American Century Small-Cap Value Fund.

It’s one of several measures he considers as he’s screening companies. Others include balance-sheet strength and quality of management.

“We generate a score for each company, and that lets us compare it to other companies in its sector and across the portfolio,” he said. “We want to use data to remove some of the inherent biases we all have.”

Like Mr. Kammann’s approach, Mr. John’s has led him away from such traditional value-centric industries as energy and utilities.

Instead, he has lately found promise in Compass Diversified, which he calls a mini-conglomerate.

Compass, a publicly traded partnership, owns such diverse companies as the Sterno Group, producer of the canned fuel, and 5.11, a maker of clothing and gear for law enforcement and for the outdoors.

Compass’s managers are “incredible allocators of capital,” Mr. John said. “They invest in these businesses and help them grow, and if there’s an opportunity to sell them, they’ll do that.”

In 2019, for example, Compass sold off Clean Earth, an environmental remediation company, and Manitoba Harvest, a producer of hemp foods .

Penske Automotive, calling it “one of our core holdings for quite some time.”

Penske is known for its network of car dealerships, but its business is burlier than that, he said. Commercial trucks, via sales and leasing, have recently powered the company’s growth.

“Within the commercial truck space, 70 percent of gross profit comes from the servicing,” he said. “A sale is really just an entree to providing service over time.”

The company’s chairman, Roger S. Penske, makes shareholder interests a priority because he’s a substantial one himself, Mr. John said. “Penske owns 40-percent-plus of the company.”

The American Century Fund, whose investor shares have an expense ratio of 1.25 percent, returned 24.7 percent in the first quarter.


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The Week in Business: Jobs Surge Back

Good morning and happy Easter. Here are the top stories in business and tech to know for the week ahead. — Charlotte Cowles

Credit…Giacomo Bagnara

Employers added a whopping 916,000 jobs in March, more than doubling February’s employment growth. Many hires were in hospitality and construction, spurred on by the surging pace of vaccinations and a new round of federal aid. (The spring weather didn’t hurt, either.) In other good news, Wall Street hit a record high last week, with the S&P 500 index closing above 4,000 for the first time.

President Biden pitched his proposal for a giant infrastructure package, which he called “the largest American jobs investment since World War II.” It also has a large price tag, costing about $2 trillion over eight years. The plan aims to repair thousands of old bridges, roads and plumbing systems, improving commute times and drinking water. It also includes $100 billion to deliver broadband internet to rural areas that struggle with spotty Wi-Fi. And it will invest heavily in green initiatives like electric cars and more efficient energy grids. But the proposal faces a tricky path through Congress, as Republicans oppose the corporate tax increases that Mr. Biden says would pay for it.

will temporarily stop collecting payments on roughly six million loans that were made through the Federal Family Education Loan program and are now privately held. There’s a catch: Only borrowers who have defaulted will get a reprieve. The move will also temporarily prevent those in default from having their wages garnished or tax refunds seized by collectors, and will return any seized refunds or wages that had been taken since March 2020.

Credit…Giacomo Bagnara

The airline industry showed some promising signs of life last week. After a year of near-dormancy, domestic vacation bookings are bouncing back. United Airlines is hiring pilots again, starting with those who had conditional job offers before the pandemic or whose start dates were pushed off once travel restrictions set in. Delta Air Lines, the last major holdout in blocking middle seats to ensure space between passengers, will resume middle-seat bookings in May. And finally, the budget carrier Frontier Airlines went public, a sign that it’s anticipating a rebound.

After six days of digging and tugging, plus a boost from a full moon, the huge container ship that was lodged in the Suez Canal has been freed, and the waterway is open for business again. But the ripple effect of its blockage will be felt for weeks. The stuck boat prevented as much as $10 billion of cargo a day from moving through the canal, and cost the Egyptian government up to $90 million in lost toll revenue. Who will pay for the damage? A fleet of insurers, government authorities and lawyers are all sorting out who’s financially responsible (probably the stuck ship’s Japanese owner) and how much they’re on the hook for.

As the global economy shudders back into gear, demand for fuel is rising. And there was some question of whether oil producers would increase their supply to meet it. If they chose not to, gas could be up to $4 a gallon by this summer — not exactly welcome news for anyone trying to drive to work. But OPEC and its allies put those fears to rest last week when they agreed to gradually increase production over the next three months, which should keep prices steady.

speaking out against the state’s new law that restricts voting access. New York prosecutors have subpoenaed the personal bank records of the Trump Organization’s chief financial officer, Allen H. Weisselberg, as part of their investigation into the business practices of former President Donald J. Trump and his family company. And a group of doctors has sued the insurance giant UnitedHealthcare and accused it of stifling competition and hurting their business.

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Wall Street Hits Another Record, Lifted by Tech Rally and Economic Optimism

West Texas Intermediate, the U.S. benchmark, climbed 3.9 percent to $61.45 a barrel, and shares of Marathon Oil and Diamondback energy, for example, were up more than 10 percent.

The mood in financial markets also has been lifted this week by more signs of economic recovery in the United States and abroad. On Thursday, a measure of manufacturing activity rose to its highest since 1983, the Institute for Supply Management said. A weekly report on unemployment claims showed an uptick in the number of people applying for benefits, but investors will get a more complete picture of the job market on Friday when the employment report for March is released.

Analysts also pointed to President Biden’s $2 trillion infrastructure plan, unveiled on Wednesday, as a tailwind. The proposal includes money for repairing roads and bridges, building affordable housing and caregiving facilities, and expanding access to broadband. And it comes just weeks after the passage of a nearly $2 trillion stimulus bill that could raise consumer spending by sending payments directly to Americans.

Mr. Biden proposed paying for the infrastructure plan with an increase in corporate taxes, but many on Wall Street had already anticipated that.

“Biden’s proposed tax increases have been discussed for months, so few were surprised by their inclusion,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a note to clients on Thursday, though he and other analysts did note that Mr. Biden could yet propose other tax increases — including one on capital gains from investments.
The infrastructure plan includes spending about $50 billion on the semiconductor industry, where a global shortage in chips has disrupted car manufacturing. The Philadelphia Semiconductor index rose 3.7 percent on Thursday, while Micron Technology, which posted much better than expected quarterly sales and profit numbers a day earlier, was up 4.8 percent.

The plan also includes $174 billion to encourage the manufacture and purchase of electric vehicles. ChargePoint Holdings, which has a large network of electric-vehicle charing stations, rose nearly 12 percent.

On Friday, markets will be closed in the United States, Europe and some other countries for Good Friday.

Eshe Nelson contributed reporting.

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Stock Rally Poses Question: When Does a Bull Become a Bubble?

The bull market turned a year old on Tuesday, a testament to the unbridled enthusiasm that let investors shrug off the economic carnage of the pandemic and buy stocks — and pretty much anything else.

Since the S&P 500 scraped bottom on March 23 last year, the blue-chip index has posted a rally of nearly 75 percent, even with a 0.8 percent fall on Tuesday. Tesla’s stock is up more than 650 percent, while true believers have pushed up shares of GameStop by over 4,500 percent. Bitcoin is booming, and so are even more esoteric assets like NFTs.

It’s enough to pose a question that would have seemed unfathomable a year ago.

“Is this a bubble?” said Garry Evans, chief strategist for global asset allocation at BCA Research. “I would say there are certainly pockets of the market that look bubbly.”

Mr. Evans said he didn’t see “a generalized bubble” but believed that individual stocks — like GameStop, which was driven up in January by retail traders gathering on sites like Reddit — and cryptocurrencies were overvalued.

an increase in stock-buying by average investors. From the most recent round of stimulus alone, Deutsche Bank recently estimated, some $170 billion could flow into the stock market.

 stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more.

Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read more

This credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.

There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.

The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.

Nikolaos Panigirtzoglou, a market strategist with J.P. Morgan in London, said the wave of investment activity sweeping the country was a glaring reason to worry that the rally could falter.

U.S. households are now more heavily invested in stock than ever before, even during the peak of the dot-com bubble, he said. “If that goes away or reverses, then the equity market will have a problem,” he said.

And on Monday, even a Goldman Sachs research note titled “Bubble Puzzle: A Guide to Bubbles and Why We Are Not in One” acknowledged that some indicators of retail trading activity were “worrying.” It mentioned the surging levels of daily trading in stocks and increased buying of tiny amounts of stock options by individuals.

The conditions for a bubble are clearly present, said John D. Turner, a professor of financial history at Queen’s University Belfast. Mr. Turner recently co-wrote — along with his colleague William Quinn — a book titled “Boom and Bust: A Global History of Financial Bubbles.”

To make them, he said, you need three key ingredients, plus a spark. The ingredients are ease of trading, access to credit, and mass speculation — all of which are in ready supply right now.

The spark, he said, is the unknown factor. It could be a change in government policy, like the push to supercharge homeownership in the 1990s and 2000s. Or a major technological development, the way electrification contributed to a boom in the 1920s.

So the conditions, Mr. Turner said, are all here.

“It smells like a bubble,” he said. “If I had to put money on it, it looks like a bubble.”

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Making Sense of Elevated Stock Market Prices

The stock market is already quite expensive. That is evident when you compare current stock valuations with those from previous eras.

But it is also true that stock prices are fairly reasonable right now.

That seemingly contradictory conclusion arises when you include other important factors: interest rates and inflation, which are both extremely low.

Examined on their own, stock valuations are at giddy levels, yet they are far more attractive when viewed side by side with bonds. That’s why it is so hard to determine whether the stock market is dangerously high or a relative bargain.

Consider that the S&P 500 index of U.S. stock prices has repeatedly set records over the past year, while a measure that I helped to create, the CAPE ratio for the S&P 500, is also at high levels.

John Campbell, now at Harvard University, and I defined CAPE in 1988. This is a bit technical, but please bear with me: The numerator is the stock price per share corrected for consumer price inflation, while the denominator is an average over the last 10 years of corporate reported earnings per share, also corrected for inflation.

Why go to the trouble of looking at the stock market with the CAPE ratio? Averaging earnings over 10 years smooths out year-to-year fluctuations and provides an earnings estimate that should be, for most companies, a better measure of long-term fundamental value. This 10-year average of real earnings is not quite as up to date as the latest earnings data, but it provides a more sober assessment of corporate earnings power.

A high CAPE ratio suggests that the market is overpriced, portending low subsequent returns, while a low CAPE suggests the opposite. Professor Campbell and I showed that the CAPE ratio allows us to forecast over a third of the variance of long-term returns on the stock market since 1881.

The CAPE ratio is 35.0 today, much lower than its highest level, 45.8, which was reached on March 24, 2000, at the peak of the millennium stock market boom. The market fell sharply soon after, and the CAPE has climbed much of the way back, reaching a cyclical high of 35.7 on Feb. 12. Its current range is the second highest since our data began in 1881.

Unequivocally, the market is expensive compared with past eras. This high pricing of stocks today is peculiar to the U.S. market, which has the highest CAPE ratio of 26 major countries, according to calculations by Barclays Bank. This disparity has been sustained despite the blows of the pandemic of 2020, and the civil unrest and occupation of the U.S. Capitol on Jan. 6.

Laurence Black at the Index Standard and Farouk Jivraj at Imperial College London and I came up with another measure. We call it the Excess CAPE Yield, or E.C.Y.

Put simply, the E.C.Y. tells us the premium an investor might expect by investing in equities over bonds. It is defined as the difference between the reciprocal (or the inverse) of CAPE — that is, 10-year average annual real earnings divided by real price — and the real long-term interest rate.

Right now the E.C.Y. is 3.15 percent. That is roughly its average for the last 20 years. It is relatively high, and it predicts that stocks will outperform bonds. Current interest rates for bonds make that a very low hurdle.

Consider that when you factor in inflation, the 10-year Treasury note, yielding around 1.4 percent, will most likely pay back less in real dollars at maturity than your original investment. Stocks may not have the usual high long-run expectations (the CAPE tells us that), but at least there is a positive long-run expected return.

Putting all of this together, I’d say the stock market is high but still in some ways more attractive than the bond market.

For those overexposed to equity risk, selling some stocks now in favor of bonds might be worthwhile. Treasuries, for example, are highly likely to retain their nominal value. In a time of stable inflation, they are generally safer than stocks.

But for most people, a well-diversified portfolio containing both stocks and bonds is generally a good idea. Moreover, stocks may be more attractive than bonds, because if the economy revives, fear of inflation may as well. That could help stocks fly higher and lead to poor performance for bonds.

The markets may well be dangerously high right now, and I wish my measurements provided clearer guidance, but they don’t. We can’t accurately forecast the moment-by-moment movements of birds, and the stock and bond markets are, unfortunately, much the same.

Robert J. Shiller is Sterling professor of economics at Yale. He is a consultant for Barclays Bank.

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