Yield Curve: The Bull has a Ways to Run

Written by Andy Pratt on .

The post financial crisis bull market has been the 4th longest bull market in US history and has seen the S&P 500 recover 206.5% from its March 2009 trough through August 2014. As equity investors’ portfolios grow, however, so do their fears that a major market correction could be around the corner. The CAPE ratio was a hot topic amongst investors last month as it showed the market is overvalued compared to historic norms. Many pointed to this as a sign that a correction is due.

Problem is, the CAPE ratio doesn’t predict market corrections. It just attempts to measure the valuation of the market compared to its historic average and has significant room for improvement at that.

These investors should have been pointing to the yield curve to evaluate the risk of a major market move downwards. Our Director of Research, Alex Shen, released a report this week highlighting the yield curve and its history of predicting economic distress.

I urge you to download and read the repot here. Read the highlights after the bump:

August Jobs Report

Written by Andy Pratt on .

Today is the first Friday of the month so, of course, that means today is jobs day as the Bureau of Labor Statistics released its monthly jobs report at 8:30.   After the economy added 200k jobs or more each of the last 7 months, a streak that hasn’t happened since 1997, economists were anxious to see if that streak could continue. Private payroll firm ADP earlier this week said private payrolls climbed 204k and market expectations for the jobs report were as follows:

Lowell's Take: Shiller CAPE Ratio

Written by Lowell Pratt on .

In our blog post Don't Panic Over CAPE, we reference a strong rebuttal to the notion that stocks are signficantly overpriced relative to historic norms by Philosophical Economics.

Particularly interesting to me were "The Big Three" drivers of Bull and Bear markets. War, High Inflation and Financial Panics are the triggers of sudden valuation collapses. Peace, Low Inflation and Economic Stability are the foundations of Bull markets.  Clearly, "The Big Three" favor equities ahead. 

Don't Panic Over CAPE

Written by Alex Shen on .

A popular topic of conversation amongst equity investors is the Shiller Cyclically-Adjusted Price-Earnings, or CAPE ratio. Specifically, investors are concerned by the elevated level of CAPE in relation to its ‘historical mean’. CAPE is a valuation measure calculated by dividing an inflation-adjusted index with the average of its inflation-adjusted annual earnings over the past 10 years. High valuation periods are taken to predict lower expected future returns and increased risks of significant drawdowns. Before we validate or dismiss this fear there are two material questions to ask: is CAPE a perfect measure of valuation and is it accurate in signaling market tops and bottoms?

Applying a Size and Style Responsive Strategy for Equity Returns

Written by Andy Pratt on .

Lowell Pratt was recently interviewed by The Wall Street Transcript to discuss the Burney Company's history and investment strategies.

Lowell D. Pratt Jr. discusses the construction of and philosophy behind his firm’s Master Portfolio and SSR Strategy. The Master Portfolio has a consistent value influence with a tendency toward small and midcap stocks, while the SSR Strategy employs a customized process that moves from large to small and value to growth over time.

Find the full interview describing these strategies here.