2020

Table of links to our trading models

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With reference to Section 202(a)(11)(D) of the Investment Advisers Act: We are Engineers and not Investment Advisers, read more ...
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