Searching for Value in Front of a Recession (or not)
Those looking for signals of the next recession might just want to look at the stock market instead. Whether a self-fulfilling prophecy or even a leading indicator of the lagging indicators of an impending recession – the yield curve or the Conference Board’s Leading Indicators, the stock market itself is the best leading indicator of a recession. True but frustrating.
Impending recession or not, some safety might be found in unexpected places. Where? Perhaps some names amongst the cyclical sector represent value, either because no recession is forthcoming, or the December sell-off was a bit too much and too fast.
An unanticipated pause by the Federal Reserve in the spring of 1995 produced relative value winners in the semiconductor and auto industries.
Trying to not get Buried in the Miners
Commodities, once again in what now seems like a never-ending nightmare, turned in a wretched performance in 2018. Among the 10 major asset classes comprising the securitized universe of equities, bonds, real estate, and commodities, this group has never escaped a bottom 3 performance in over 10 years. Time to go permanently short the asset class or look for value in select names?
Relative price to cashflow for the miners looks shows some appearance of stabilizing in recent years.
To review previous market perspectives, click the following links: