Two notable features of the 2024 market rally were the power of momentum and the dominance of large-cap stocks. The market peaked on July 16, but momentum and size peaked a week earlier, on July 9. The market now looks like it bottomed on August 5. That’s about a week after momentum and size bottomed on July 30.

The public was introduced to Open AI's ChatGPT on November 30, 2022. It took a month for the potential of this breakthrough to electrify the performance of tech stocks. The tech sector in the S&P500, measured by the XLK ETF, dropped in December. But XLK took off at the beginning of January and returned 55% in 2023.

The S&P500 has returned 15% through June 20, 2024. Half of the gains were achieved since early May. Momentum also has a strong 2024, but its excess return this year was achieved before early March. Since then, the power of momentum has spread throughout the market. The chart illustrates the momentum story.

It took eight weeks after the 9/11 attack on the US for the S&P500 to sustain its recovery to its pre-9/11 level. The rebound from its 9/21 low was substantial, returning 21% by mid-March. However, seven months after 9/11, the S&P500 dropped below the pre-9/11 level until the end of 2003. How does that compare to Israel's stock market experience since the October 7 attack?

In previous articles, I've highlighted the strong correlation between the direction of bond yields and the return to Free Cash Flow yield (FCF yield - Free Cash Flow per share divided by current share price). This correlation is because value stocks, with their shorter-duration cash flows, are more resilient to increasing rates than growth stocks with longer-duration cash flows. This post is an update about what stocks appear to be pricing for the direction of interest rates.

The markets are frustrated, waiting for a decline in interest rates. There is now the added concern of rates going higher. In a recent note, I showed that when credit risk is tight, as it is now, FCF yield (Free Cash Flow per share divided by current share price) moves in tandem with the direction of interest rates. The reason is that the cash flow duration is shorter for value companies than for growth companies. Hence, increasing rates benefit value, and declining rates hur

Except for a few days in 2005, the spread between corporate and treasury bond yields hasn’t been as low as it is now since 1997. These...

The problem with ESG is that this label bolts together three different topics: Environmental, Social, and Governance. The ESG label was...

The year 2018 was a landmark one for corporate taxes in the US. Until the end of 2017, the corporate tax rate was 35%; afterward, it...

Recently, I posted about using large language models of AI to analyze earnings calls for sentiment to pick stocks. In addition to...

Ask Chat GPT a question, and it will give you an answer. We're all familiar now with the incredible power of large language models to...

What could be more sensible than buying quality stocks, especially in times of uncertainty? After the tough market of 2022, many argued...

On January 30,  Pensions & Investments  reported that a New Hampshire House committee unanimously opposed the proposed bill to make it a felony to knowingly use ESG criteria in investing taxpayer dollars. The formal vote on the bill will happen in mid-February. This felony proposal is reasonable or ridiculous, depending on your political views. However, it does call attention to an important issue about sustainable investing analysis.

The Financial Times published my guest post, 'The quantitative climate change,' in which I highlight a half-century-plus connection between treasury yields and the performance of factor portfolios that quants need to succeed. The thirty-year-long treasury yield slide bottomed out in 2020, along with the end of the related three-year-long 'quant winter.' The long-term relevance of the treasury yield trend to factor portfolios important for quant performance is likely related t

In a previous post, I showed how ESG screening substantially improved a strategy focused on profitability (long-short ROE) that was both sector-neutral and style-neutral. The main point was to reveal the true impact of ESG on equity performance by removing unintended influence. I didn't discuss a separate point: The lesson for 2024 on how risk control was used to remove the unintended influence of the COVID market crisis.

Is there investment value in ESG? It's hard to think of a more polarizing investment topic. Regulators, investors, politicians, and academics have all weighed in. Money has been leaving sustainable funds because of disappointing returns.