Posts by: Nathan Rowader

Volatility | June 22, 2017

Author: Nathan J. Rowader
Date: June 22, 2017
Category: Quantitative Insights
Tags: volatility, bull market, tech, market stress, growth, valuations

Volatility among tech companies has exceeded its long levels, following a period of stress on that segment of the market. These types of steep increases in risk aren’t unusual for tech bull markets since the market is expecting extremely elevated levels of growth to justify valuations. However, this is typically a bad sign for near-term returns so we think it is worth monitoring.

Market volatility is an indicator of financial stress. Low- or declining-volatility environments may indicate favorable periods for equity investments, whereas rising volatility periods may favor sovereign debt and developed market currency exposure.

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Correlation | June 21, 2017

Author: Nathan J. Rowader
Date: June 21, 2017
Category: Quantitative Insights
Tags: correlation, diversification, stocks, U.S. debt, EM bonds, U.S. bonds, average

Our Observations: U.S. debt has had below-average correlations for much of the year; we believe this provides one of the few diversifying safe havens in the global markets.  Meanwhile, developed foreign bond and EM bonds are near their long-run averages and therefore not as compelling as U.S. bonds in terms of diversification.

The correlation figure measures how each asset return moves in relationship to the broader basket of asset returns listed on the X axis. When correlations are high or rising, it may indicate that economic movements and sentiment are driving the majority of returns, which could potentially make security selection challenging.

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Momentum | June 20, 2017

Author: Nathan J. Rowader
Date: June 20, 2017
Category: Quantitative Insights
Tags: momentum, commodities, interest rates, stocks, FOMC, deflation

Our Observations: Commodities continue to be under pressure. The Federal Open Market Committee (FOMC) indicated in its recent announcement that inflation was expected to fall below the targeted 2%, creating deflationary pressures throughout the global market. While this may have a negative impact on commodities, it has not translated into bad news for stocks, which essentially moved sideways this past week.

Momentum measures the rate of acceleration, either positive or negative, in a security’s price and may indicate which markets are positioned for gains or losses. Investing based on momentum entails establishing long positions in securities with positive recent returns and short positions in those with negative recent returns. Momentum in asset classes may illustrate the development of trends in the market.

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Income Report Card | June 19, 2017

Author: Nathan J. Rowader
Date: June 19, 2017
Category: Quantitative Insights
Tags: interest rates, yield, inflation rates, FOMC, rate hikes

Our Observations: The 10-year Treasury ended the week at 2.16, just 2 bps off its YTD low. Yields dropped after the Federal Open Market Committee (FOMC) announced another 0.25% increase to the benchmark rate. As part of the announcement, the FOMC indicated that it expected low levels of inflation, which dampens the expectation for future rate hikes.

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Volatility | June 15, 2017

Author: Nathan J. Rowader
Date: June 15, 2017
Category: Quantitative Insights
Tags: volatility, correction, rates, bonds, risk assets, stocks

Our Observations: Current volatility is approaching the long-term volatility numbers, based on a combination of slightly higher near-term risks and a long period of overall low levels of risk. This is notable as it could indicate a potential for a correction. However, the current level of risk is still far from historical averages and this tends to support a continued preference for risk assets like stocks. Therefore, we believe it is unlikely that we will experience any major correction in the near term.

Market volatility is an indicator of financial stress. Low or declining volatility environments may indicate favorable periods for equity investments, whereas rising volatility periods may favor sovereign debt and developed market currency exposure.

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Correlation | June 14, 2017

Author: Nathan J. Rowader
Date: June 14, 2017
Category: Quantitative Insights
Tags: monetary policy, volatility, correlation, bonds, stocks, U.K., fiscal policy, currency

Our Observations: Correlations continue to increase in most asset classes, diminishing the diversification benefit of a cross-asset class portfolio. We think much of this can be attributed to the push and pull of fiscal and monetary policies and the related impacts on currency, rates and economic growth. This is a change from the prior several weeks which saw a decrease in correlation for bonds, which indicated a stronger impact from fiscal policy. However, we think the U.K. elections and continued political uncertainty in the U.S. shifted the focus to some degree back to monetary policy.

The correlation figure measures how each asset return moves in relationship to the broader basket of asset returns listed on the X axis. When correlations are high or rising, it may indicate that economic movements and sentiment are driving the majority of returns, which could potentially make security selection challenging.

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Momentum | June 13, 2017

Author: Nathan J. Rowader
Date: June 13, 2017
Category: Quantitative Insights
Tags: momentum, interest rates, inflation, Treasurys, bonds, stocks, foreign bonds, yields

Our Observations: Stocks have taken a brief pause from their recent push this week while bonds took the lead. Short-term trends have favored bonds as the 10-year Treasury has gone from 2.42% to 2.21% in the past month. Foreign bonds have done even better as the euro has appreciated relative to the dollar. However, we think the low yield of euro bonds and improving economic conditions of Europe should be an indicator of increasing near-term rates, which could negatively impact the capital value of these bonds.

Momentum measures the rate of acceleration, either positive or negative, in a security’s price and may indicate which markets are positioned for gains or losses. Investing based on momentum entails establishing long positions in securities with positive recent returns and short positions in those with negative recent returns. Momentum in asset classes may illustrate the development of trends in the market.

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Income Report Card | June 12, 2017

Author: Nathan J. Rowader
Date: June 12, 2017
Category: Quantitative Insights
Tags: volatility, interest rates, MLPs, OPEC, oil prices, foreign currency, yield

Our Observations: The 10-year Treasury rose to 2.21% as most pundits expect the Federal Reserve t0 raise the target fed funds rate again this week. Master Limited Partnerships (MLPs) slid from an A rating to B rating driven by an increase in volatility. The diplomatic isolation of Qatar dashed hopes that Organization of the Petroleum Exporting Countries (OPEC) would be more synchronous in its attempt to lower production. This has put pressure on global oil prices and, by proxy, MLPs. Meanwhile, international real estate has declined in volatility (as foreign currency appreciated) while still paying a healthy 3.68% yield.

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Volatility | June 8, 2017

Author: Nathan J. Rowader
Date: June 8, 2017
Category: Quantitative Insights
Tags: volatility, rates, bonds, stocks, returns

Volatility remains low in nearly every asset class except for commodities. Without any big shift in stock or bond volatility, we expect the current trends to persist.

Market volatility is an indicator of financial stress. Low or declining volatility environments may indicate favorable periods for equity investments, whereas rising volatility periods may favor sovereign debt and developed market currency exposure.

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Correlation | June 7, 2017

Author: Nathan J. Rowader
Date: June 7, 2017
Category: Quantitative Insights
Tags: volatility, commodities, correlation, bonds, stocks, trends

Correlation between stocks and bonds the increased, as a result of the similar direction of performance. The positive correlation between these two asset classes persists, indicating that rates are still a strong driver of returns.

The correlation figure measures how each asset return moves in relationship to the broader basket of asset returns listed on the X axis. When correlations are high or rising, it may indicate that economic movements and sentiment are driving the majority of returns, which could potentially make security selection challenging.

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Momentum | June 6, 2017

Author: Nathan J. Rowader
Date: June 6, 2017
Category: Quantitative Insights
Tags: momentum, interest rates, inflation, bonds, stocks

Our Observations: Interest rates in Europe and the U.S. declined last week, driving up the price of bonds. However, this coincided with fairly strong stock performance. Long-term momentum still favors stocks over bonds, so we think the year’s positive stock market performance should continue.

Momentum measures the rate of acceleration, either positive or negative, in a security’s price and may indicate which markets are positioned for gains or losses. Investing based on momentum entails establishing long positions in securities with positive recent returns and short positions in those with negative recent returns. Momentum in asset classes may illustrate the development of trends in the market.

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Income Report Card | June 5, 2017

Author: Nathan J. Rowader
Date: June 5, 2017
Category: Quantitative Insights
Tags: volatility, sovereign debt, Treasurys, currencies, rates, safety

Our Observations: The 10-year Treasury ended the week at 2.21%, within the new lower range of 2.20% and 2.30%. The drop in global rates is helping push sovereign bonds higher and keeping them competitive in terms of performance. We think this is an important trend worth watching as the current rate of sovereign bonds doesn’t warrant such strong performance and may indicate a preference for safety in bond portfolios.

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Volatility | June 2, 2017

Author: Nathan J. Rowader
Date: June 2, 2017
Category: Quantitative Insights
Tags: risk, currencies, bonds, low volatility, Brazil, emerging markets, stocks, volatilty

Our Observations: Brazil stocks and currencies are the biggest movers with a sharp increase in volatility. All other volatility changes were nominal with relatively low overall global volatility separate from Brazil. This is supportive of Brazil’s problems as an isolated incident and shouldn’t spread to other countries.

Market volatility is an indicator of financial stress. Low or declining volatility environments may indicate favorable periods for equity investments, whereas rising volatility periods may favor sovereign debt and developed market currency exposure.

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Correlation | June 1, 2017

Author: Nathan J. Rowader
Date: June 1, 2017
Category: Quantitative Insights
Tags: correlation, currencies, equities, bonds, Brazil, portfolio risk

Our Observations: Brazil’s sharp decline is the top story for correlation. The change in correlation did not spread to other emerging markets or risk assets, supporting the idea that the problems in Brazil are not a systemic issue for Emerging Markets as a whole.

The correlation figure measures how each asset return moves in relationship to the broader basket of asset returns listed on the X axis. When correlations are high or rising, it may indicate that economic movements and sentiment are driving the majority of returns, which could potentially make security selection challenging.

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Momentum | May 31, 2017

Author: Nathan J. Rowader
Date: May 31, 2017
Category: Quantitative Insights
Tags: momentum, inflation, currencies, sell-off, Brazil, emerging markets, stocks

Our Observations: The big story in momentum is Brazil, as political turmoil and fears of military mobilization weigh heavily on stocks and currency. However, this does appear to be isolated, as the rest of the emerging markets and Europe continue to exhibit strong short- and long-term momentum, while bonds continue to show weakness, especially at the long end.

Momentum measures the rate of acceleration, either positive or negative, in a security’s price and may indicate which markets are positioned for gains or losses. Investing based on momentum entails establishing long positions in securities with positive recent returns and short positions in those with negative recent returns. Momentum in asset classes may illustrate the development of trends in the market.

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Income Report Card | May 30, 2017

Author: Nathan J. Rowader
Date: May 30, 2017
Category: Quantitative Insights
Tags: volatility, Treasurys, currencies, rates, U.S corporates, high yield munis, lower credit spreads, tax-reform

The 10-year Treasury finished the week at 2.25%, inside what appears to be a new and lower trading range of 2.20% and 2.30%. The report card is again showing a decline in rating for U.S. corporate high yield bonds, and high yield municipal bonds are moving into their top spot. Given the low credit spreads for all corporate bonds, we think the muni market is looking attractive — particularly because any major tax reform legislation is likely in waiting, perhaps for an extended period of time.

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Volatility | May 25, 2017

Author: Nathan J. Rowader
Date: May 25, 2017
Category: Quantitative Insights
Tags: commodities, risk, bonds, low volatility, stocks, bullish

Market volatility is mixed across various segments of the market. However, short-term volatility is largely below long-term volatility, which supports the bullish case for riskier assets such as stocks and bonds. While volatility did increase in many parts of the market, it still remains muted and therefore isn’t indicating any immediate changes in market condition.

Market volatility is an indicator of financial stress. Low or declining volatility environments may indicate favorable periods for equity investments, whereas rising volatility periods may favor sovereign debt and developed market currency exposure.

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Correlation | May 24, 2017

Author: Nathan J. Rowader
Date: May 24, 2017
Category: Quantitative Insights
Tags: correlation, currencies, equities, bonds, active management, portfolio risk

Our Observations: Stocks, bonds and currencies are exhibiting correlations in the short term that are well below long-term correlations. This is an environment that should offer the opportunity for potential excess return. We think emerging market stocks and currencies may offer the opportunity to lower overall portfolio risk while potentially harvesting better returns.

The correlation figure measures how each asset return moves in relationship to the broader basket of asset returns listed on the X axis. When correlations are high or rising, it may indicate that economic movements and sentiment are driving the majority of returns, which could potentially make security selection challenging.

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Momentum | May 23, 2017

Author: Nathan J. Rowader
Date: May 23, 2017
Category: Quantitative Insights
Tags: momentum, inflation, currencies, sell-off, Brazil, global bonds, emerging markets, stocks, credit

Our Observations: Despite the sell-off last Wednesday and the sell-off in Brazil, global markets are still embracing risk. Both short- and long-term indicators are strong across the emerging markets for both stocks and currencies. Additionally, short- and long-term indicators are still weak across global bonds, particularly on the long end. As a result, we continue to expect riskier assets such as stocks and credit to lead the market.

Momentum measures the rate of acceleration, either positive or negative, in a security’s price and may indicate which markets are positioned for gains or losses. Investing based on momentum entails establishing long positions in securities with positive recent returns and short positions in those with negative recent returns. Momentum in asset classes may illustrate the development of trends in the market.

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Income Report Card | May 22, 2017

Author: Nathan J. Rowader
Date: May 22, 2017
Category: Quantitative Insights
Tags: fixed income, volatility, Treasurys, currencies, rates, risk assets, safe bonds, international sovereign bonds, income report card

Our Observations: Rates fell sharply last week with the 10-year Treasury closing at 2.23% close to the 2017 low. This has lowered the overall range between 2.40% and 2.20%. Despite the rally in Treasurys and other safe bonds, the report card doesn’t indicate any type of fundamental shift in expectations. We think it may be important to keep an eye on international sovereign bonds, which have performed very well as foreign currencies have rallied sharply over the past few weeks. Although currencies have rallied, their movements can be very volatile and we believe they do not fit in a well-diversified income portfolio.

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Volatility | May 18, 2017

Author: Nathan J. Rowader
Date: May 18, 2017
Category: Quantitative Insights
Tags: commodities, inflation, risk, correction, rising rates, sensitivity, low volatility

Our Observations: Changes in the risk environment followed no particular pattern. Certain markets like Korea and Hong Kong increased in volatility while most European markets and the U.S. experienced a slight decrease in volatility. In general, risk in stock markets appears to be muted while risk in bonds, currencies, and commodities approaches the long-term volatility level. Here again, much of this is likely driven by rate policy and expected inflation so we think it will be important to monitor as the environment becomes clearer.

Market volatility is an indicator of financial stress. Low or declining volatility environments may indicate favorable periods for equity investments, whereas rising volatility periods may favor sovereign debt and developed market currency exposure.

See the Data »

Correlation | May 17, 2017

Author: Nathan J. Rowader
Date: May 17, 2017
Category: Quantitative Insights
Tags: correlation, inflation, equities, rate policy, active management

Our Observations: Correlations for stocks declined almost across the board, which improved the situation for active stock pickers. However, nearly every other asset saw increases in their correlation, especially those with a high degree of sensitivity toward global rates. We think this could indicate a resurgence in the rate and inflation driven market that has made up most of the year’s key winners and losers. We believe this will be an important relationship to monitor as changes to rate policies continue to take shape.

The correlation figure measures how each asset return moves in relationship to the broader basket of asset returns listed on the X axis. When correlations are high or rising, it may indicate that economic movements and sentiment are driving the majority of returns, which could potentially make security selection challenging.

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Momentum | May 16, 2017

Author: Nathan J. Rowader
Date: May 16, 2017
Category: Quantitative Insights
Tags: momentum, inflation, sell-off, bonds, emerging markets equities, risk-on market

Our Observations: We think this week is a textbook illustration of a risk on market. The biggest gainers were in the emerging markets and Japan while long-dated bonds in Europe and the U.S. were among the biggest losers. It appears that the fears of a larger sell-off have subsided and many investors are preferring to take on risk in their portfolios.

Momentum measures the rate of acceleration, either positive or negative, in a security’s price and may indicate which markets are positioned for gains or losses. Investing based on momentum entails establishing long positions in securities with positive recent returns and short positions in those with negative recent returns. Momentum in asset classes may illustrate the development of trends in the market.

See the Data »

Income Report Card | May 15, 2017

Author: Nathan J. Rowader
Date: May 15, 2017
Category: Quantitative Insights
Tags: fixed income, volatility, correction, Treasurys, rates, risk assets, portfolio construction, risk management

Our Observations: The 10-year Treasury ended the week at 2.33%, inside the 30 basis points range that has held for much of the year. It appears that the appetite for risky assets, i.e. stocks and credit, has returned after the minor sell-off in April. We also remain in a historically low level of market volatility. We think it is often difficult to navigate these periods of uncertainty, as history tells us the low levels of volatility should give way to high-pressure selling. However, periods of low volatility may deliver potentially strong returns while everyone waits for the change in market risk. In these times, we think it is important to stay vigilant and rely on risk management practices to guide portfolio construction.

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Volatility | May 11, 2017

Author: Nathan J. Rowader
Date: May 11, 2017
Category: Quantitative Insights
Tags: commodities, risk, correction, rising volatility, extreme

Our Observations: Volatility increased in nearly every asset class as near-term volatility approached long-term volatility. Rising volatility tends to indicate a riskier environment for stocks and commodities, so we think this data adds to the consideration of a possible correction. We think it is prudent to keep an eye on volatility as extreme numbers could indicate an opportunity. However, at this point, there are still only a few extreme levels.

Market volatility is an indicator of financial stress. Low or declining volatility environments may indicate favorable periods for equity investments, whereas rising volatility periods may favor sovereign debt and developed market currency exposure.

See the Data »

Correlation | May 10, 2017

Author: Nathan J. Rowader
Date: May 10, 2017
Category: Quantitative Insights
Tags: correlation, diversification, bonds, portfolio constrcution, rate policy

Our Observations: Nearly every asset class had short-term correlations much closer to long-term correlations. We think this will assist in portfolio construction as the diversification benefits of cross asset portfolios should improve. The best example is the return of negative correlation for bonds, which is historically a strong indication that rate policy may not be the primary factor driving returns.

The correlation figure measures how each asset return moves in relationship to the broader basket of asset returns listed on the X axis. When correlations are high or rising, it may indicate that economic movements and sentiment are driving the majority of returns, which could potentially make security selection challenging.

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Momentum | May 9, 2017

Author: Nathan J. Rowader
Date: May 9, 2017
Category: Quantitative Insights
Tags: momentum, commodities, inflation, bonds, correction equities

Our Observations: Short-term momentum continued to reverse from earlier lows but has yet to reach new highs, leaving the market vulnerable to a correction. Energy and metal commodities have reversed sharply to the downside as result of several economic indicators showing higher supplies and slowing inflation. Given this mixed picture, we think it is prudent to remain cautious as the possibility of a correction still remains.

Momentum measures the rate of acceleration, either positive or negative, in a security’s price and may indicate which markets are positioned for gains or losses. Investing based on momentum entails establishing long positions in securities with positive recent returns and short positions in those with negative recent returns. Momentum in asset classes may illustrate the development of trends in the market.

See the Data »

Income Report Card | May 8, 2017

Author: Nathan J. Rowader
Date: May 8, 2017
Category: Quantitative Insights
Tags: fixed income, volatility, risk, correction, Treasurys, rates

Our Observations: The 10-year Treasury ended the week at 2.36%, inside the range that has held for much of 2017 after a volatile few weeks for bonds. The report card is showing some rank changes in many of the credit sectors. We think the volatility in rates is indicative of increasing risks of all types of credit sectors, including U.S. High Yield Corporate Bonds. We believe it is important to keep an eye on these parts of the market as a correction might be imminent.

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Volatility | May 4, 2017

Author: Nathan J. Rowader
Date: May 4, 2017
Category: Quantitative Insights
Tags: volatility, commodities, correction, sell-off, sentiment, rebound

Our Observations: Volatility continues to be somewhat muted across all asset classes. The sell-off in stocks over the past few weeks failed to generate high-levels of volatility, which is often a good indicator of extreme investor sentiment. We believe, this could mean that a deeper correction is still pending or that the rebound will be smaller than a typical post-correction rebound.

Market volatility is an indicator of financial stress. Low or declining volatility environments may indicate favorable periods for equity investments, whereas rising volatility periods may favor sovereign debt and developed market currency exposure.

See the Data »

Correlation | May 3, 2017

Author: Nathan J. Rowader
Date: May 3, 2017
Category: Quantitative Insights
Tags: diversification, bull market, bonds, policy, patterns

Our Observations: Short-term correlations in bonds have gone negative, indicating that bonds are once again acting as the standard diversifiers to the basket. We think this is a good sign and may indicate a breakdown in policy-driven markets.

The correlation figure measures how each asset return moves in relationship to the broader basket of asset returns listed on the X axis. When correlations are high or rising, it may indicate that economic movements and sentiment are driving the majority of returns, which could potentially make security selection challenging.

See the Data »

Momentum | May 2, 2017

Author: Nathan J. Rowader
Date: May 2, 2017
Category: Quantitative Insights
Tags: market correction, equities, bonds, trend, pullback

Our Observations: Short-term momentum in stocks flipped from negative to positive over the past week. We think this could be a signal that the recent correction has ended and the long-term upward trend has resumed. This is confirmed by the recent pullback in bonds, resulting in the assets barely holding onto positive momentum in the short term.

Momentum measures the rate of acceleration, either positive or negative, in a security’s price and may indicate which markets are positioned for gains or losses. Investing based on momentum entails establishing long positions in securities with positive recent returns and short positions in those with negative recent returns. Momentum in asset classes may illustrate the development of trends in the market.

See the Data »

Income Report Card | May 1, 2017

Author: Nathan J. Rowader
Date: May 1, 2017
Category: Quantitative Insights

Our Observations: The 10-year Treasury ended the week at 2.33%, which is back inside the range established earlier this year. Most leading economic indicators continue to point toward an overall expansion, which has been a key driver of higher rates. This week’s job report could be a catalyst for higher rates, so we think income portfolios could potentially receive their yield from credit over duration.

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Volatility | April 27, 2017

Author: Nathan J. Rowader
Date: April 27, 2017
Category: Quantitative Insights
Tags: volatility, commodities, sell-off, capital markets, metals

Our Observations: We think this is an important chart to observe during a sell-off, taking note of extreme levels of volatility as an indication that any sell-off might be reaching an extreme point. As of right now, we see that nearly every segment of the capital market is below the long-term volatility reading. Note that some of the metals are currently trading above their long-term volatility readings and have been experiencing a short-term sell-off. This could indicate that metals might be reaching a turning point.

Market volatility is an indicator of financial stress. Low or declining volatility environments may indicate favorable periods for equity investments, whereas rising volatility periods may favor sovereign debt and developed market currency exposure.

See the Data »

Correlation | April 26, 2017

Author: Nathan J. Rowader
Date: April 26, 2017
Category: Quantitative Insights
Tags: equity, interest rates, diversification, bull market, U.S. dollar, Treasury yield

Our Observations: Short-term correlations have been declining in nearly every segment of the market. This move is breaking up the somewhat lopsided market that had been driven by interest rates and inflation expectations and provides a potential opportunity for diversification. One of the more notable changes has been the decrease in correlations for U.S. bonds and the increase for Euro-denominated bonds. We think there is a diversification opportunity at the shorter end of the Treasury curve, which may provide some yield nearly equivalent to intermediate term Treasurys.

The correlation figure measures how each asset return moves in relationship to the broader basket of asset returns listed on the X axis. When correlations are high or rising, it may indicate that economic movements and sentiment are driving the majority of returns, which could potentially make security selection challenging.

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Momentum | April 25, 2017

Author: Nathan J. Rowader
Date: April 26, 2017
Category: Quantitative Insights
Tags: equity, market correction, long-term growth, bullish market, energy

Our Observations: Short-term momentum (22 days) in global equities continues to decline indicating a state of correction. However, with most markets returning between 0% and -5%, we conclude that the sell-off hasn’t yet reached a point of extreme and is likely ongoing. The overall trend of global equity markets is slightly muddied by the Marcon’s strong showing in the French election which should give European equities a short-term boost. It is important to note the strength of the energy sector as short-term momentum in crude oil exceeds long-term momentum (12 months), which is a signal of strength.

Momentum measures the rate of acceleration, either positive or negative, in a security’s price and may indicate which markets are positioned for gains or losses. Investing based on momentum entails establishing long positions in securities with positive recent returns and short positions in those with negative recent returns. Momentum in asset classes may illustrate the development of trends in the market.

See the Data »

Income Report Card | April 24, 2017

Author: Nathan J. Rowader
Date: April 24, 2017
Category: Quantitative Insights
Tags: equity, fixed income, income, risk, correction, Treasurys, rates

Our Observations: The 10-year Treasury ended the week at 2.24%, slightly higher than this year’s low of 2.18%. At this point, we are unsure if a new pattern has taken shape or whether this is a reprieve from the range formed earlier this year. However, we think the lower rates and continued outperformance of lower volatility sectors still point toward a correction in stocks.

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Volatility | April 20, 2017

Author: Nathan J. Rowader
Date: April 20, 2017
Category: Quantitative Insights
Tags: equity, volatility, commodities, sell-off, sentiment

Our Observations: Nearly every market is experiencing short-term volatility (as measured by 22 days) below long term levels, but some volatilities are creeping slightly higher. We think these volatility levels may indicate an end to the sell-off. If short-term volatility levels were to exceed long term, this would likely indicate that sellers have become overly enthusiastic and could present a good entry point into the market.

Market volatility is an indicator of financial stress. Low or declining volatility environments may indicate favorable periods for equity investments, whereas rising volatility periods may favor sovereign debt and developed market currency exposure.

See the Data »

Correlation | April 19, 2017

Author: Nathan J. Rowader
Date: April 19, 2017
Category: Quantitative Insights
Tags: equity, diversification, bull market, precious metals, currencies, U.S. dollar, sell-off

Our Observations: The price of the S&P 500 peaked on March 1st and has fallen nearly 3% while the U.S. Dollar has fallen 2% relative other major currencies. We believe this has created some unique inter-market changes, including a sharp rise in the short-term correlations (22-days) of gold and silver. Precious metals tend to be viewed as a diversifier and returns have been successful going into the recent sell-off, but we believe allocating to these assets now may not garner the same benefits.

The correlation figure measures how each asset return moves in relationship to the broader basket of asset returns listed on the X axis. When correlations are high or rising, it may indicate that economic movements and sentiment are driving the majority of returns, which could potentially make security selection challenging.

See the Data »

Momentum | April 18, 2017

Author: Nathan J. Rowader
Date: April 18, 2017
Category: Quantitative Insights
Tags: equity, market correction, long-term growth, bullish market, energy

Our Observations: The global stock markets appear to have entered a correction with short-term momentum (returns over 22-day period) turning negative in the U.S. and Japan. The stronger European and Asian markets are also approaching negative territory in short-term momentum. Energy markets, however, appear to be bucking the short-term negative trend as crude oil has begun reverse its recent sell-off. Despite the weaker short-term picture, long-term momentum still favors stocks, energy, and metals. We think this is a good indication that we are likely experiencing a correction within a bull market.

Momentum measures the rate of acceleration, either positive or negative, in a security’s price and may indicate which markets are positioned for gains or losses. Investing based on momentum entails establishing long positions in securities with positive recent returns and short positions in those with negative recent returns. Momentum in asset classes may illustrate the development of trends in the market.

See the Data »

Income Report Card | April 17, 2017

Author: Nathan J. Rowader
Date: April 17, 2017
Category: Quantitative Insights
Tags: equity, fixed income, income, risk, correction, bull market, Treasurys

Our Observations: The 10-year Treasury yield fell from 2.38% to 2.24% over the past week, breaking out of the trading range it has held all year. We believe this likely signals the beginning of a correction that should favor less risky assets such as Treasurys and cash over riskier credit and stocks. However, we’ve noticed most of the riskier assets have a positive sloping 200-day moving price average, which may indicate that this is a sell-off within an overall bull market.

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Volatility | April 13, 2017

Author: Nathan J. Rowader
Date: April 13, 2017
Category: Quantitative Insights
Tags: equity, volatility, commodities, sovereign debt, interest rates

Our Observations: Short-term volatility (as measured by 22 days) increased in most assets, but certain stocks assets and metals are approaching their longer-term averages. We think rising volatility along with declining short-term momentum is a relatively strong signal of a bumpy road ahead, especially for risky assets such as stocks and commodities.

Market volatility is an indicator of financial stress. Low or declining volatility environments may indicate favorable periods for equity investments, whereas rising volatility periods may favor sovereign debt and developed market currency exposure.

See the Data »

Correlation | April 12, 2017

Author: Nathan J. Rowader
Date: April 12, 2017
Category: Quantitative Insights
Tags: equity, volatility, commodities, sovereign debt, interest rates, correlation, inflation, diversification, trading, trading patterns

Our Observations: Nearly every asset class has experienced an increase in short-term correlation (22 days), and many have risen above their long-term averages. We think this is proof of how interest rate expectations and inflation are driving near-term returns and why it is important to keep an eye on the trading pattern of interest rates. That said, certain stock assets are below long-term correlations. Less rate-sensitive sectors of the market, such as the NASDAQ 100, may add some diversification benefit.

The correlation figure measures how each asset return moves in relationship to the broader basket of asset returns listed on the X axis. When correlations are high or rising, it may indicate that economic movements and sentiment are driving the majority of returns, which could potentially make security selection challenging.

See the Data »

Momentum | April 11, 2017

Author: Nathan J. Rowader
Date: April 11, 2017
Category: Quantitative Insights
Tags: equity, momentum, market correction, long-term growth, bullish market

Our Observations: Short-term momentum (returns over 22-day period) in stocks, energy, and metals declined over the week. We think this adds more evidence that a slight market correction may be underway. However, long-term momentum is still quite strong, so we still expect only a mild sell-off within a bullish market.

Momentum measures the rate of acceleration, either positive or negative, in a security’s price and may indicate which markets are positioned for gains or losses. Investing based on momentum entails establishing long positions in securities with positive recent returns and short positions in those with negative recent returns. Momentum in asset classes may illustrate the development of trends in the market.

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Income Report Card | April 10, 2017

Author: Nathan J. Rowader
Date: April 10, 2017
Category: Quantitative Insights
Tags: equity, fixed income, income, momentum, monetary policy, value, volatility

What to Note: The 10-year Treasury Bond bounced off a low rate of 2.34%, which remains inside the recent 2.31% and 2.62% bands.  The rate increased a few basis points, but markets did not rotate into inflationary asset classes like stocks and commodities.  We think it is important to continue to keep an eye on this interest-rate range for further indications of market directions. However, for now there has been no major change.

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Volatility | April 7, 2017

Author: Nathan J. Rowader
Date: April 7, 2017
Category: Quantitative Insights
Tags: equity, value, volatility, commodities, sovereign debt, interest rates, inflation, diversification, momenturm, mean reversion

Our Observations:  Market volatility is an indicator of financial stress. Low or declining volatility environments may indicate favorable periods for equity investments, whereas rising volatility periods may favor sovereign debt and developed market currency exposure. Currently, near-term volatility (22 days) is below long run (12 months) in nearly every asset class, underscoring what has been a period of investor apathy toward recent developments in monetary and fiscal policy. The combination of low volatility and divergent momentum of returns over the short (22 days) and long term (12 months) periods —as described in the earlier note—may indicate some stress in the market. However, we think the global economy is continuing to grow and should contain any kind of return mean reversion, where assets revert back to their average price.

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Correlation | April 6, 2017

Author: Nathan J. Rowader
Date: April 6, 2017
Category: Quantitative Insights
Tags: equity, value, volatility, commodities, sovereign debt, interest rates, correlation, inflation, diversification

Our Observations: The correlation figure measures how each asset return moves in relationship to the broader basket of asset returns listed on the X axis. When correlations are high or rising, it may indicate that economic movements and sentiment are driving the majority of returns, which could potentially make security selection challenging. In recent months, we think rate and inflation expectations have been a key driver of all asset class returns. Sovereign debt’s correlation to the overall basket has increased, which is diminishing the diversification benefit of the asset class. This often occurs in an environment where interest rates and inflation are increasing simultaneously. There is currently a similar effect in U.S. and Emerging Market stocks where the impact of the changing rate environment is most evident.

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Momentum | April 5, 2017

Author: Nathan J. Rowader
Date: April 5, 2017
Category: Quantitative Insights
Tags: equity, momentum, monetary policy, value, volatility, commodities, sovereign debt, interest rates

Our Observations: Momentum measures the rate of acceleration, either positive or negative, in a security’s price and may indicate which markets are positioned for gains or losses. Investing based on momentum entails establishing long positions in securities with positive recent returns and short positions in those with negative recent returns. Momentum in asset classes may illustrate the development of trends in the market. Based on the pink circles in the chart, we think longer term momentum (12-month) is painting a picture that may favor riskier assets such as stocks, energy, and metals. Meanwhile, long-term momentum is currently looking weaker in historically lower-risk assets such as Treasurys and foreign sovereign bonds. However, the bars illustrating near-term momentum (22 days) indicate a mixed picture in equities and commodities. Given the low interest rate environment globally and a generally expanding economy, we believe mixed returns in the risk asset classes may eventually move in the direction of long-term momentum.

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Income Report Card | March 31, 2017

Author: Nathan J. Rowader
Date: April 3, 2017
Category: Quantitative Insights
Tags: equity, fixed income, income, momentum, monetary policy, value, volatility

Our Observations: The 10-year Treasury ended the week exactly where is started: at 2.40%. As a result, most credit-related sectors advanced over the week, finishing with strong positive gains while Treasury and other safety assets were largely flat.

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Income Report Card | March 27, 2017

Author: Nathan J. Rowader
Date: March 29, 2017
Category: Quantitative Insights
Tags: equity, fixed income, income, momentum, monetary policy, value, volatility

Our Observations: The 10-year U.S. Treasury yield decreased over the past week from 2.47% to 2.38%. The 10-year Treasury has been trading in a range of roughly 2.31% and 2.62% which gives the benchmark rate a little bit of room to move lower but is likely near the end of the cycle. This could provide Treasury sellers with a good entry point.

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