Rotation in stocks is intense but likely overdone
A lot of last year’s losers are this year’s winners, and vice versa, as investors stay in equities but have rotated aggressively. Much of this is not driven by earnings outlooks (at least for the next year or so), but valuation concerns and short-term sentiment and positioning. While some shifts may be reasonable, some of […]
Why US stocks have underperformed this year
The US has had stronger earnings growth than much of the rest of the world, but it has been unable to outperform this year due to the narrowing of its valuation premium. This likely reflects a combination of stronger ex-US earnings growth, high US policy risk, and the rapidly growing relative concentration risk in the […]
Divergence in the Tech space: Technology vs Communication Services
The Tech-related space remains the focus in the US, and we have recently noted a growing divergence between the Technology sector and its cousin Communication Services in the S&P 500: Tech remains strong while Communication Services is weakening. We thus see growing selectivity by analysts and investors in the Tech/AI space and our sector allocations […]
The Fed’s dilemma (or trilemma?)
The Fed has made clear that it is struggling to balance the two parts of its dual mandate: inflation and employment, and now faces a third concern of political pressure. It is leaning toward employment risks over inflation risks right now, but will be constrained from aggressive moves while this tension persists, along with trying […]
Trade war effects on earnings estimates
Every week seems to bring a new twist in the bizarre and unnecessary trade war started by the Trump administration, which is hurting many companies and consumers but is thus far having little impact on the major US equity market indices, though it is pushing the US dollar down. The latest headlines indicate higher tariffs […]
Policy and market damage means volatility likely to stay for a while
Despite a recent respite, our indicators tell us that market volatility is likely to stay elevated for a while longer, with important implications for asset allocation and stock selection. Significant damage is being done to the US economy and the global trading system. After several years of relatively calm equity markets despite volatility in bond […]
US giving up leadership in markets and fundamentals
The big theme in markets and in Mill Street’s work with clients recently has been the dramatic shift in leadership away from the US and toward the rest of the world, especially Europe. Risk appetite has weakened as US economic policy uncertainty has skyrocketed and the growth outlook has deteriorated, making equities riskier in our […]
Do growth and margins justify higher S&P 500 valuations?
A recent client question: Q: “Have you done any work on the multiple of the S&P 500 and the growth rate and margin/profitability of the S&P 500? Many strategists say margins are peaking for the S&P 500, margins can’t go higher and that the multiple therefore can’t go higher. But one view is that we […]
Outlook for 2025
Outlook for 2025: Mill Street Research does not make “official” calendar year forecasts as we always follow the evolving messages from our objective indicators throughout the year, but in response to client interest, below we share some of our views going into 2025. The good news The US economy has done remarkably well and has […]
Growth expectations are higher, but are they justified?
The Mill Street Research Implied Growth Model, described in more detail in a March post, shows higher long-run earnings growth expectations built into market prices. Given current conditions and the composition of the S&P 500, this may be justified, but means growth concerns will continue to dominate inflation or other worries for stock prices. Long-run […]