The performance of markets in 2026 is likely to hinge on a few key themes or events, one of which will surely relate to AI, automation, and bubbles. Even though U.S. large-cap valuation metrics are at or near their highest historical observations, the U.S equity market is not necessarily in a bubble if new technology […]
Dispersion measures how much the performance of individual stocks diverges from each other. The equity market goes through periods of high dispersion, when the composition of the equity portfolio has a meaningful impact on performance, and low-dispersion periods, when the equity composition matters much less. The AI theme, which has driven up the stock prices […]
In 1978, prominent sociologist Mark Granovetter developed a threshold model to explain collective behavior, which may be pertinent to the current euphoria in parts of the equity market. According to his theory, every person has a “threshold,” defined as the number or proportion of peers who they must see act before that person will join […]
The traditional view of finance is that the stock market is price elastic, meaning that the amount of demand for an individual stock or the entire market is inversely responsive to market prices. In an elastic market, if the price of a stock increases, the demand decreases proportionally. However, the recent massive gains in stocks, […]
Some of the largest companies in the world are choosing to remain private. This choice is having a negative impact on investors. The ownership of the best performing private equity companies is controlled by a small group of investors, often through investments with the top venture capital firms. Investors fortunate enough to own these VC […]
In baseball, narrow wins and large losses reflect a manager’s efficiency and skill. The opposite is true in investing and finance. The most efficiently managed baseball team is one that generates the highest number of wins for a given number of runs scored and allowed. Bill James created the Pythagorean Winning Percentage formula which calculates […]
Default insurance premiums on U.S. Treasuries, the backbone of global collateral markets, are trading at levels that imply America is closer to a BBB+ risk than the official AA+ rating. Specifically, credit default spreads, the cost of insuring against a U.S. government default are trading between 40 and 50 basis points. Therefore, it costs $40,000 […]
When it comes to issuing debt, no entity surpasses the U.S. government. In 2024 the Federal government net issued $1.9 trillion in new marketable debt including over $1.3 trillion in bonds and notes eligible for the Bloomberg Aggregate Index. As the chart shows, Treasury bonds now represent 45% of the Bloomberg Agg Index, up from […]
One of the most popular datapoints in markets is the Fed Funds Futures estimate of the number and size of Fed interest rate hikes or cuts. The average estimate is about four rate cuts in 2025, with an expected year-end Fed Funds rate of 3.4%. This market-implied base case scenario is one that investors will […]
The three charts below show very different levels of concern about U.S. economic policy and higher tariffs. The amount of news coverage of the economic uncertainty surrounding tariffs exceeds that of 9/11 and rivals that of Covid and the 2008/09 Financial Crisis. To the contrary, investment markets seem unconcerned. Equity volatility and credit spreads have […]