Quantitative Insights

To understand the impact of catalytic narrative forces, we have to monitor the vital signs of the capital markets they affect. To analyze the big picture through the lenses of game theory and history, we must also examine the details through lenses like volatility, momentum, income, correlation and inflation. These are the indicators of systemic vitality and stress—the fine details we use to fine-tune our worldview. We hope they help you sharpen your understanding of the investable universe.

Author: Nathan J. Rowader
Date: September 22, 2017
Category: Quantitative Insights
Tags: volatility, risk, bull market, emerging markets, short term, long term

Short and long-term volatility are in parity, except in emerging markets.  We think the decline in short-term risk for EM signals that the strong bull market fit this region of the world is continuing and should not be not ending any time soon.

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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Author: Nathan J. Rowader
Date: September 21, 2017
Category: Quantitative Insights
Tags: correlation, inflation, rates, macro, signals

We think the declining correlation across all markets signals a fading macro theme related to rates and inflation. Current data shows some signs of inflation but has yet to establish itself as a macro theme.

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 | September 20, 2017

Author: Nathan J. Rowader
Date: September 20, 2017
Category: Quantitative Insights
Tags: momentum, bull market, risk assets, short term, long term, pull back

Short-term momentum continues to show little movement, but long-term is still in line with a bull market. This is consistent with current market conditions and recent new highs and we think could signal the end of the recent pull back in risk asset prices.

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 | September 19, 2017

Author: Nathan J. Rowader
Date: September 19, 2017
Category: Quantitative Insights
Tags: income, momentum, bull market, rebound, Federal Reserve, Treasury, selloff

The 10-year Treasury yield rose sharply to 2.20% as the market digested the retirement of Fed Vice Chair, Stanley Fischer. Markets also rebounded from their September selloff, setting a possible return to the bull market that has marked most of this year.

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Volatility | September 14, 2017

Author: Nathan J. Rowader
Date: September 14, 2017
Category: Quantitative Insights
Tags: volatility, stocks, credit, long-term average, riskier assets

Market volatility is still in parity across long and short-term horizons, but is still generally below long term averages. We think the absence of a large jump in volatility is supportive of riskier assets such as stocks and credit.

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 | September 13, 2017

Author: Nathan J. Rowader
Date: September 13, 2017
Category: Quantitative Insights
Tags: correlation, Fed, macro, parity, rate decrease

Long and short-term correlation are more or less in parity with each other, signifying no particular push toward any single macro theme. We think the decrease in rates and the general belief that rates will stay lower for longer after Fed Vice Chair, Stanley Fischer’s exit will likely start to emerge as a major theme.

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 | September 12, 2017

Author: Nathan J. Rowader
Date: September 12, 2017
Category: Quantitative Insights
Tags: momentum, Treasurys, energy, metals, Fed, foreign developed currencies

Very little has changed as far as momentum is concerned. There does appear to be some strength in energy, metals, and foreign developed currencies. However, this past Monday the S&P 500 and the MSCI Emerging Markets Index achieved new all-time highs, albeit on low volume. This coincides with year-to-date lows for Treasurys fueled by the belief that the Federal Reserve is going to be less hawkish follow the departure of Fed Vice Chair, Stanley Fischer.

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 | September 11, 2017

Author: Nathan J. Rowader
Date: September 11, 2017
Category: Quantitative Insights
Tags: income, Treasurys, pre-election, low rates, Fed chairs, hawkish

The 10-year Treasury ended the week at a year to date low of 2.05%, setting the rate just above pre-election levels. At this point it appears that Fed Vice Chair, Stanley Fischer’s resignation and the list of potential new Fed chairs is shifting the market away from hawkish rate positions. While rates might not rise as fast as expected previously, we think this just means the challenges of low rates will persist longer.

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