This week: the presidential cycle, global stocks, rotation, cycles and peaks, cash allocations, valuations, profit margins, and dealing with bad indications...
(I've finally picked out the charts... had a hard time whittling it down from over 500 charts to then a smaller group of about 30, and now to the final 10 (!) --going to be a good one!)
Adding weight to the presidential cycle is the midterms effect. I think the average drawdown is like 18% in the 12 months leading up to midterms. This goes back about 100 years. Can share the source if interested and haven't seen it.
I find the EW/MCW plus the SP500/400 charts to tell a similar story on valuation and risk, so I appreciate them all being in one post here. Including the % of index > 10x P/S just adds more weight. On one hand - we certainly have a VERY high quality (margins & ROIC) index, but we're also quite stretched, clearly.
Finally, love the final point on PEG weakness as an indicator and the earnings growth outlook. That may be one of the best sentiment gauges. I'd love to see the earnings growth outlook with forward 10 yr returns overlaid it. Or simply the S&P price overlay may be illustrative as well. Have you ever seen this, or made this?
Thanks Blake, appreciate your thoughtful comments.
Yes I have a chart somewhere with a scatter plot of long-term growth estimates and forward returns ---and as you would expect, there is a clear pattern. Will see if I can dig it out...
You mentioned the importance of watching profit margins and a rollover is definitely concerning. Ditto re: margin debt. But, good point too re: many false alarms. The market can stay irrational longer than rational indicators can keep screaming.
Yup, that's for sure. But I guess it's also a distinction about collecting individual datapoints within a larger picture + stage of signal.
So on signal stage some of those ones are more like orange lights vs red lights at this stage, and it's like you could call them early warnings (be prepared).
And then on the larger picture, it's about also paying attention to other drivers and conditions e.g. is the trend still intact? what's monetary policy doing? how's the economy tracking?
You've reminded me I need to work on some kind of monitor or summary or "weather conditions" sort of dashboard... still thinking about this (a few people have requested something like this to help sum up all the various charts and points). Hoping to have something together on this front by Jan [maybe the holiday period will give me some brain space to think up something :-)
p.s. next weekend's ChartStorm is going to be the "best-of 2025"
Looking forward to pulling it together, it's always an interesting exercise... [and open to write-ins!]
(I've finally picked out the charts... had a hard time whittling it down from over 500 charts to then a smaller group of about 30, and now to the final 10 (!) --going to be a good one!)
Great post, Callum
Adding weight to the presidential cycle is the midterms effect. I think the average drawdown is like 18% in the 12 months leading up to midterms. This goes back about 100 years. Can share the source if interested and haven't seen it.
I find the EW/MCW plus the SP500/400 charts to tell a similar story on valuation and risk, so I appreciate them all being in one post here. Including the % of index > 10x P/S just adds more weight. On one hand - we certainly have a VERY high quality (margins & ROIC) index, but we're also quite stretched, clearly.
Finally, love the final point on PEG weakness as an indicator and the earnings growth outlook. That may be one of the best sentiment gauges. I'd love to see the earnings growth outlook with forward 10 yr returns overlaid it. Or simply the S&P price overlay may be illustrative as well. Have you ever seen this, or made this?
Blake
Thanks Blake, appreciate your thoughtful comments.
Yes I have a chart somewhere with a scatter plot of long-term growth estimates and forward returns ---and as you would expect, there is a clear pattern. Will see if I can dig it out...
Awesome, that would be great to see. Merry Christmas Callum!
Merry Christmas to you too mate!
Here it is: https://www.linkedin.com/feed/update/urn:li:activity:7388425071255740416/
You mentioned the importance of watching profit margins and a rollover is definitely concerning. Ditto re: margin debt. But, good point too re: many false alarms. The market can stay irrational longer than rational indicators can keep screaming.
Yup, that's for sure. But I guess it's also a distinction about collecting individual datapoints within a larger picture + stage of signal.
So on signal stage some of those ones are more like orange lights vs red lights at this stage, and it's like you could call them early warnings (be prepared).
And then on the larger picture, it's about also paying attention to other drivers and conditions e.g. is the trend still intact? what's monetary policy doing? how's the economy tracking?
You've reminded me I need to work on some kind of monitor or summary or "weather conditions" sort of dashboard... still thinking about this (a few people have requested something like this to help sum up all the various charts and points). Hoping to have something together on this front by Jan [maybe the holiday period will give me some brain space to think up something :-)