April 19, 2017
Active U.S. equity managers regularly point out that the stock market looks expensive, and as a result, they are having trouble finding good companies to buy. Our chart this week looks at the median P/E for the S&P 500 Index over the last decade compared to the current P/E (our E is based on trailing twelve months operating earnings). Not only does the broad index look expensive relative to history, but each of the sectors in the index also appears to be overpriced. But how overpriced? The green bars indicate the price correction needed to bring the index back in-line with the historic median P/E ratio. At current valuation levels it would take a full blown bear market (a price correction over 20%) before the market looks reasonably valued again.
April 13, 2017
The Easter Bunny has a lot to celebrate this holiday as cocoa and sugar prices continue to slump. Both commodities experienced a supply surplus in recent months, largely due to substantial rains during El Niño, which has substantially decreased prices. The Ivory Coast experienced a hearty rainy season and dry winds from Northern Africa were below their historical averages; both trends increased the country’s cocoa yield and led to a 20% reduction in cocoa prices over the past 6 months. Additionally, Brazil benefitted from a very healthy rain season which led to a record production of sugar crops and a global surplus of the commodity. Sugar prices have fallen 18% in the past 6 months.
April 7, 2017
Snapchat (SNAP) - which went public in early March - was the first venture-backed technology company to do so in 2017. The firm sold 200 million shares to raise approximately $3.4 billion, making it the largest tech IPO after Alibaba Group in 2014. As private companies like Uber, AirBNB and Pinterest continue to use private markets to raise capital, how much longer can they wait before turning to the public markets?
March 31, 2017
This week’s Chart of the Week is an excerpt from our recently released white paper, Bracing for Impact: How to Prepare for the Next Generation of Defined Contribution Plans.
March 24, 2017
Core real estate investments have flourished since the financial crisis. The NCREIF Property Index (NPI), since returning six consecutive double-digit annual returns through 2015, delivered an 8% total return in 2016. Despite lower projected absolute returns compared to what we have experienced over the last six years, real estate remains an attractive investment relative to other asset classes.
March 16, 2017
Historically, two indices have moved hand-in-hand: the Global Economic Policy Uncertainty Index and the VIX Index. The former is a measurement of uncertainty surrounding economic and political policy on a global scale, while the latter is a gauge of the volatility level for the S&P 500 index. The relationship between the two should not be surprising: as uncertainty increases, equity volatility rises. What is surprising is the recent divergence of the two. While global economic policy uncertainty surged to recent highs, market volatility is close to 20-year lows. Since the late 1990s the 3-month rolling correlation between these indices has hovered around 60%; a divergence of the two to this extreme has not been seen in recent history. So what has caused this disparity?
March 8, 2017
The Implied Correlation Index measures the average correlation of the stocks in the S&P 500 index. When the index is high, individual stocks are more likely to move in tandem with the broad index; when it is low, return dispersion among stocks in the index will be higher.
March 2, 2017
This week’s Chart of the Week examines a recent phenomenon seen in valuations for both bonds and equities. U.S. stock prices rose quickly over the last year and a half with the S&P 500’s P/E ratio climbing to 21.8, surpassing its 20 year average. Meanwhile the Bloomberg Barclays Aggregate Index saw its option adjusted spread (OAS) fall below its 20 year average to .43%. OAS is a primary metric for evaluating bond prices and this tightening suggests that bond prices are relatively expensive.
February 24, 2017
Through the end of January, emerging market equities are up 25.4% on a trailing 12-month basis. This asset class has benefitted from several changes to the macro-economic environment: stronger commodity prices, more stable currencies, and a better growth outlook. In addition to these favorable changes, company fundamentals have also shown strong signs of improvement. This week’s chart displays earnings per share (EPS) of the MSCI Emerging Markets Index.
February 16, 2017
High yield bonds enjoyed significant tailwinds in 2016:
- During the year, the price of oil stabilized.
- U.S. shale oil exploration and production defaults and bankruptcies worked their way through the pipeline and most are now behind us.
- Trump’s win, with his promises of tax cuts and infrastructure spending, boosted investor confidence.
- OPEC’s production cut agreement further added to the risk-on sentiment.