Research.LeutholdGroup

While our market disciplines remain negative, we certainly aren’t oblivious to the haircut in equity valuations that’s already occurred.

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In September the popular claim was that “interest rates were rising for the right reasons,” and still too low to threaten stocks or U.S. economic expansion.

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Our tactical accounts remain positioned very defensively, and we have yet to see the sort of capitulative market action that would lead us to lift any existing equity hedges.

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The longevity of this bull market is impacting tactical asset allocators in ways great and small.

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In late January we speculated how long it would take for the S&P 500’s bloated valuations to reach more reasonable levels. The S&P 500 now trades back where it was in January and the seven-month break included some of the best growth rates most have ever seen. We found ourselves asking: Did chubby Mr. Market shed any pounds as he pedaled away on his stationary bike?

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The S&P 500 has fully erased its January and February losses, but there’s probably a market message in the fact that it took so long to do so.

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The S&P 500 finally erased the losses from its nine-day swoon in January and February.

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How do today’s cyclical conditions stack up with those accompanying other stock market declines? 

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A few clients pointed out that the longest-ever recovery from an intermediate correction (Apr. 1994–Feb. 1995) became the base from which the S&P 500 would eventually triple over the next five years. We’re not equipped to address that possibility in an objective fashion, so we’ll let you be the judge.

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For the last year, we have labeled the S&P 500 Price/Sales ratio—which has returned to its Y2K bubble levels—the “scariest chart in our database” (Chart 1). Recall that the initial visit to present levels was followed by the S&P 500’s first-ever negative total return decade.

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Yesterday was the six-month anniversary of the S&P 500 bull market high, and the index celebrated the event by nearly setting a new peak. Meanwhile, the S&P 500 Total Return Index did make a new high on Wednesday.

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Market behavior is always nebulous enough to generate diverging opinions, but lately it’s been sufficiently strange to give rise to a diverging set of facts.

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Annual Producer Price Inflation rose to 4.0% in May, a key threshold above which the S&P 500 has historically delivered essentially flat returns. But the fact that this reading occurs against a backdrop of full employment is cause for even more concern. Context is key...

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Old age has certainly put no limitations on the bull’s exploits, so we should be cautious in reading too much into its meandering recovery path. However, it’s possible that action since the February low is not a recovery process but rather a countertrend bounce within a larger downtrend.

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Tomorrow is the Minnesota season-opener for muskies, but the fanatics who chase them are likely disappointed that it comes a few days after an event that’s known to trigger these beasts: the full moon. The screenshot is from our $9.95 “iSolunar” iPhone app, and shows that Saturday merits only a “three fish” day (out of a possible “four fish”)—based on the moon’s fading illumination. 

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The first quarter S&P 500 earnings “beat” rate stands to be the highest in history, as any CEO with a pulse has learned to lower the hurdle.

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2018’s S&P 500 setback qualifies as an “intermediate” correction. Historically, the duration of intermediate corrections is brief, and recovery time to move back above prior highs has also been brief. This year’s retracement route is already among the most meandering of all recovery paths since 1950.

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In difficult markets, we have become more appreciative of some of life’s small gifts. For example, it’s been quite a while since we’ve heard it argued that this is “the most hated bull market of all time.”

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Fourth quarter earnings were the last ones to be burdened by a 35% top marginal corporate income tax rate, and therefore seem to have been given a pass by the analyst community.

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While the January 26th bull market high illustrated none of the hallmarks of a major cyclical top, there are secondary signs that a stealthy distribution process may be underway, such as an overwhelming bias toward opening market strength followed by intraday weakness.

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The prospect of a mid-term congressional shake-up may rattle the markets in 2018. Since 1962, nine major bear market lows occurred during mid-term election years, with eight of those happening during the traditionally weak months of May through October.

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We somehow missed this signal in January, perhaps because we were pre-occupied with so many other signs of “climate change.”

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At the risk of yelling “fire” in a crowded theater, we present a few parallels between recent action and the year leading up to the October 1987 crash.

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Things were bigger when you were a kid. Like that enormous sweatshirt your aunt gave you for your birthday or that hand-me-down ten-speed bike with the cross bar taller than your shoulders.

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The remarkable stock market breadth and momentum chronicled in these pages doesn’t come without a price.

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During the first four trading days of 2018, the S&P 500 managed to match its 93-year average annual real price gain of +2.6%.

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We observed in July that at an age when most bull markets are prepared to see the mortician, this one still seems to need a pediatrician. And five months later, the bull is acting as immature as ever!

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The stock market has disregarded any and all caution flags throughout 2017, and the consensus is that it will continue do so through year-end.

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Years ago, Monty Python’s classic comedy sketch introduced us to the Department of Redundancy Department.

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The Equal Weighted S&P 500 now trails the S&P 500 by 400 basis points YTD, and the rally is increasingly assailed as too narrow.

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Stock market bears had a field day when the latest Investors Intelligence sentiment survey (Chart 1) saw the percentage of bullish newsletter writers spike to its “highest level since 1987.”

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Bobby Knight thought coaching would be perfect “if it weren’t for those damned games.”

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While this year’s rally has been a broad, “equal opportunity” affair, some of the weakest relative action we’ve observed has—oddly enough—been among equal-weighted stock market indexes. Equal-weighted indexes for Large, Mid, and Small Caps are all trailing their cap-weighted counterparts year-to-date, and the gap for the S&P 500 is now almost 400 basis points after an especially bad October.

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While the bull possesses a seemingly endless supply of energy, the Leuthold database still houses a supply of measures by which the bull market has fallen short.

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The stock market is often maligned as a poor economic forecaster, and it’s true the market has predicted several more recessions than have actually occurred.

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Before the markets punish an irresponsible act, they must first reward it.

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We just completed a simple study for those market bulls who might find themselves temporarily lacking in confidence (assuming such an animal isn’t extinct by now).

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The end of August means the second quarter earnings season is almost in the books.

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In April 1964, the Beatles simultaneously held the top-five spots on the Billboard Hot 100, a unique feat in the history of modern music.

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Does the stock market’s first half performance tell us anything about its likely path in the second half? Not on the face of it.

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