- Useful table to have in the back pocket.
- It shows how various financial assets (down the rows) react to the changing economic cycle (columns) as measured by the ISM Manufacturing Composite Index.
- It covers the period 1995 – 2019.
- Right now we are above 50 on the ISM index (59.9) but trending down.
- Source: BCA Research.
Equity Strategy
Healthcare Sector
- Healthcare sector trades at a record discount to the market in the US.
- Source: Broyhill.
CAPE
- Interesting take on Shiller’s cyclically adjusted price earnings ratio (CAPE).
- The analysis argues that one should be using today’s tax rate and adjusting for buybacks.
- This leads to a CAPE 2.0 of 28x – far below the current CAPE of 38x and nowhere near the Dotcom peak.
- This is the “basic” version and for those interested there is a more advanced (and more controversial) version that results in “the last 20 years go from being an expensive aberration to a typical investment period“.
Biotech discount
- Biotech is trading only at a 5th percentile premium to the broader market.
- Source: The Daily Shot.
Sentiment
- Despite equities at all time highs Societe Generale’s multi-asset risk indicator is flashing risk-off like it did in March 2020.
- h/t The Market Ear.
UK M&A
- Mergers and acquisitions (M&A) activity has spiked to 12% of market cap in the UK, double the global average.
- This is driven by cheapness of UK listed firms, stabilisation post Brexit, and record private equity dry powder.
- Interestingly this spike is driven by a larger number of deals (25) when compared to the previous spike in 2015 (where mega deals for SAB Miller and BG Group dominated).
- Source: Man Group.
Profits to GDP vs. Equity Market to GDP
- It is well documented that the Warren Buffett indicator, which measures equity market cap as a ratio of GDP, is at an all time high, surpassing the dotcom boom.
- It is less well documented that the ratio of profits to GDP is also strong and has been trending up.
- h/t The Market Ear.
Japanese Small Cap Value
- Small cap value stocks in Japan are very attractively priced relative to the broader Japanese market.
- NB value defined as cheapest half of market, size defined as smallest third. Multiple valuation metrics used.
- Source: GMO.
EM vs US Equities
- Emerging market equities are approaching a near 20 year low relative to S&P 500.
Stock Issuance
- Equity issuance at an all time high. Not a bullish sign.
- Source: GMO.
Bounce Backs
- The time it takes for the stock market (S&P 500) to recover from a 2-sigma one day decline is at a historic low.
Growth Scarcity
- Back in the early 2000s half of the stock market would be classified as a growth stock.
- Today only 67 companies have a top line 5-year growth rate of >15%.
- Growth is scarce.
- Source.
Mid Cycle Growth Slowdown
- We are likely entering the mid-cycle where growth is slowing, though it will remain at a high level.
- This is a nice chart showing that such slowdowns historically haven’t meant that stocks sell-off.
- Source.
Vaccination and Politics
- US Vaccination rates by state follow the political divide.
- Many Republican-leaning states have more than half of the population still unvaccinated.
- Source: BCA Research.
Post and Pre IPO Value Creation
- Who reaps the majority of the rewards from venture backed companies – VC or public markets?
- “Over the last decade when measured in terms of total dollars of value creation accruing to pre- and post-IPO investors: post-IPO investor gains have often been substantial.“
- Of the 165 IPOs analysed – the vast majority had a large share of value accrue to public markets (blue region).
- There are some exceptions (red region), and some shared (yellow region).
- Source.
S&P H1 Return Decomposition
- Interesting to see that more than 100% of the 14% H1 2021 return of the S&P 500 index is earnings growth.
- Source.
UK Valuation
- UK stocks are very cheap relative to the world (Source).
- This compares valuation at index level and hence index sector composition has a big impact.
Growth Premium
- The valuation premium at FY 2 for growth stocks vs. value has come down a lot but is still above long-term average.
- Source.
Tech Positioning
- According to the May BofA Global Fund Manager Survey allocation to tech is at an all time low.
- NB these surveys are self reported so actual positioning might be different.
- Source.
Defensives vs. Cyclicals
- In the current environment – with PMIs at highs and economic surprise indices flirting with zero – it is worth keeping this chart in the back pocket.
- Source.
