Forecasting stock market returns… isn’t that the goal of every investor? Many models exist to fulfill that task: some are simple, others more complex. However, an important aspect of any model is the components it includes. Moreover, model results are preferably easy to analyze, so these components should be simple to understand and easily accessible. In this article, I will introduce the Grinold-Kroner model, which can be used to break down and estimate stock market returns.

Volatility is a significant force in financial markets. The CBOE Volatility Index (VIX) is the most well- known measure of market sentiment. The introduction of VIX futures in 2004 enabled market participants to express their estimates of market volatility at various expiration dates.1 This allowed the development of a term structure curve for volatility. In this article, I introduce the topic of the volatility term structure and analyze how it can be used.

Despite the headwinds expected in 2023, this year has been great for the stock market, with the S&P 500 posting a year-to-date return of 14.28%.1 Still, there were a number of events that could have derailed the stock market this year, from the U.S. regional banking crisis in March to the debt ceiling dispute that was settled in June. Despite all this, there was no significant increase in volatility as the VIX index did not rise above 27.

The periodic table of the elements is a fundamental concept in chemistry. Just as the chemical elements form the basis for many applications in chemistry, so do asset classes in finance. Understanding the different asset classes that exist in the financial world is key to build a solid, diversified portfolio. In this article I will introduce the concept of the Periodic Table of Investment Returns and its importance for the analysis of diversification.

Global equity markets surprised investors in a positive away, with the MSCI ACWI Index posting a 13% return in the first half of the year. 1 In the US, the NASDAQ 100 posted its highest ever first-half return of 39%. 2 After a difficult 2022, expectations of a recession put investors on the backfoot for 2023, but the economy remained resilient and equity markets recovered. Now, recession fears linger and hawkish monetary policy by major central banks casts doubt on performance in the second half of the year.

The US stock market keeps pushing higher despite recessionary warnings. S&P 500 Index earnings for the most recent quarter are estimated to have risen, albeit at a slower pace than stock prices. As a result, valuations rose, with the P/E estimated at 24.43. 1 On the other hand, U.S. Treasury bond yields reached levels not seen in more than 10 years following the current Fed’s rate hike campaign. This comeback of the bonds challenges the former environment of TINA (there is no alternative – to stocks) to mutate to TARA (there are reasonable alternatives).

The S&P 500® Index entered a bull market just last Thursday. It seems that neither the gloomy economic sentiment nor the Fed’s rate hike campaign can slow the bull’s rage, as the market is currently more than 20% above the lows of last October. Once again, some people are starting to call this the most hated Bull Market rally. Realistically, this is just another case of investor’s myopic behavior, as most previous rallies have been deemed “hated” at some point.

Diversification is one of the most important rules of investing and sometimes investors believe their allocations are more diversified than they are. In the previous article, I introduced the topic of diversification using the top 10 largest stocks in the S&P 500® Index. Now I will introduce a more formal measure of concentration risk, the effective number of stocks, and examine its historical evolution. In addition, this article will present an index weighting method that is an alternative to market capitalization to reduce concentration risk.

Diversification is the number one rule of portfolio management for many investors. Ray Dalio goes even further calling it the Holy Grail of investing. Colloquially, this is expressed by the idiom “do not put all your eggs in one basket”. In the stock market, this year’s returns in the S&P 500® Index appear to have been concentrated in the stocks with the highest market capitalization. Consequently, these stocks exhibit a higher weight in the index, making it more concentrated, which is contrary to the diversification objective.

Recently, a publication has been circulating with the title “Periods When to Make Money”. It alludes to the fact that 2023 is tagged as a year “when to make money,” which is why people are extremely excited about it (and repost it on social media). This is especially interesting when you consider that the S&P 500 Index is 9.6% up on a YTD basis. 1 In this article, I will analyze how well these predictions have worked in past cycles.

The earnings quarterly reporting of publicly-listed companies puts enormous pressure on them to deliver continuously better results. Investors and analysts look at these figures very closely in expectation of continued growth. This pressure may lead to creative accounting practices called “earnings management”. As we know, these practices can escalate into earnings manipulation, as in the infamous Enron and Bernie Madoff accounting scandals. In this article, I will look at a metric that assesses the likelihood of a company manipulating its earnings and apply it to the Russell 3000 Index.

“Recession” seems to be one of the most debated topics since mid-2022. As the economic slowdown concerns were gradually easing at the start of the year, last month’s global banking crisis helped refuel those fears again. While the recession doesn’t come, it might be prudent to get ready for it. And what happens when we enter a recession? Bankruptcies… In this article, I will look at a measure that assesses the probability that a firm will file for bankruptcy and apply it to the Russell 3000 Index.

There is a mantra in the investment community that goes by “Don’t Fight the Fed”. It suggests that investors should align their decisions with those taken by the Fed, and more specifically the Federal Open Market Committee (FOMC), regarding reference rates. At the moment we are experiencing the fastest Fed Rate Hiking Cycle ever, as described in the previous article, and the S&P 500 Index is close to 15% below its early 2022 all-time high it seems prudent to live by this mantra.

Happy Fed Week! After the tumultuous last two weeks, which saw the most severe bank failures since the Global Financial Crisis, this week we will have a highly anticipated FOMC meeting with an anxiously expected Fed Interest rate decision due on Wednesday. Considering the current Fed rate hike path and inflation dynamics, I decided to write this article to look through the previous Fed rate hike cycles. The Highest Inflation Rate in the Last 40 Years Let’s start with analyzing the historical values for the Fed reference rate and inflation.

After over two years away, Vasconomics is finally back! Following an incredible January in the financial markets that reminded me of the January effect, I started wondering about stock market seasonality. From the January effect to the “Sell in May and Go Away” adage, monthly return seasonality is something that comes to investors’ mind from time to time. In this article we will look at the S&P 500 Index and the S&P 500 Sector Indices historical monthly returns in search of seasonality patterns.

The Yield Curve Flattening, Yield Curve Inversion, Yield Curve Control, Yield Curve Manipulation… Reference interest rates are good instruments for monetary policy and give us some insight on the state of an economy. However, the Yield Curve is a much more powerful tool to visualize the current state and future expectations about the economy’s growth direction, at a given time. Further to that, during the last years, especially due to the challenge on managing low interest rates by central banks, the Yield Curve has been granted additional importance.

Every year when May comes, people start dreaming of summer holidays. Also, for those who follows the financial markets, it marks the date when writers remind us of the old saying: “Sell in May and Go Away”. The underlying is relative straightforward as during the summer months there is, typically, less trading activity. On the other hand, some of the late market crashes seem to have happened precisely after the summer holidays: the crash of 2008-2009 started in mid-September and the 2018 Global Stock Market Downturn started at the beginning of October.

In the last century, we observed a high growth in technological innovation which was later boosted by the creation of the Internet. The rise of the Internet was a Black Swan, which would then fuel a notorious bubble in the stock market: the Dot.com Bubble. Stock valuations for companies with businesses focused around the use of Internet became highly inflated and continued to grow as a sort of speculative mania for companies whose name finished with “.

This article on Investment Analysis is the second part of a series comprising two articles. In the first article I focused on Technical Analysis providing firstly a comparison with Fundamental Analysis, later an introduction to its foundations and concluding with an overview of the application of some of its indicators. Now, on this second part, I will focus on Fundamental Analysis. The structure of the article is divided into 4 parts: an immersion on Fundamental Analysis framework, a summary of the Multiples Approach application and the link with the topic of Analysts’ Recommendations.

In this article, I will discuss the topic of Investment Analysis, that is, the method used for making the decision regarding an investment in the stock market. There are two main approaches when undertaking the analysis of a stock traded in the market: Technical and Fundamental Analysis. It is important to understand that these methods use different inputs with the same goal of evaluating an investment opportunity. The structure of the article is divided into 3 parts: an introduction defining the two mentioned approaches, a deeper examination of Technical Analysis foundations and an overview of the application of some Technical Analysis indicators’.