A key point often missed in the debate over whether tech stocks — and the broader market — are in a bubble is that an important segment of tech is clearly not. Tech hardware stocks, in particular, have clearly underperformed. Using equal-weighted, weekly-rebalanced portfolios over the past three years, the top 500 market-cap stocks returned 13% annualized (12% YTD). The equal-weighted tech sector within this universe delivered a 25% annualized return (20% YTD). By contrast, t

October’s layoffs were the worst in twenty years, and a significant portion can be traced to companies accelerating their adoption of artificial intelligence. The cuts have continued. How should investors interpret this? On one hand, the surge in layoffs signals stress for workers and potential headwinds for the broader economy. Combined with massive AI-related Capex that has not yet translated into higher profits, the near-term picture can look troubling. On the other hand,

It is ironic that the most important passive index in the world--the S&P 500--is, in fact, managed. For example, the minimum eligibility...

Understanding the Current Landscape of Tech Stocks Over the past year, sales growth has emerged as a dominant factor in selecting tech...

Its impact on employment is among the most widely discussed potential consequences of the AI revolution. But will this shift have a...

Theories explaining momentum typically fall into behavioral, risk-based, or market structure categories, often avoiding the harder...

Shifts in factor effectiveness signal deeper market narrative changes--specifically, what investors are pricing. The charts here show how...

Tracking the returns of thematic baskets is a helpful way to see how the tariff turmoil is affecting equities. The chart showing the...

Tech stocks are performing poorly in 2025, with February's tariff-driven market shock accelerating the decline. I made a short video...

Value investing's performance has diverged sharply between large-cap and small-cap stocks in recent years. While value strategies have...

AI-based techniques, such as natural language processing (NLP) analysis of earnings calls, can reveal management or analyst sentiment about a company, potentially helping to predict market behavior. But what about investors' sentiment? Factor trends—the patterns of which factors generate returns and which factors are dismissed by the market—provide insights into investors' sentiment based on their factor narrative.

Is money better spent on research to drive innovation in small or large companies? This question is significant for government policies promoting innovation and investors seeking factors that provide an advantage. The prevailing belief is that innovation occurs more often in small companies than in large ones. Since innovation relies on funding, smaller companies should yield greater rewards from research expenditures. However, the charts here show that, on average, research

Typically, earnings growth is more important than sales growth for stock performance. However, as the chart illustrates, this was not the case in 2024. When the market rebounded in early August after the decline in July, sales growth became more significant than earnings growth for stocks in the S&P 500. Since the beginning of August, the long-short factor return for sales growth of S&P 500 stocks, measured as sector-neutral, has increased by 10%, better than the return from

Since early September, small-cap stocks have outperformed large-cap stocks. Investors' recent enthusiasm for small caps is evident in their positive view of high capital spending. The chart's red line highlights a consistent positive return for being long stocks with high Capex-to-Assets ratios and short stocks with low ratios during this period, namely a consistently positive Capex-to-Assets factor return since early September. The small-cap rally reflects an assumption that

The stock market reacted enthusiastically to the election results, and momentum played a significant role in almost every market segment.

It is surprising and potentially alarming that financial leverage has been a powerful driver of stock returns during the market rally over the past year. For stocks in the S&P 500, the sector-neutral long-short factor return for debt/equity was 12% since October 31, 2023, with an impressive 2.7 information ratio. In contrast, the ROE and price momentum factors returned 7.7% over this period, with a 1.3 information ratio for ROE and a 0.6 information ratio for momentum.

In a recent post, I highlighted an example of what can be missed when using a passive index approach to value. In the consumer staples sector of the S&P500, the long-short returns for Earnings/Price and Sales/Price have diverged massively since the end of March. The divergence happens because of industry effects within the sector. The Earnings/Price strategy is long food and tobacco production, while short food and staples retail. At the same time, the Sales/Price strategy is

It is not uncommon for different value metrics to produce different investment outcomes, so value indices and ETFs generally blend value metrics. The selected metrics and their weightings produce a particular impression of value investing performance. This selection feature differs from cap-weighted indices, where only one metric, cap weight, is considered. What has been happening in the consumer staples sector of the S&P500 has been extreme, highlighting what a value blend m

The sales/employee ratio should be a good measure of employee productivity. However, it varies considerably across market sectors, much higher in capital-intensive industries such as energy and utilities and much lower in more labor-intensive sectors such as industrials and consumer discretionary. The sales/employee ratio has been most effective as a source of investment return in consumer discretionary, a sector that includes retail, hospitality, autos, and entertainment, wh

In his March State of the Union address, President Biden proposed raising the excise tax on stock buybacks from 1% to 4% to discourage companies from engaging in stock repurchases. On April 12, the Department of Treasury and the IRS followed up with proposed regulations on stock buybacks. Kamala Harris endorses Biden’s plan to quadruple the tax. Is there evidence that the proposed tax has affected buyback-related stock performance? If there was a tax effect, would ongoing sto