Research from Water Tower Research, Water Tower Research

Water Tower Research

Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Equity Research Firm

Thematic (Sector/Industry)

<ul><li>During the week ended June 16, 2023, the WTR Sustainable Index outperformed the broader market, rising 5.9% W/W versus the S&amp;P 500 Index (up 2.6%), the Russell 2000 Index (up 0.5%), and the Nasdaq Composite Index (up 3.2%).</li><li>Advanced Transportation Solutions (74.4% of the index) drove the index’s performance, rising 7.0%, while Energy Technology (6.8% of the index) was up 5.3% and Industrial Climate and Ag Technology was up 2.0%.</li><li>Valuation: Based on forward 12-month consensus estimates, the current P/E ratio of the WTR Sustainable index is 25.2x versus 20.5x for the S&amp;P 500.</li></ul>

During the week ended June 16, 2023, the WTR Sustainable Index outperformed the broader market, rising 5.9% W/W versus the S&amp;P 500 Index (up 2.6%), the Russell 2000 Index (up 0.5%), and the Nasdaq Composite Index (up 3.2%).Advanced Transportation Solutions (74.4% of the index) drove the index’s performance, rising 7.0%, while Energy Technology (6.8% of the index) was up 5.3% and Industrial Climate and Ag Technology was up 2.0%.Valuation: Based on forward 12-month consensus estimates, the current P/E ratio of the WTR Sustainable index is 25.2x versus 20.5x for the S&amp;P 500.

Weekly Sustainable Investing Surveyor : Week Ended June 16, 2023

Global Multi-Asset Investment Strategist, True Insights

Jeroen Blokland

Global Multi-Asset Investment Strategist

Build Well-Diversified Multi-Asset Portfolios

True Insights

Our research helps investors build well-diversified multi-asset portfolios and profit from market developments. In addition, our unique and proven Macro – Sentiment – Valuation (MSV) investment framework ensures a consistent flow of new investment opportunities. Together with our market views, these opportunities will be reflected in our live ETF-based Global Multi-Asset Portfolios.

<ul>
<li>One reason the Global Fund Manager Survey is interesting is that it often contains contradictions concerning investor positioning.</li>
<li>Global Fund Managers are joining the AI boom, are heavily overweight tech stocks, but only 54% of them expect AI to boost company profits.</li>
<li>We believe global fund managers are long tech stocks because of strong momentum and the market extrapolation of artificial intelligence impacting earnings and sales growth, not because of superior fundamentals. </li>
</ul>


One reason the Global Fund Manager Survey is interesting is that it often contains contradictions concerning investor positioning.
Global Fund Managers are joining the AI boom, are heavily overweight tech stocks, but only 54% of them expect AI to boost company profits.
We believe global fund managers are long tech stocks because of strong momentum and the market extrapolation of artificial intelligence impacting earnings and sales growth, not because of superior fundamentals. 


Macroeconomics

<ul>
<li>We believe the most recent FOMC decisions and forward guidance on US monetary policy should be interpreted as ‘hawkish.’</li>
<li>Bullish case: Why 'skip' with just 4 meetings remaining, inflation down to 3.5% leaves monetary policy very tight, and the Fed didn't hike in 2006 after a 425 bps increase.</li>
<li>Bearish case: Dec 2024 Fed Fund future at 3.85%, rates are (very) restrictive in any case, this is no environment for growth stocks, look what happened after 2006.</li>
</ul>


We believe the most recent FOMC decisions and forward guidance on US monetary policy should be interpreted as ‘hawkish.’
Bullish case: Why 'skip' with just 4 meetings remaining, inflation down to 3.5% leaves monetary policy very tight, and the Fed didn't hike in 2006 after a 425 bps increase.
Bearish case: Dec 2024 Fed Fund future at 3.85%, rates are (very) restrictive in any case, this is no environment for growth stocks, look what happened after 2006.


Bullish or Bearish? Our Thoughts on the Fed’s Hawkish Pause

<ul>
<li>WTR Sustainable Index: During the week ended June 9, 2023, the WTR Sustainable Index outperformed the broader market, rising 9.7% W/W versus the S&amp;P 500 Index (up 0.4%), the Russell 2000 Index (up 1.9%), and the Nasdaq Composite Index (up 0.1%).</li>
<li>Advanced Transportation Solutions (73.6% of the index) drove the index’s performance, rising 12.8%, while Energy Technology (6.8% of the index) was up 2.1% and Industrial Climate and Ag Technology was up 2.5%.</li>
<li>Valuation: Based on forward 12-month consensus estimates, the current P/E ratio of the WTR Sustainable index is 25.0x versus 20.0x for the S&amp;P 500.</li>
</ul>


WTR Sustainable Index: During the week ended June 9, 2023, the WTR Sustainable Index outperformed the broader market, rising 9.7% W/W versus the S&amp;P 500 Index (up 0.4%), the Russell 2000 Index (up 1.9%), and the Nasdaq Composite Index (up 0.1%).
Advanced Transportation Solutions (73.6% of the index) drove the index’s performance, rising 12.8%, while Energy Technology (6.8% of the index) was up 2.1% and Industrial Climate and Ag Technology was up 2.5%.
Valuation: Based on forward 12-month consensus estimates, the current P/E ratio of the WTR Sustainable index is 25.0x versus 20.0x for the S&amp;P 500.


Weekly Sustainable Investing Surveyor : Week Ended June 9, 2023

Cross Asset Strategy

<ul>
<li>The ISM Manufacturing Index fell to 46.9 and reveals clear downside for equities based on the historical relationship.</li>
<li>The US labor market remains way too hot for the Fed and significantly increases the odds of another rate hike even as a massive drop in inflation materializes. </li>
<li>The P/E ratio of Big Tech stocks equals 56, while earnings growth has turned negative in recent quarters. Not the best starting point with the MOVE/VIX ratio &gt;8.</li>
</ul>


The ISM Manufacturing Index fell to 46.9 and reveals clear downside for equities based on the historical relationship.
The US labor market remains way too hot for the Fed and significantly increases the odds of another rate hike even as a massive drop in inflation materializes. 
The P/E ratio of Big Tech stocks equals 56, while earnings growth has turned negative in recent quarters. Not the best starting point with the MOVE/VIX ratio &gt;8.


ISM Down, Rates Up, Valuation Ballooning; What Could Go Wrong?

United States

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

NASDAQ Composite Index (CCMP INDEX)

Weekly Sustainable Investing Surveyor : Week Ended June 16, 2023

Based on forward 12-month consensus estimates, the current P/E ratio of the WTR Sustainable index is 25.2x versus 20.5x for the S&P 500.

Water Tower Research

Artificial Inconsistencies

Artificial Intelligence brings the Beatles back together, and Global Fund Managers are joining the AI boom. But NOT because of superior fundamentals.

Jeroen Blokland

Bullish or Bearish? Our Thoughts on the Fed’s Hawkish Pause

Reevaluating Monetary Policy: The latest FOMC decisions and forward guidance on US monetary policy should be interpreted as ‘hawkish.’

Jeroen Blokland

Weekly Sustainable Investing Surveyor : Week Ended June 9, 2023

Valuation: Based on forward 12-month consensus estimates, the current P/E ratio of the WTR Sustainable index is 25.0x versus 20.0x for the S&P 500.

Water Tower Research

ISM Down, Rates Up, Valuation Ballooning; What Could Go Wrong?

The AI Boom remains real, but so is deteriorating Macro, extreme SKEW, the MOVE-VIX divergence, and lofty Big Tech valuation.

Jeroen Blokland