Research.LeutholdGroup

For more than a year, we’ve characterized the U.S. economy and policymakers’ decisions as increasingly late-cycle in nature, but that probably doesn’t do justice to the U-turn in the investment backdrop.

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Many investors will instinctively salivate at lower prices, whether or not they represent good value. Is there a better way to temper this Pavlovian impulse and improve results? We found it’s better to wait 25 days before re-entering the market after a 10%-correction threshold is breached.

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Massive gains in stock market wealth have undoubtedly been a contributor to inflation, yet few analyses of the inflation picture even mention the stock market—other than to predict it will soar when inflation proves transitory.

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The calendar would say the U.S. economic recovery and bull market are very young, yet there’s an astounding array of “late-cycle” activity occurring on both Main Street and Wall Street. In the manufacturing economy, bottlenecks have reached levels that have historically been troublesome for stocks.

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In the immortal words of Lloyd Bridges, “Looks like I picked the wrong week to quit drinking.” Let’s put aside this week’s market turmoil and concentrate for a moment on... “concentration.” Market concentration, that is. Close your eyes and think back to those carefree days of mid-February.

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The consensus among market pundits is that a U.S. recession will be averted and, as a consequence, domestic stocks remain the best game in town.

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The Russell 2000 is the most important major index on the cusp of a new BUY signal. Our best guess is that Small Caps will still trend lower for now, creating a buying opportunity in the months ahead.

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One of the more impressive feats that bullish pundits have pulled off is their successful portrayal of themselves as lonely and misunderstand contrarians even as the eleventh year of a cyclical bull market grinds on.

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Small Caps typically underperform during a bull market’s final phase, and our findings with respect to the Output Gap aid our understanding of that phenomenon.

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The U.S. economy and blue chips have shrugged off the risk of the worst trade war since 1930’s Smoot-Hawley Act, while comparatively few stocks on either the NASDAQ or the NYSE have broken out to 52-week highs. There’s also the troubling talk of the Fed having tamed “the cycle.” Should investors bet on a potentially wild (but narrower) final melt-up over the next 6-12 months? We don’t like the odds.

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We’ve done extensive work on the yield curve, but until now had entirely overlooked an employment-based recession indicator that’s lately come into focus.

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Conventional measures of market action, like breadth and industry leadership, point to the formation of a bull market top. Divergences abound.

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