However, these 5% worst ranked stocks are outperforming when the LEI is rising & below 0. This means an investor shorting these 5% worst ranked stocks might lose money in the early innings of a new business cycle. As the expansion becomes more mature when the LEI is rising & above 0, these 5% worst ranked stocks more or less market perform vs. the benchmark.
Russell 1000 Bombs
The Russell 3000 universe is a good benchmark of the entire U.S. stock market but does the ranking system work even with large companies? For the 1999-2017 period, the worst 5% ranked stocks in the Russell 1000 made -9.5% of annualized return. The losses are not as huge because large caps have higher odds of refinancing, restructuring, surviving a legal battle, etc.