Latest news with #RobArnott
Hindustan Times
4 days ago
- Business
- Hindustan Times
Want better returns? Forget risk. Focus on fear
An investor will take on more risk only if they expect higher returns in compensation. The idea is a cornerstone of financial theory. Yet look around today and you have to wonder. Risks to growth—whether from fraught geopolitics or vast government borrowing—are becoming ever-more fearsome. Meanwhile, stockmarkets across much of the world are at or within touching distance of record highs. In America and Europe, the extra yield from buying high-risk corporate bonds instead of government debt is close to its narrowest in over a decade. Speculative manias rage around everything from cryptocurrencies and meme stocks to Pokémon cards. A common explanation for effervescent markets is that investors have become reckless or outright irrational. Or perhaps the relationship between risk and return simply is not there, posits a working paper by Rob Arnott of Research Affiliates, an investment firm, and Edward McQuarrie of Santa Clara University. They argue that over the past two-and-a-bit centuries, risk (as conventionally defined) has done a lousy job of explaining the relative returns of stocks and bonds. In its place, they propose fear—a more complex thing—as the real driving force of markets. Standard portfolio theory says a stock's uncertain future returns are distributed along a bell curve. The expected return lies under the peak, and risk is equivalent to the curve's variance, or spread. These assumptions make the maths elegant and, more important, tractable. But they are also flawed. Stock returns do not in fact follow a bell curve: they take extreme values too often and are asymmetric. Investors, meanwhile, do not regard the curve's full spread as risky, but just the side of it corresponding to losses. Who, however risk-averse, would be upset by an outsize return? What is more, risk theory gives an inadequate account of historical returns. A core prediction is the 'equity risk premium', meaning the tendency of stocks, being riskier, to deliver better long-term returns than government bonds. To test this, Mr McQuarrie compiled American stock and bond prices going back to 1793, using data from newspaper archives. Previous studies had seemed to establish the equity risk premium as a persistent, relatively stable property of markets; his new database calls that into question. An investor who bought American stocks in 1804 would have had to wait 97 years before their return beat that of bonds. By 1933 they would have fallen behind again. A statistical test of the relationship between variance and return, over the database's full timespan, failed even to find a 'modest or inconstant' risk premium. The cumulative equity risk premium (up to 2023) has nevertheless been large. But 70% of it came from an exceptional period between 1950 and 1999; the rest of the time, stocks' relative performance was middling or poor. And these, after all, were results for one of the world's best-performing stockmarkets. Other researchers have shown that, since 1900, those of other countries have on average returned far less. Realised variance and returns contain both expected and unexpected elements, so no theory is likely to match the data perfectly. Even so, the scale of these departures from what risk theory would predict, over such a long timespan, warrants a search for a new framework. Messrs Arnott and McQuarrie propose that instead of pricing assets by their variance, investors price them according to two fears: fear of loss (FOL) and fear of missing out (FOMO). Whereas risk is measured by variance, FOL refers only to its downside (or 'semivariance'). An asset inspires FOMO if it has the chance of wild, unexpected gains that those shunning it might miss. This is measured by the 'skewness', or asymmetry, of its return distribution. Rather than working through fear theory's maths, which they admit is formidable, the authors hope to tempt others to investigate it with them. They might just succeed. As well as being a widespread, often rational impulse, FOMO helps explain why people would buy overpriced stocks, or even speculative assets with no fundamental source of returns. Its absence from conventional theory seems like an error. And FOL describes how people actually think of risk far better than variance does. Just like investors' mood and market dynamics, the balance between the two can vary dramatically with time and circumstance. The historical record suggests that portfolio theory needs some new ideas. Fear might be just the thing.
Yahoo
5 days ago
- Business
- Yahoo
20 stocks of S&P 500 companies showing the fastest sales growth
MarketWatch's Brett Arends covered research showing that a combination of looking back at companies' increases in sales and earnings, along with spending on research and development, led to significant outperformance when compared with the broad stock market over a period of more than 54 years. Arends interviewed Rob Arnott, founder and chair of Research Affiliates, who explained that a strategy of stock selection and portfolio management focused on the abovementioned factors, with portfolios updated annually, had outperformed a broad market index by wide margins over the decades. Mortgage rates plunge to 10-month low, opening window of opportunity for house hunters 'She lives alone': My mother-in-law, 86, gets $1,300 in Social Security. Is that enough to live on? Parents are draining money from retirement accounts and home equity to pay for college. They should do this for their kids instead. Gold prices are soaring again. Here's why a new record could be right around the corner. Here's the case against a September rate cut — and why the Fed could stay on hold until 2026 The above article includes links to the detailed research results. While the ideal process Arnott cited would involve several factors, the reports included average total return information for the individual factors. For example, a portfolio selected based only on the highest rolling five-year increases in sales per share had an average annual return of 12.2% from March 1969 through December 2024, while a broad index of the 'top 1,000 firms by market capitalization' would have had an average annual return of 10.6%. So we decided to apply this simple screen to the S&P 500 SPX. The Research Affiliates report specifically cited sales per share, so we looked back at the companies' past six full fiscal years to show five-year growth rates for sales per share. Then for additional information that might be of use to readers researching individual stocks, we looked ahead at projected sales-per-share growth rates for the current and following two fiscal years. Here are the 20 stocks in the S&P showing the highest compound annual growth rates for sales or revenue per share over the past five full fiscal years: Company Ticker Five-year SPS CAGR Moderna Inc. MRNA 115.3% Nvidia Corp. NVDA 64.1% Coinbase Global Inc. Class A COIN 55.1% DoorDash Inc. DASH 55.0% CrowdStrike Holdings Inc. Class A CRWD 48.2% Block Inc. XYZ 30.2% Super Micro Computer Inc. SMCI 29.8% NRG Energy Inc. NRG 29.3% Trade Desk Inc. Class A TTD 28.6% Monolithic Power Systems Inc. MPWR 26.9% Apollo Global Management Inc. APO 26.3% Fortinet Inc. FTNT 25.6% Tesla Inc. TSLA 24.8% ServiceNow Inc. NOW 24.6% Axon Enterprise Inc. AXON 24.5% Arista Networks Inc. ANET 24.0% KKR & Co. Inc. KKR 23.6% Datadog Inc. Class A DDOG 23.6% Lululemon Athletica Inc. LULU 23.0% Palantir Technologies Inc. PLTR 22.1% Source: FactSet An important part of the stock-selection strategy discussed by Arnott was that the list of selected stocks would be a rolling one, based on continual updates of sales-per-share figures. What we have above is a snapshot based on the companies' sales per share over the past five full fiscal years. So let's look ahead using consensus estimates among analysts polled by FactSet to see what type of sales growth pace may be in store for these companies. Leaving the group in the same order, here are projected SPS CAGR from the most recent completed fiscal year, market year zero, through the next three fiscal years. This time we are showing the estimates for each year, so you can see how SPS is expected to grow at a more modest pace for most of the companies, or even to decline: Company Ticker 3-year estimated sales CAGR SPS – year zero Est. SPS – year 1 Est. SPS – year 2 Est. SPS – year 3 Moderna Inc. MRNA -3.4% $8.43 $5.29 $6.14 $7.60 Nvidia Corp. NVDA 32.3% $5.26 $8.26 $10.44 $12.20 Coinbase Global Inc. COIN 14.2% $24.01 $28.72 $32.30 $35.78 DoorDash Inc. DASH 19.5% $24.92 $30.36 $36.07 $42.49 CrowdStrike Holdings Inc. Class A CRWD 21.4% $16.15 $19.19 $23.38 $28.90 Block Inc. XYZ 8.8% $37.90 $40.78 $44.98 $48.87 Super Micro Computer Inc. SMCI 34.8% $24.89 $37.28 $50.45 $61.01 NRG Energy Inc. NRG 7.1% $132.55 $151.22 $157.84 $162.67 Trade Desk Inc. Class A TTD 18.6% $4.87 $5.84 $6.92 $8.12 Monolithic Power Systems Inc. MPWR 18.1% $45.20 $56.97 $65.60 $74.42 Apollo Global Management Inc. APO -1.4% $43.58 $32.55 $36.19 $41.83 Fortinet Inc. FTNT 13.0% $7.72 $8.83 $9.93 $11.14 Tesla Inc. TSLA 13.6% $27.93 $28.79 $34.05 $40.96 ServiceNow Inc. NOW 19.3% $52.70 $63.32 $75.16 $89.48 Axon Enterprise Inc. AXON 24.0% $26.51 $34.18 $42.21 $50.52 Arista Networks Inc. ANET 20.1% $5.47 $6.71 $7.94 $9.47 KKR & Co. Inc. KKR -17.4% $24.44 $8.96 $11.80 $13.79 Datadog Inc. Class A DDOG 22.5% $7.48 $9.38 $11.16 $13.77 Lululemon Athletica Inc. LULU 5.9% $85.43 $89.76 $95.75 $101.34 Palantir Technologies Inc. PLTR 33.3% $1.17 $1.65 $2.12 $2.77 Source: FactSet Moderna Inc. MRNA tops the first list for sales-per-share CAGR over the past five full fiscal years, reflecting its quick development of an mRNA vaccine for COVID-19, which led the company's sales to balloon during 2021 and 2022. Looking ahead, the company's annual sales are expected to trough this year before resuming a slower growth pace next year. Moderna reported its quarterly results on Friday, after announcing 800 layoffs on Thursday. Here's a look at how the company has been burning through cash. Apollo Global Management Inc. APO and KKR & Co. KKR are also expected to show a decline in SPS this year, before revenue increases again. Any stock screen is based on a limited set of data. Before buying any individual stock, you should do your own research and form your own opinion about how likely the company is to remain competitive over the next decade. One way to begin that process is by clicking the tickers for more information. Read: Tomi Kilgore's detailed guide to the information available on the MarketWatch quote page Don't miss: These ETFs will give you high income — but you need to learn about their strategies first 20 stocks of S&P 500 companies showing the fastest sales growth 'I told him that wouldn't fly': My 90-year-old mother's adviser pushed her to change her beneficiaries. What is going on? 'I have never been asked for money before': My friend wants to borrow $1,600 to pay her rent. Do I say yes? These five unseen drivers could propel the bull market even higher, according to this Wall Street veteran
Yahoo
02-08-2025
- Business
- Yahoo
Big Tech Pulls Off a Very Big Earnings Week
They're not called the Magnificent Seven for nothing. This week brought big earnings reports for Big Tech, and the cohort didn't disappoint. On Wednesday, Meta and Microsoft obliterated Wall Street's expectations, followed by similarly strong showings for Amazon and Apple on Thursday. The reports made one thing clear: Big Tech's big AI bet is already paying off, which explains why it can't help but double down. READ ALSO: Barnburner Figma IPO Offers Good Omen as Klarna Reconsiders Debut and Exxon and Chevron, Rivals Turned Frenemies, Face Profit Pressure-Cooker Spare No Capital Expense Let's start with the top-line figures: Each company beat Wall Street's revenue expectations for the quarter, with Amazon's $167 billion leading the group, followed by Apple's $94 billion, Microsoft's $76 billion, and Meta's measly $47.5 billion bringing up the rear. Profitability soared across the board, led by Meta's 36% year-over-year increase in net income. Microsoft, meanwhile, reported a group-leading net income north of $27 billion over the three months. In sum: Each company just executed a monster quarter, virtually anyway you slice it. While certainly not surprising, it's likely more than enough to solidify their rock-solid standing as stock market cornerstones. Microsoft's market cap crept above $4 trillion on Thursday, putting it in league with Nvidia. Combined, Apple, Amazon, Meta and Microsoft account for a staggering 20% of the S&P 500 (Nvidia's about another 7%, while Alphabet's about 4%). The group's presence is looming so large that asset management group Research Affiliates chairman Rob Arnott told the Financial Times earlier this week that investors are pricing the companies 'as if they will have no competition in the future.' When it comes to an ability to spend and invest money, these companies already have no competition. And, clearly, the juice has already been worth the squeeze: Microsoft is planning a record $30 billion in capital spending in its current quarter (the first of its fiscal year 2026) to build out AI data centers. That's to power its Azure cloud business, now a major AI compute provider, which pulled in $75 billion in sales for all of the 2025 fiscal year. Translation: The company may be losing its grip on ChatGPT-maker OpenAI, but it's firmly entrenched in the AI ecosystem anyway. One of those Azure clients? Meta, which raised the lower end of its 2025 capital spending forecast by $2 billion, to a range of $66 billion to $72 billion, to continue investing in AI. In the meantime, AI is helping Meta juice its ad sales, which still account for about 98% of the company's total revenue. Amazon's capital expenditures already soared north of $30 billion this most recent quarter, coming in above projections. (Apple) Core Business: Apple may well be the big winner of the week, by virtue of not being as big a loser as some feared. The company continues to fall behind in the AI race, recently losing a fourth key team member to Mark Zuckerberg's AI Superintelligence, and its longtime manufacturing presence in China puts it at the center of the trade war. But fears about that trade war spurred huge sales for its devices in the most recent quarter as customers looked to get ahead of tariffs. Now, those duties may never come. Apple's India plants have become the leading supplier of iPhones to the US, and while the White House has slapped most Indian exports with a 25% tariff, it appears smartphones and other electronic devices have scored an exemption. This post first appeared on The Daily Upside. To receive delivering razor sharp analysis and perspective on all things finance, economics, and markets, subscribe to our free The Daily Upside newsletter.
Yahoo
31-07-2025
- Business
- Yahoo
Can the S&P 500 Sustain a #HotStockSummer?
The stock market is starting to look a little like a double almond milk espresso: extra strong, with just a bit of froth on top. Or maybe a lot of froth, depending on your perspective. On Tuesday, the S&P 500 closed down 0.3%, snapping a remarkable streak of six straight closing highs through Monday — an unmatched stretch since 2021. The index is up nearly 28% since sinking to a low on April 8, as Liberation Day tariffs sparked widespread fears that a recession would soon follow. Clearly, that hasn't happened … yet, with summer bringing not just resilience, but exuberance, to the market. Has it been too much, though? READ ALSO: Bottom Line Undercuts Hot Quarter for Top-Line US GDP and Evercore's Purchase of Robey Warshaw May Birth Trans-Atlantic M&A Titan Retail Renaissance First: the warning signs, of which there are many. Meme stocks are back in full force, as evidenced by recent share price surges among the likes of Kohl's, Opendoor, and Krispy Kreme. Meanwhile, the so-called 'Buffett indicator' is blinking red, with the ratio of the market cap of all US publicly traded companies to the total US gross domestic product recently notching an all-time high at 212%. Also concerning: Investors are valuing stocks in the S&P 500 at more than 3.3 times their current sales, per Bloomberg data, also an all-time high. In fact, 'price to sales, price to cash flow, price to book, price to dividends, they're all near record levels,' Rob Arnott, founder of asset management group Research Affiliates, recently told the Financial Times. For more signs of market euphoria, look no further than — where else? — Barclays' 'equity euphoria' indicator, which is about double its typical levels. 'You're beginning to see, perhaps, some very early parallels to what you saw back with the internet boom in the late 90s, early 2000s,' Pimco Chief Investment Officer Dan Ivascyn told the FT. Optimists, on the other hand, say today's market can't be compared to the dot-com-era market, or any pre-pandemic market, thanks to the unstoppable rise of the retail investor, a crowd that may no longer operate like a bunch of Johnny-come-latelys: In fact, according to a Barclays note recently seen by Reuters, retail investors have been the 'primary' driver of the current rally, investing more than $50 billion into equities in the past month. In fact, retail investors now account for about 20% of total trading volume in the US, about twice as high as pre-pandemic levels. Noting a possible retail-led structural change to the market, Scott Rubner, the head of equity and equity derivatives strategy at Citadel Securities, recently wrote in a note to clients seen by Bloomberg that he expects solid performance on the S&P 500 through Labor Day. A recent Goldman Sachs note, meanwhile, highlighted how spikes in speculative trading actually precede abnormally high returns on a one-year horizon. Data Dump: Still ahead this week is an absolute flood of possibly market-moving data. Today, the Fed will announce whether it's slashing interest rates (Investors aren't betting on it; CME's FedWatch tool calculates a 97% chance of rates going unchanged). Today also brings the latest earnings report from Microsoft and Meta, followed by Apple and Amazon tomorrow, providing the Magnificent 7 another chance to dictate the market's momentum. Friday will bring another crucial jobs report. Looming over everything: a possible trade deal with China. US and Chinese officials concluded their third round of negotiations Tuesday, with no agreement yet. The current trade truce is set to expire on August 12. This post first appeared on The Daily Upside. To receive delivering razor sharp analysis and perspective on all things finance, economics, and markets, subscribe to our free The Daily Upside newsletter.
Business Insider
30-07-2025
- Business
- Business Insider
More Americans are drawing from retirement savings early. Why financial pros say that's a recipe for disaster.
Americans are increasingly using their 401(k)s as emergency funds. Data from Vanguard shared with Business Insider highlights the trend, and it's something the financial advisors say people in most circumstances should try to steer clear of for a variety of reason. The data shows that 4.8% of those with 401(k) accounts took hardship distributions in 2024, continuing an upward trend over the last four years. Nonhardship withdrawals are also rising, with 4.5% of account holders taking money out early. These nonhardship distributions are subject to a 10% penalty when taken before 59 and a half years old. Qualifying hardship distributions — which include circumstances like medical, funeral, tuition, and some housing expenses — aren't subject to the early withdrawal penalty. Still, financial pros who spoke with BI say that taking early distributions is generally a recipe for disaster for your retirement savings and long-term financial health for a number of reasons. A lot of the advice against drawing on your retirement fund early comes down to timing. Those taking the withdrawals usually do so when they're still working or in a year in which they have worked. This means their retirement account withdrawals will be taxed at their income rates. "Let's say you're laid off in December, you're going to have made your income for the entire year," said Chris Chen, a certified financial planner and the founder of Insight Financial Strategists. "You often end up taking it at the peak of where your income is," he said of the early withdrawals. Investors also may rely on early distributions more during recessions, when there's higher unemployment. That means they're probably selling their holdings when the market is down, said Rob Arnott, the founder of Research Affiliates. "You get a triple whammy: You lose your job, you lose money in your 401(k), and you have to pay a tax to get access to the money," Arnott said. However, and perhaps most importantly, taking early withdrawals is likely to hurt the future growth potential of your money, said Bryan Kuderna, a certified financial planner and the founder of Kuderna Financial Team. Going back to 1950, the S&P 500 has averaged 11.5% annual returns with dividends reinvested, according to DQYDJ, an investing website. "They're essentially robbing themselves of their future," Kuderna said. "The long-term effect is they're reducing both that dollar amount plus the decades of compounded interest on it." There's a simple fix to taking early distributions: building up even a small savings buffer. Kelly Hahn, head of retirement research at Vanguard, said that those with just a $2,000 savings buffer were less likely to take hardship distributions and cash out of their 401(k)s when they switched jobs. "In our recent survey, we found that having an emergency savings was the single most important factor in achieving financial well-being," Hahn said in an email on Tuesday. There are also other solutions to avoid taking an early distribution, Kuderna said. For instance, you can borrow against your retirement account. While it's not ideal because you often can't continue contributing to the account while you pay the loan back, it's better than tapping into the original funds. That's because there's no penalty, no tax obligation, and the interest paid goes back to your own account, he said. The only circumstance in which Kuderna allows a client to draw on funds from a retirement account is when they have credit card debt. "If we know they've got $20,000 of credit card debt at 22% interest, then we're like, 'Alright, bite the bullet,'" he said. "Nothing is costing as much as that 20% annual loss."
