Market Factors: Three stretched trends that are poised to reverse. Plus, the surprising stock winners so far in 2024

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Market Factors,Marketfactorsnewsletter

Scott Barlow’s latest insights into the investing world

This time we’ll look at three stretched asset market trends that should reverse - including signs that investors are becoming more risk tolerant than what is good for them - some surprisingly strong and weak stock performers on both sides of the border, and a podcast where funny people become funnier.There are three market trends that are almost certain to mean revert even if the timing is uncertain. The first trend reversal will make a lot of readers happy, the other two will not.

The average from 1985 when the data begin and the end of 2006 - I’m using that time period because it pre-dates the post-financial crisis zero rate era – is 44.3 per cent. The average since that point is 52.5. The average allocation since 2005 is 56 per cent. The average beta was not mentioned, which is annoying, but should be somewhere near 1.0. The Federal Reserve pushed rates close to zero post-crisis in part to incentivize investment in riskier assets. Equity allocations will normalize, to the markets’ detriment, to the degree bond yields stay near current levels.

BofA Securities U.S. equity and quant strategist Savita Subramanian notes that the equal weight index is trading at an extreme discount to the S&P 500 - “approaching Tech Bubble levels” according to the strategist. Based on earnings yields, Ms. Subramanian estimates that the equal weight benchmark should be trading at 12 per cent premium to the cap-weighted S&P 500.

More negatively, Cameco Corp., Denison Mines Corp. and Energy Fuels Inc are among the recent laggards despite hopes for nuclear power expansion. Copper producers Lundin Mining Corp. and Hudbay Minerals have also taken a hit recently.

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