Factoring For Fire

The Leuthold Group

James Paulsen

Article

1 Pages

Leuthold Group examines how leadership within equity factors may shift as the post crisis recovery matures and markets transition toward full employment, firmer inflation, and rising rates. The piece argues investors overly anchored to defensive growth leadership could miss cyclicals, value, and smaller capitalization opportunities.

Key Takeaways

Recovery Regime Shift: After nearly 8 years of disinflation driven leadership, the paper suggests improving nominal growth may favor cyclical and value oriented equity factors.
Bond Surrogate Risks: Falling yields since 2009 supported defensive sectors, but rising rates could pressure utilities, staples, and other yield sensitive equities trading at elevated multiples.
Small Cap Rotation: The authors argue tighter labor markets and firmer inflation historically improved relative performance for smaller capitalization stocks during prior late cycle environments.
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