NAFTA tied Canadian and Mexican markets to the U.S. Business cycles and integration have converged. Correlations of returns are increasing as Mexico and Canada shift from natural resources and energy to developed financial sectors and information technology. This convergence puts both economies at risk when faced with a stalling American economy. Trade spurred growth and…
Several recent studies challenge the validity and pervasiveness of the wealth effect. One report complains about flaws in the methodology behind the calculation of personal savings, while others suggest that the propensity to consume may have moved to a permanent and higher level, which would be less vulnerable to stock market weakness. These arguments hold…
After a decade of meager returns, U.K. small-cap equities have enjoyed a reversal of fortune in the past two years, rewarding investors that have tolerated the higher risks and lower liquidity associated with this sector. Although relatively attractive on a valuation basis, U.K. small-caps remain very much a cyclical play, vulnerable—as always—to any significant deterioration…
This analysis considers investor psychology within the larger tapestry of economic stress points and equity valuations. Although investor sentiment has sobered over the last year, it has not approached the level of despair or pessimism that typically signals capitulation at market bottoms. Optimists cite several macroeconomic indicators as reasons for their continued confidence, while pessimists…
Sector investing is a current trend that seems to make intuitive sense, but as repeated in last month’s conclusion correlation data needs to be met with skepticism.
Over the last five years, investment in technology grew at an average annual rate of 25% in real terms, accounting for anywhere from 20% to 33% of total economic growth. Having over-invested during the expansion’s heady years, corporations are in the uncomfortable process of digesting excesses. If the virtuous cycle indeed turns vicious, the slowdown…
Our dividend discount model indicates that U.K. equities are now fairly valued, while continental European equities are slightly undervalued.
Economic integration, the trend of deregulation and privatization, surging M&A activity, and the increasing acceptance of leverage in corporate financing have provided the catalyst for an expanding European high-yield market.
Correlations between regions are high, but not extraordinarily so or unprecedented. What’s more, correlation methodology has a tremendous effect on the interpretation of actual correlation of returns. The starting point and frequency of the data (month, week, or day) can skew the statistics one way or the other and currency denomination has a significant impact….
The persistent disparity among valuations across different sectors indicates the likelihood that high P/E stocks will continue to disappoint; while overlooked issues at the other end of the valuation spectrum should outperform. The proportion of lofty P/E stocks within the overall market is gradually shrinking. Despite value’s trouncing of growth last year, we suspect this…