Profits Are Poison In This Looking-Glass Bull Market

Profits Are Poison In This Looking-Glass Bull Market
Andrew Rummer

about 3 years ago1 min

Mentioned in story

Since US stocks bottomed and the current bull market began on March 23, the types of companies doing well have become curiouser and curiouser. 

The data provider Bloomberg breaks down US stocks into one of 10 common “factors” as a way of understanding what’s going on beneath the surface of markets. These factors select companies that meet certain criteria, like fast-growing revenue or very active share trading. 

Counterintuitively, the companies that have performed worst since March have been those generating the best profit margins (shown in blue on the chart). This list includes software firm Autodesk, payments processor Mastercard, and drugmaker Eli Lilly

Meanwhile, stocks exhibiting the biggest price swings – a.k.a. volatility – have done best (shown in pink). This basket includes taxi firm Uber, cruise line Carnival, and braces maker Align Technology.

If you’re willing to bet that these trends will reverse in future, there are several exchange traded funds (ETFs) you can buy that track the lowest volatility companies and those with strong profitability

If, however, you think these out-of-the-ordinary trends will continue, then, errr... you’re a bit stuck. ETF providers don’t tend to offer products selecting the least profitable companies or those with the most volatile stocks, because who would want that? If these strange markets continue, perhaps they’ll have to change their marketing...

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