Research

We have been surprised that during recent meetings the subject of the inverted yield curve rarely surfaces. The market sell-off earlier in the year was at least partially the result of a higher probability being assigned to stagflation. The 2-year, 5-year, and 10-year yields have been fully inverted since July 5th (it was April 1st for the 2-year vs. the 10-year) and the market sold off hard in anticipation. Of the nine inverted-curve cycles in the last half century, SP500 returns this cycle have been the most volatile, indicative of the differing paths that may unfold, and the challenge to forming an “inverted yield curve playbook” for equity investors.

Our latest market overview: a comprehensive document containing the best of our recent work and up-to-date views.

Today’s research focuses on the consumer from three lenses (the Trivariate way): macro, fundamental, and quant. We then assess the available alpha to look for investment opportunities in the consumer sector.

What does a CEO want said about them a decade from now when they step down? We surmise that very high on that “legacy list” is that they were good stewards of capital, and that their decisions about capital use directly benefited shareholders and employees.

Over the past several months we have researched the implications of corporate decision-making, by analyzing various capital uses and their consequences.

Risk management is critical for the success of any investor – especially with regards to their high conviction positions, which often carry disparate and opaque risks. Today’s research shows how to best to hedge / replicate the returns of such positions with the goal of being exposed to only the company’s idiosyncratic risk, thereby avoiding unwanted exposures that are not part of the high conviction thesis.

Our latest market overview: a comprehensive document containing the best of our recent work and up-to-date views.

At the start of each quarter, we provide a detailed summary of the just completed quarter with the goal of helping investors make better investment decisions, in addition to provide insights that will facilitate investor communications, client conversations, and quarterly letters. Furthermore, our quarterly report seeks to identify emerging risk management concerns and give investment advice.

In this note, we examine that while negative earnings revisions are virtually guaranteed, the market can still appreciate or have multiple expansion while earnings expectations are being downwardly revised.

In this, the last of our five-part series analyzing capital uses and their consequences, we assess corporate leverage. Previously we have analyzed buybacks, dividends, M&A, capital spending, and R&D. With materially higher interest rates over the last few quarters, we think it is timely to analyze the level and changes to corporate debt, both total and net, and the impact corporate decision-making about leverage has on equity performance.

In today’s note we focus on the key issues that have consistently surfaced in our recent investor conversations.

There is a tension between deteriorating macro condition and high earnings expectations, and the material reset in valuation. We think this creates some interesting long / short opportunities.