Chart of Interest
Sizing up Bears - 1945 to Present
Source: Bloomberg and Todd Asset Management
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- The chart above sizes up all the S&P 500 declines of greater than -10% since WW2, ranked by the size of the decline. There are patterns and they tend to bottom at predictable levels, as seen in the chart above.
- The S&P has now declined -22% from the peak, worse than approximately 70% of the prior >-10% declines. This may be a stopping point but if the market breaks lower, the next lower historic level would be down -28%.
- Unless the current situation is akin to the Great Financial Crisis, Internet Bust, Arab Oil Embargo, Vietnam War, Pandemic or 1987 Crash, most of the damage is probably already done. Try not get caught up listening to strategists try to outdo each other with negative predictions. We are more interested in positioning portfolios in the new Value and International leadership for when we eventually emerge from this bear market.
Past performance does not provide any guarantee of future performance, and one should not rely on the index's performance as an indication of
future performance.
S&P 500 Index is a widely recognized index of market activity based on the aggregate performance of a selected portfolio of publicly traded common stocks.
The index is unmanaged, and not available for direct investment, they include reinvestment of dividends; they do not reflect management fees or transaction costs.
This publication has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product.
Past performance does not provide any guarantee of future performance, and one should not rely on performance as an indication of future performance.
Commentary may contain subjective judgements and assumptions subject to change without notice. There can be no assurance that developments will transpire as forecast.
Information contained herein has been obtained from sources believed to be reliable but not guaranteed.
No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of Todd Asset Management LLC. © 2022
Markets Usually Rebound After Conflicts
S&P 500 1940-2022 with Armed Conflicts Noted
Source: Todd Asset Management, Bloomberg
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- The chart above shows the S&P 500 since 1940 and highlights the start of geopolitical conflicts over that time frame. In 75% of the cases, market returns one year later were positive with an average price return of nearly 10%. Over the following 3 years, returns were positive 85% of the time with an average annual price return of nearly 9%.
- The Russian Invasion of Ukraine has investors on edge, with good cause. The future is uncertain, and pundits usually paint the worst-case scenario. History would suggest staying invested is the wiser course, as markets adapt and tend to return to uptrends.
Past performance does not provide any guarantee of future performance, and one should not rely on the index's performance as an indication of
future performance.
The S&P 500 is an unmanaged, and not available for direct investment; it does not include reinvestment of dividends; it does not reflect management fees or
transaction costs. The Index is a widely recognized index of market activity based on the aggregate performance of a selected portfolio of publicly traded common
stocks. The performance data was supplied by Standard & Poor's. It is included to indicate the effect of general market conditions
This publication has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product.
Past performance does not provide any guarantee of future performance, and one should not rely on performance as an indication of future performance.
Commentary may contain subjective judgements and assumptions subject to change without notice. There can be no assurance that developments will transpire as forecast.
Information contained herein has been obtained from sources believed to be reliable but not guaranteed.
No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of Todd Asset Management LLC. © 2022
'Multiple' Drivers for International Markets
Source: (Left chart) Bloomberg, MSCI, S&P and Todd Asset Management. (Right chart) Bloomberg estimates, MSCI, S&P and Todd Asset Management. As of 4/28/2021
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- International markets currently possess a unique set drivers that could have long ranging implications on returns going forward. Multiples (as seen in the left chart above) are at the widest discount on record vs. the US, with the Forward P/E nearly -7x lower for International. At the same time, consensus expects earnings growth in most foreign markets to run about +10-15% ahead of the US in 2021 (right chart above).
- This looks like the most powerful combination of historically discounted multiples and superior earnings growth outlook we've seen internationally.This is occurring as we begin a new global economic cycle. New cycles tend to last years and bring with them a change in leadership from the prior cycle.
- As reopening efforts gain more traction, the lagged effect of historic stimulus and pent up demand should usher in a period of synchronized global growth that could support markets for some time. The more economically sensitive exposure of International markets should help fuel this rotation we began to witness last year.
The indexes used in the chart are unmanaged, and not available for direct investment; they include reinvestment of dividends; they do not reflect management fees or transaction costs:
S&P 500 Index is a widely recognized index of market activity based on the aggregate performance of a selected portfolio of publicly traded common stocks. MSCI ACWI ex-U.S. Index
is a float-adjusted market capitalization index that is designed to measure the combined equity market performance of developed and emerging market countries excluding the United
States. The ACWI ex-U.S. includes both developed and emerging markets.
This publication has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product.
Past performance does not provide any guarantee of future performance, and one should not rely on performance as an indication of future performance.
Commentary may contain subjective judgements and assumptions subject to change without notice. There can be no assurance that developments will transpire as forecast.
Information contained herein has been obtained from sources believed to be reliable but not guaranteed.
No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of Todd Asset Management LLC. © 2020
The Biggest Story Investors Are Ignoring!
US/International Leadership Changes After Inversions
Relative Performance and Yield Curve Inversions 1971-Present
Source: Bloomberg, MSCI, S&P and Todd Asset Management as of 2-28-21
Series is indexed to 1 on 12/31/1971. The S&P 500 is used to represent US equities.
To show a longer time frame, the MSCI ACWI ex-US was chained with the MSCI EAFE to represent the International Equities.
The ACWI ex-US is used from inception at 12/31/87, and EAFE prior to that.
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- Yield curve inversions (when 10 year US Bonds yield less than 3 Month T-Bills) are great predictors of cycle changes between US and International market leadership. Given the 2019 inversion, it is time for International markets to start leading again and we should see new leadership for a new cycle.
- Since 1971, there have been 7 periods of inversion. Those inversion periods are shaded in the chart above. The line illustrates the ratio of the S&P 500/ACWI ex-US (or EAFE prior to 1987). An upward bias means the US is outperforming, while downward shows International outperformance. Performance flip flopped and leadership changed after each inversion. Since 1980, the average cycle length was almost 10 years.
- Following the 2019 inversion, International markets have outperformed the S&P 500 since May of 2020, something you rarely hear about. In our opinion, this is the biggest story being ignored by the market, and may be the beginning of a long period of international outperformance.
The indexes used in the chart are unmanaged, and not available for direct investment. They do not include the reinvestment of dividends, nor do they reflect management fees
or transaction costs. The S&P 500 is a widely recognized index of market activity based on the performance of common stocks within the S&P 500 Index. The MSCI ACWI ex-US is
a widely recognized index of market activity based on the performance of common stocks within the MSCI ACWI ex-US Index. The MSCI EAFE is a widely recognized index of market
activity based on the performance of common stocks within the MSCI EAFE Index.
This publication has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product.
Past performance does not provide any guarantee of future performance, and one should not rely on performance as an indication of future performance.
Commentary may contain subjective judgements and assumptions subject to change without notice. There can be no assurance that developments will transpire as forecast.
Information contained herein has been obtained from sources believed to be reliable but not guaranteed.
No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of Todd Asset Management LLC. © 2020
Is History Repeating Itself?
Russell 1000 Growth vs. Russell 1000 Value Relative Performance
Comparison: 1998-2001 vs. 2019-2022
Source: Bloomberg, FTSE Russell and Todd Asset Management as of 3/14/2021
The series above are calculated by dividing the Russell 1000 Growth price index by the Russell 1000 Value price index. Each series is rebased to 100 at the beginning of the
observation period (10/1/1998 for light blue line and 3/1/2019 for dark blue line).
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- "History doesn't repeat itself, but it often rhymes." We are certain that Mark Twain didn't have the performance of Growth and Value stocks in mind when he quipped this phrase, but it applies just the same.
- We've highlighted over the past few quarters the historic outperformance of Growth vs. Value in the US and abroad. This continues to remind us of the period around 2000 where the Tech dominated Growth index capped off a decade long run with a recessionary bear market that unwound index concentration and deflated stretched multiples. Value, which was left for dead, went on to dramatically outperform Growth over the next cycle.
- It looks like a similar dynamic could be unfolding. Value began to outperform in early September 2020 and accelerated as progress was made against the pandemic. Over this same time frame, most of the FANGMA stocks are flat to down. It feels like a leadership change is underway and history would suggest we've got much further to go than most expect.
The indexes used in the chart are unmanaged, and not available for direct investment; they do not include reinvestment of dividends; they do not reflect management fees or transaction
costs: Russell 1000 Value Index is a widely recognized index of market activity based on the aggregate performance of common stocks from the Russell 1000 Index, with lower price-tobook
ratios and lower forecasted growth values. Russell 1000 Growth Index is a widely recognized index of market activity based on the aggregate performance of common stocks from
the Russell 1000 Index, with higher price-to-book ratios and higher forecasted growth values. FANGMA refers to Facebook, Amazon, Netflix, Google (Alphabet), Microsoft and Apple.
This publication has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product.
Past performance does not provide any guarantee of future performance, and one should not rely on performance as an indication of future performance.
Commentary may contain subjective judgements and assumptions subject to change without notice. There can be no assurance that developments will transpire as forecast.
Information contained herein has been obtained from sources believed to be reliable but not guaranteed.
No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of Todd Asset Management LLC. © 2020
Whitepapers
The Case for the S&P Doubling and a Global Bull Market
The Case for S&P 2500
Commentary
and News
2nd Quarter 2022
US Market Commentary
The Fed is proving the adage "An Ounce of Prevention is worth a Pound of Cure." Their mistake (i.e.- policy error) in this case was being too complacent in their inflationary outlook despite incredible fiscal expansion over the past couple of years and allowing it to get out of hand.
Large Cap Intrinsic Value
Strategy Review
Intrinsic Value Opportunity
Strategy Review
International Market Commentary
International Markets weakened in the quarter, though they outperformed the US S&P 500. War-related inflation, Central Banks being behind the curve, and zero-Covid policies impacted various regional outlooks. Our sense is there may be "off-ramps" developing for these problems that could play out over the second half.
International Intrinsic Value
Strategy Review
Global Intrinsic Value Equity Income
Strategy Review
International Intrinsic Value Opportunity
Strategy Review
1st Quarter 2022
US Market Commentary
To listen to strategists, nothing looks good. You name it, they're worried about it. War, higher rates, recession, inflation, yield curve inversions, supply chain problems, covid lockdowns… it seems consensus to say that nothing will go right ever again. That was the prevailing thought during a tough quarter for most asset classes in Q1.
Large Cap Intrinsic Value
Strategy Review
Intrinsic Value Opportunity
Strategy Review
International Market Commentary
Market tumbled in the first quarter as Russia invaded the Ukraine, and the world realized that you cannot take peace in Europe for granted. With the invasion, the existing global supply chain problems for manufactured goods were compounded by war related commodity supply chains disruptions.
International Intrinsic Value
Strategy Review
Global Intrinsic Value Equity Income
Strategy Review
International Intrinsic Value Opportunity
Strategy Review
4th Quarter 2021
US Market Commentary
In April of last year, our quarterly US review was titled "Aiming for an Overshoot". We noted that the Fed was going to keep rates low until the jobs market recovered and inflation was a problem. They thought it would take years. Well, they overshot it and we’re entering 2022 with full employment and an inflation problem.
Large Cap Intrinsic Value
Strategy Review
Intrinsic Value Opportunity
Strategy Review
International Market Commentary
International stocks lagged the US again last year, as supply chain disruptions and resurgent Covid led investors to worry about economic growth after the first quarter. In 2021, theACWI ex-US returned 7.8% compared to a 28.7% return for the S&P. Much of the difference between these indexes resulted from the strength of US Growth stocks.
International Intrinsic Value
Strategy Review
Global Intrinsic Value Equity Income
Strategy Review
International Intrinsic Value Opportunity
Strategy Review
3rd Quarter 2021
US Market Commentary
The S&P sagged on a growth scare in September, but still posted a positive result for the quarter. Concerns that weighed on markets included Washington turmoil, a hint of Fed tapering, Covid and general markdowns of expected economic growth on supply chain disruptions into year end. Interest rates rose and yield curves steepened late in the quarter as the thought of a reduction in Fed Buying coupled with an inflation pick up caused bond investors to balk.
Large Cap Intrinsic Value
Strategy Review
Intrinsic Value Opportunity
Strategy Review
International Market Commentary
World markets sagged on several scares in September including Washington turmoil, Central Banks tapering, power shortages, potential financial crisis in China, Inflation worries, continued Covid concerns and general markdowns of expected economic growth on supply chain disruptions into year end. International markets underperformed the US for the quarter but outperformed during the September decline.
International Intrinsic Value
Strategy Review
Global Intrinsic Value Equity Income
Strategy Review
International Intrinsic Value Opportunity
Strategy Review
2nd Quarter 2021
US Market Commentary
At the end of June, the S&P 500 wrapped up a good month and quarter, with returns of 2.33% and 8.55% respectively. During the quarter, the S&P hit many new highs and was the leader of all major markets, as most international indexes posted lower returns. Growth trounced Value, as many of the big tech beneficiaries of Covid-19 caught a strong bid while interest rates fell from almost 1.75% to 1.25% recently.
Large Cap Intrinsic Value
Strategy Review
Intrinsic Value Opportunity
Strategy Review
International Market Commentary
On June 1, the ACWI ex-US traded to a new high (the first since 2007) and stayed at new highs until June 15, before backing off a bit. This happened after nearly 14 years in a trading range. Google it... there are no news stories and the media ignored it. A sustainable breakout would suggest a shift to a secular bull market.
International Intrinsic Value
Strategy Review
Global Intrinsic Value Equity Income
Strategy Review
International Intrinsic Value Opportunity
Strategy Review
1st Quarter 2021
US Market Commentary
Markets acted well during the first quarter on the realization that both the Federal Reserve and the Federal Government are experimenting with the idea of having the economy overshoot the mark during the recovery. The rotation to Value continued as the economic outlook became clearer.
Large Cap Intrinsic Value
Strategy Review
Intrinsic Value Opportunity
Strategy Review
International Market Commentary
The global resurgence of COVID-19 cases during the first quarter has delayed the global economic boom we expect after the reopening fully occurs. Delayed... not cancelled. Globally synchronized growth is still the most likely outcome as vaccinations occur and economies re-open.
International Intrinsic Value
Strategy Review
Global Intrinsic Value Equity Income
Strategy Review
International Intrinsic Value Opportunity
Strategy Review
4th Quarter 2020
US Market Commentary
The concerns we noted in our last quarterly letter seem to have evaporated (like we thought they would) to give way to an optimism for reflation, economic recovery and allow for a rotation into new leadership for the market. Worries about elections, stimulus, pandemics and Brexit were on the top of investors' minds, despite a robust rally in stocks and recovery in the economy.
Large Cap Intrinsic Value
Strategy Review
Intrinsic Value Opportunity
Strategy Review
International Market Commentary
International markets performed well through the fourth quarter of last year, and the MSCI ACWI ex-US Index, led by the Emerging Markets, outperformed the S&P for both the quarter and the trailing six month period. We believe this recent outperformance is probably the beginning of a new cycle where International Markets should outperform the US Market as a synchronized global recovery starts and cyclical forces shift to favor them.
International Intrinsic Value
Strategy Review
Global Intrinsic Value Equity Income
Strategy Review
International Intrinsic Value Opportunity
Strategy Review
3rd Quarter 2020
US Market Commentary
If you were to ask ten investors what they worry most about, you might get twelve answers in the current environment. The one we see playing out the most in the market is the tug of war between the recovery believers and those worried about an economic or health related relapse. We believe a recovery is the more likely outcome, but you cannot totally rule out the potential for modest relapses along the way.
Large Cap Intrinsic Value
Strategy Review
Intrinsic Value Opportunity
Strategy Review
International Market Commentary
The Chinese economy has bounced back after the Pandemic. Other global economies are expecting a bounce back as well, but likely lagged from China's by 3 months. Looking at just the numbers, the Chinese economy grew 3% year over year in the second quarter. While this is less than half of the growth rate we saw prior to the Pandemic, it highlights how economies can recover from the depths of a recession when the stars align and conditions for a recovery are present.
International Intrinsic Value
Strategy Review
Global Intrinsic Value Equity Income
Strategy Review
International Intrinsic Value Opportunity
Strategy Review
2nd Quarter 2020
US Market Commentary
Economic results are improving from record setting weakness but it will take some time before we reach pre-virus activity levels. We are seeing a resurgence in Covid-19 cases, expecting a contentious election and stocks have seen a significant run off the bottom... We believe an economic recovery is unfolding, but the market might trade sideways for the summer while awaiting further evidence that the recovery is taking hold.
Large Cap Intrinsic Value
Strategy Review
Intrinsic Value Opportunity
Strategy Review
International Market Commentary
Economic activity is recovering in the reverse order of the pandemic hitting, and there are many stimulative programs being pursued to ensure the recovery takes hold. While the tone of the economy in the US is better, but still not good, global activity measures appear to be firming ahead of the US, and are being led by a Chinese recovery.
International Intrinsic Value
Strategy Review
Global Intrinsic Value Equity Income
Strategy Review
International Intrinsic Value Opportunity
Strategy Review
1st Quarter 2020
US Market Commentary
What started out as a decent quarter with the economy growing, people getting jobs and investors making money, turned into the fastest decline on record of almost 34% over 22 trading days between February 19 and March 23. Everyone became familiar with a new term- a Lockdown. As we are seeing the effects of the Coronavirus lockdown related screeching halt of economic activity, we start thinking about the concept of lockdown-omics, i.e. estimating how bad the contraction in activity is going to be.
Large Cap Intrinsic Value
Strategy Review
Intrinsic Value Opportunity
Strategy Review
International Market Commentary
The optimism that investors had entering the new quarter was justified, right up until it wasn’t... While that optimism may have been justified at that time, the global coronavirus pandemic erased it and sent markets into a tailspin resulting in roughly 34% declines for both MSCI ACWI ex-US and the S&P 500 indexes from their recent peaks.
International Intrinsic Value
Strategy Review
Global Intrinsic Value Equity Income
Strategy Review
International Intrinsic Value Opportunity
Strategy Review
The Coronavirus Bear Market… Is it Done Yet?
Market Commentary
Panic has set into markets as we entered Bear Market territory with concerns about the spread of the coronavirus and an oil price war weighing on investors... While uncertainty lingers, investors are likely to remain on edge. If there is good news to be had, it would be that the impact of the virus should be temporary (experts suggest a couple of months). Also, lower oil prices should help consumer incomes as they filter through the system. Now the question becomes getting through the next couple of months and minimizing the human and financial impact of dealing with these issues.
Coronavirus Correction, What is Discounted Now?
Market Commentary
While we could sit here and spout opinions for a long time, the real question most stockholder have is "what do I do now?" We see extreme sentiment measures as evidenced by high volatility readings (the VIX) and high put to call readings. Typically, those readings coincide with peak fear, and markets have tended to stabilize after them. Most economists have already anticipated economic weakness and marked their forecasts down accordingly, but we have not seen the indicators yet and that is all still to play out ahead of us.
4th Quarter 2019
US Market Commentary
The markets drove bears up the wall (of worry) as it climbed last year. We believe the pundits are still looking in disbelief at the market returns, and stand by our call that most worries are likely to be addressed and worldwide economic growth is likely to accelerate this year. Markets may be a little ahead of themselves early in 2020, so we expect a period of consolidation followed by a resumption in the equity market advance.
Large Cap Intrinsic Value
Strategy Review
Intrinsic Value Opportunity
Strategy Review
International Market Commentary
At the end of September 2019, it appeared investors were very concerned that nothing could go right for the world economy. Stocks were doing OK, but investors worried that Brexit would lead to further weakness in the economic outlook and chaos in the markets. They were also concerned that the Trade War would escalate, and continue to dampen the outlook for economic growth in Europe and (especially) the Emerging Markets.
International Intrinsic Value
Strategy Review
Global Intrinsic Value Equity Income
Strategy Review
International Intrinsic Value Opportunity
Strategy Review
3rd Quarter 2019
US Market Commentary
Markets have been held hostage to developments on trade and tariffs that have leaned on confidence since December of last year, and have shown dramatic movements based on the expectations of a Deal or no Deal in the trade war. We have believed for some time that the trade war would start to see some resolution as the President combines his "Art of the Deal" strategy with Re-Election hopes.
Large Cap Intrinsic Value
Strategy Review
Intrinsic Value Opportunity
Strategy Review
International Market Commentary
US Investors have shunned international markets this year. To be fair, the ACWI ex-US index is up more than 11.6% year to date, but that still pales when compared to the S&P returning over 20%. International indexes have underperformed the US since Q1 2018 as the uncertainties relating to trade wars, manufacturing slowdowns and Brexit weighed on confidence.
International Intrinsic Value
Strategy Review
Global Intrinsic Value Equity Income
Strategy Review
International Intrinsic Value Opportunity
Strategy Review
2nd Quarter 2019
US Market Commentary
The US market has acted very well this year, despite economic worries spurred by the new tariff concerns and a global manufacturing slowdown. Markets weakened in May after the breakdown of trade negotiations, only to recover in June as anticipation of a resumption of talks was priced in.
Large Cap Intrinsic Value
Strategy Review
Intrinsic Value Opportunity
Strategy Review
International Market Commentary
Years ago, I lived in a part of the country that was a hotbed of fans for NASCAR, the stock car racing association. After one brutal afternoon when a lot of drivers “traded paint” (slang for sideswiping each other), more than one car wound up spinning into the infield after getting hit. After the race, a sportscaster asked the winner about the contact on the track. His answer... “Well, that’s racin!”
International Intrinsic Value
Strategy Review
Global Intrinsic Value Equity Income
Strategy Review
International Intrinsic Value Opportunity
Strategy Review
1st Quarter 2019
US Market Commentary
First quarter market performance shows the power that a simple phrase like "Never Mind" can have, especially when it is the Fed Chairman invoking that sentiment. The S&P rose almost 14% in the first quarter posting a rebound of Biblical proportions from a fourth quarter that ended in tears.
Large Cap Intrinsic Value
Strategy Review
Intrinsic Value Opportunity
Strategy Review
International Market Commentary
Two deals, a China/US Trade deal and a Brexit Deal, captured investor attention during the first quarter. Bond Vigilantes worry about the possibility of deals not being reached and growth deteriorating. The "Bond Vigilantes" have been hard at work driving rates down (and stopping Central Bank tightening) in anticipation of a deflationary bust.
International Intrinsic Value
Strategy Review
Global Intrinsic Value Equity Income
Strategy Review
4th Quarter 2018
US Market Commentary
The US stock market anticipated a recession in the second half of last year. The 20% decline from the S&P 500 peak in September to the trough in December is confirmation of that. The US bond market probably geared up for one as well, as the decline in bond yields seems to indicate. The odd thing about this is that the Federal Reserve and most economists do not expect one.
Large Cap Intrinsic Value
Strategy Review
Intrinsic Value Opportunity
Strategy Review
International Market Commentary
International markets suffered significant declines in 2018 as investors suffered from the worst kind of anticipation, namely worrying about a potential recession. Most Central Banks and Economists are not predicting a recession, but investors have long memories and appear to be inclined to anticipate the worst after the Great Recession experience. As we look at it, this episode feels like an Echo of 2016, another period that was trying for markets.
International Intrinsic Value
Strategy Review
Global Intrinsic Value Equity Income
Strategy Review