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: July 20, 2017
Category: Quantitative Insights
Tags: volatility, risk, stocks, confusion, converging, historical average

Short- and long-term volatility are converging, another indicator that this is a market in a state of confusion. Despite rising volatility, it is still well below historical averages. We think this still provides a good environment for risk assets to perform well. The old Wall Street adage, “Stocks climb a wall of worry”, seems quite appropriate here.

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: July 19, 2017
Category: Quantitative Insights
Tags: diversification, risk, stocks, correlations, short term, converging

Near-term and long-term correlations are converging, but are still below historical averages. As a result, we think there are many potential options for positive performance through the selection of risk-diversifying assets and individual names. In short, we still see this as a stock picker’s market.

The correlation figure measures how each asset return moves in relationship to the broader basket of asset returns listed on the X axis. When correlation 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 | July 18, 2017

Author: Nathan J. Rowader
Date: July 18, 2017
Category: Quantitative Insights
Tags: momentum, volatility, emerging markets, stocks, short term, confusion

Our Observations: Nearly every asset class is close to 0 in near-term returns, indicating that the market continues to be in a state of confusion. A strong push in emerging markets helped reverse the course of near-term momentum. When combined with strong long-term momentum, emerging markets appear to maintain their position as leaders among stocks.

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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Volatility | July 13, 2017

Author: Nathan J. Rowader
Date: July 13, 2017
Category: Quantitative Insights
Tags: volatility, bull market, stocks, short term

Our Observations: Short-term and near-term volatility are nearly at parity in every asset class. We think we may be entering a period that is usually weak for stocks, where the increase in volatility might simply be an acknowledgement of that case. However, as of right now we still see there is very little evidence supporting the breakdown of the current bull 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.

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Correlation | July 12, 2017

Author: Nathan J. Rowader
Date: July 12, 2017
Category: Quantitative Insights
Tags: volatility, interest rates, correlation, diversification, bull market, bonds

Our Observations: Correlations are very low in nearly every asset class. This is a little bit surprising given the volatility of the bond market, which should be signaling other parts of the market, but that doesn’t appear to be the case. However, we think it would be smart to keep an eye out for correlations to interest rates in other parts of the market.

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 | July 11, 2017

Author: Nathan J. Rowader
Date: July 11, 2017
Category: Quantitative Insights
Tags: momentum, policy, risk assets, stocks, tightening, sov. debt

Long-term momentum in sovereign debt collapsed over the past few weeks as key policy officials in Europe, Canada and the United Kingdom openly discussed the need to begin tightening rates. With negative long-term and short-term momentum, the bond environment appears to be weak. We think this could help push some out further on the risk spectrum and be a boon for stocks.

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 | July 10, 2017

Author: Nathan J. Rowader
Date: July 10, 2017
Category: Quantitative Insights
Tags: monetary policy, inflation, rates, policy, rising rates, global bonds, Treasury yields, reflation, tightening

Our Observations: The 10-year treasury yield ended the week at 2.39%, in what has been a dramatic period for global bonds. The yield is approaching the May 2017 high of 2.42%. If it is able to push past that high then we think the market may be pivoting back toward a reflation theme. However, much of the action seen in global bonds could have more to do with policy makers asserting that tightening may be coming from the European Central Bank, The Bank of Canada and the Bank of England. Ultimately, the move-up in rates may simply be a reaction to an already expected higher rate environment.

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