Research

We thought conditions looked far worse than 3 months ago a couple of weeks ago, with valuation, speculation, interest rates, and earnings expectations the changing forces causing our negativity. But that was BEFORE SVB and tightening financial conditions.

A couple of weeks ago we wrote that “times were changing” due to a combination of rising rates and the likelihood of an incrementally hawkish Fed, excessively optimistic 2024 bottom-up earnings estimates, less compelling absolute (S&P500 multiple expanded from below 15x 2023 estimates to 18x) and relative (to short-term government bonds) valuation and increasing speculation

We have been arguing that a combination of rising rates, higher valuation, more speculation, and optimistic 2024 earnings estimates mean that the risk-reward for the S&P500 market looks worse today than it did a few months ago.  Moreover, investors are constantly asking for short ideas, flummoxed that companies with downward earnings revisions do not subsequently

In last week’s Level Set we wrote that changes over the last week to earnings expectations, the perception about interest rates, valuation, and speculation all made us more negative about the US equity market than we were three months ago. We met with dozens of investors this past week and asked in each meeting about

Making short-term calls on the market is a fool’s game. Anyone who does it regularly will spend meaningful time in all four quadrants of the 2×2 grid (bullish and right, bullish and wrong, bearish and right, bearish and wrong). However, right or wrong, all investors should incorporate and evaluate data as it changes, to avoid

In many ways the semiconductor industry is a microcosm for the broader market. The stocks have rallied meaningfully despite deteriorating fundamentals because they had underperformed so dramatically last year.  History would suggest estimates could be 10-20% too high for many stocks, as there really is not a lot of ample precedent for a “soft-landing” in

With a backdrop of an “eroding but not imploding economy”, we contend there are two ways to outperform. One, we recommend owning cheap cyclicals with low expectations where there can be substantial balance sheet repair even in a slowing economy. Two, we like stocks that can grow through this declining part of the economic cycle,

Several investors in our meetings last week seemed surprised that the market did not sell off harder after the jobs report nine days ago. Our initial thought was that the clearly strong report would cause a big market pullback and be interpreted as hawkish. But earlier last week, the relatively muted response (the S&P500 was

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