As January closes, it is not uncommon for New Year’s resolutions to go up in smoke; one publication has suggested that as many as 80% of commitments for change are gone come February.¹ Regardless, many such resolutions target weight loss in the New Year, and an obvious winner in this game would seem to be Weight Watchers. However, January’s performance for this stock appears surprisingly unrelated to news of increased subscribers. Instead, it appears that the influential figurehead Oprah Winfrey had an unanticipated — and unconventional — impact on Weight Watcher’s January performance.

Since Oprah took a 10% stake and joined the board of directors at Weight Watchers in late 2015, her $43 million investment has grown to exceed $400 million. Compare that 847% growth to the S&P’s 39% increase and the Oprah effect cannot be denied. Her powerful speech at the Golden Globes on January 7th incited social media to explode with excitement over a theorized 2020 run for the presidency. Weight Watchers shares jumped over 12% the Monday following her speech and an additional 9% the next day; the stock continued to climb through January, though this was likely due to more typical reasons such as the company’s strong growth outlook. Once news broke on the 25th that Oprah was officially not planning to run for president, shares tumbled 7% intraday and ended the month down 5% from their January peak.

An announcement from a board member regarding a lack of intent to run for president is certainly not a typical cause for a depression in stock price, and this situation is only a recent example of the growing importance of a company’s brand. Stock prices are no longer solely affected by their fundamentals; a seemingly unrelated blip in the news cycle can now blow up on social media and essentially override a company’s true fundamentals to impact its share price. While an event like this can be unpredictable, it forces management across all industries to have a stronger brand awareness, which is ultimately a good thing as it can lead to increased responsiveness to consumer feedback. As it relates to portfolio management, actively managed funds that can successfully account for this trend are more likely to outperform both their peers and respective indices. As capital markets unfold in 2018, this is a pattern that bears watching.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Barring a correction in December, most U.S. equity indices are looking at another successful year of double-digit returns. While investors can rejoice in their strong portfolio performances, there is an air of caution as valuations are well above historical averages. This has been an area of concern for the last few years, yet markets continue to outperform and valuations keep rising.

One possible explanation for this is the decline in the total number of publicly traded companies. Since peaking in the mid-1990s, listed companies have fallen by nearly 50% to about 4,300 firms despite the total number of companies in the U.S. remaining about the same. More regulation as well as increased availability of private capital have made businesses less likely to go public. Most retail investors, however, do not have the capability to invest in private markets. With fewer investable options there is more money to go around to these publicly traded firms.

While most of the companies that choose to be public are larger than their private counterparts, this suggests the historic average valuation of about 20x earnings is too low of a benchmark for today’s publicly traded firms. These higher equity valuations may be the new normal and the bull run could continue in 2018.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

With U.S. equities enjoying the second longest bull market run on record, it has become a frequent occurrence to see equity indices hit new closing highs.  The S&P 500 has recorded 39 new closing highs during the first three quarters of 2017 alone.  A noteworthy milestone recently occurred for the S&P 500 Information Technology (“IT”) sector.  This sector now trades at levels above its prior March 2000 dot-com peak.  IT is the best performing sector of the S&P 500 thus far in 2017 with a year-to-date return of +27.4% through September and is now the largest weighted sector in the S&P 500 with a weight of 23.2%.  Like most sectors of U.S. equities, the information technology sector trades near the high end of its historical valuation range.  Strong performance from this sector in recent years has led to comparisons with the prior dot-com bubble, but is this time different?

While few would disagree that we are nearing the later stages of the current market cycle, the typical excess and euphoria seen in prior market peaks do not appear to be present.  Compared to the prior dot-com peak, the information technology sector today is on noticeably better footing.  Companies in this sector today tend to have healthier balance sheets and hold greater cash levels.  Valuations, while elevated, are not nearly as overvalued as the prior peak.  On a 12-month forward P/E basis, the IT sector trades at 19.5x versus a level of 56x seen in March 2000.  There are certainly individual cases of overvalued securities, but in aggregate the sector is valued much more reasonably than during 2000.  Additionally, the main driver of long-term stock returns has historically been growth in corporate earnings.  Today, the IT sector generates healthy levels of earnings growth and cash flows; many companies during the dot-com era did not have actual earnings to justify their lofty valuations.  While market bubbles are only identified on a post-mortem basis, investors today can at least take comfort in knowing that the IT sector possesses healthier fundamentals and less euphoric valuations than seen in the past.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

While many are familiar with technical analysis and its claimed prophetic approach to the markets using historical performance, this week we look at a derivative of the 50-day moving average through the lens of breadth.

Crossing below the 50-day moving average is considered a point of weakness whereas crossing above this trendline is viewed as a sign of future strength and bullish activity for the market or index in question.  While the broad market, as proxied by the Russell 3000, had a strong May and June and remained above this moving average, it found weakness in August and has been below this trendline for the past few weeks. Instead of just analyzing the index as whole, we examine the behavior at a component level through market breadth which is a ratio of stocks with increasing prices to those with falling prices. A derivative of this metric is charted below as a ratio of stocks above their 50-day moving averages over those below; a ratio above 1 is a positive indicator for the market as this means more stocks are above their short-term average than below and indicates substantial market breadth. This is a good sign for the market as it means the majority of index constituents are exhibiting strength as opposed to only a few mega-caps lifting up the market.

Recently, however, this ratio fell below 1 which means stocks falling in price outnumber those increasing in price.  Less than 42% of stocks in the Russell 3000 universe are trading above their short-term moving average whereas back in July more than 70% were trading above their short-term averages. That the market is trading flat during this new trend means that the upward movement of only a few stocks relative to the universe is keeping the market flat; this does not make for a stable market.  While these are only technical indicators and are not cause for extreme alarm, the general indication of these data points is that market stress in the near future would not be completely surprising.

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