As we go to press (said no one in the digital age, ever!), the S&P 500 was moving to within a couple percentage points of its February 19th all-time high. Given still-high valuations for the blue chips and increasingly frothy sentiment, we think any break above that high will be underwhelming, if not a potentially historic “trap.”
While the consensus view remains that October’s stock market rout was “healthy” and “overdue,” we think it was more likely the first leg down of much larger decline. But it’s still worth reviewing the improvement in valuations that market losses and this year’s excellent fundamentals have combined to produce.
We think the odds are better than even that the September 20th S&P 500 high will stand as the stock market high for 2018, and perhaps also as the high for a historic event begun back in 2009. We’re well-prepared for that possibility, with the Leuthold Core now positioned today with net equity exposure of just 37%.
Last month we wrote that a big March gain would trigger a Very Long Term (VLT) Momentum BUY signal on the S&P 500 (Chart). The month’s 6.8% S&P 500 gain wasn’t quite enough to do the trick, but we’re intrigued that VLT did issue BUY signals for three of the market’s cyclical sectors, including Energy, Materials, and Industrials.
If our market disciplines turn bullish in the weeks ahead, we’ll certainly follow that lead—covering remaining shorts, re-establishing a semi-aggressive market position, and wiping egg off our faces for having called a “cyclical bear market” that slammed the Russell 2000 (-26%), EAFE (-26%), and Emerging Markets (-37%)… but somehow not the one most followed, the S&P 500 (-14%).
This bull market has appeared to be on shaky technical ground before, only for concerns to be swept aside. This time, we think it’s different.
We’ve lived through many other low-volatility market rallies, but until the last couple of months we hadn’t experienced one in which clients, colleagues, and commentators were complaining so loudly of boredom.
The stock market staged a two-day bearish reversal beginning a few hours after the release of the March employment report, a decline that could —based on the bearish status of a single MTI category (Attitudinal)—carry further before it is finished. But with the S&P 500 (and many other U.S. equity indexes) recording a bull market high as recently as April 2, it’s too early to argue the market top is “in.”
Notwithstanding the opening days of June, U.S. stocks have shown remarkable strength considering the bull is now well into its fifth year.