Some of my thoughts on the market and the diluted impact of somewhat effective Value factors historically correlated to returns:
[quote]
Jim: While the market makes new highs some of our models are suffering. Mine are. The Designer Models could be doing better.
[/quote] There has been an obvious disconnect between the market and many quant models for much of the time at least since the beginning of 2017. I believe that the market might be returning to some “quant normalcy” in some respects, as noted below.
From 1/2/2017 to 9/2/2019 the “Basic: Value” ranking system, applied weekly to the S&P500 equivalent universe with Percentile NAs Neutral, showed strongly inverted results. From 9/2/2019 through yesterday 11/20/2019 the results are not inverted and are what we would normally hope to see, that Value factors have some importance. Back in early June I noted the inversion and the implication that the most expensive stocks had been strongly favored. Ranking based on just market cap, higher is better, shows a similar strong preference for large cap stocks until 9/2/2019.
The beginning of September might be an inflection date, when the odd (to me) market behavior ceased. Reasons? Some of you must have a better list than me. My personal belief is that the market reacted naturally to forces that P123 data and perhaps FRED data do not reflect. Movement of large amounts of money, perhaps seeking perceived safety into U.S. large caps? I would hate to think there has been market manipulation, but it is possible. The market as a whole has enjoyed very good returns through the suspect period and my returns have been decent, so I am not complaining, just trying to understand the why of it.
To sum my personal position up: I am in the market with the models I created (“dancing with the one who brung me”)!